AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 22, 1994
REGISTRATION NO. 33-53727
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
JEFFERSON BANKSHARES, INC.
123 EAST MAIN STREET
POST OFFICE BOX 711
CHARLOTTESVILLE, VIRGINIA 22902
TELEPHONE (804) 972-1100
ROBERT E. STROUD, ESQ.
418 EAST JEFFERSON STREET
POST OFFICE BOX 1288
CHARLOTTESVILLE, VIRGINIA 22902
(804) 977-2500
(AGENT FOR SERVICE OF PROCESS)
<PAGE>
JEFFERSON BANKSHARES, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501 OF REGULATION S-K
ITEM NUMBER HEADING IN PROSPECTUS
A. INFORMATION ABOUT THE TRANSACTION
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<S> <C> <C>
1. Forepart of Registration Statement and Facing page; Cross Reference Sheet; Outside
Outside Front Cover Page of Front Cover page of Prospectus
Prospectus
2. Inside Front and Outside Back Cover Available Information; Table of Contents
Pages of Prospectus
3. Risk Factors; Ratio of Earnings to Proxy Statement-Prospectus Introduction;
Fixed Charges and Other Information Summary of Proxy Statement-Prospectus;
Summary Financial Data; Comparative Per
Share Data
4. Terms of the Transaction The Proposed Merger; Jefferson Bankshares
Common Stock and Comparison with BOL
Common Stock
5. Pro Forma Financial Information Pro Forma Financial Information
6. Material Contacts with the Company The Proposed Merger--Reasons for the
Being Acquired Merger
7. Additional Information Required for *
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Legal Opinion; Experts
Counsel
9. Disclosure of Commission Position on Indemnification
Indemnification For Securities Act
Liabilities
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 *
Registrants
11. Incorporation of Certain Information *
by Reference
<PAGE>
CROSS REFERENCE SHEET, CONTINUED
ITEM NUMBER HEADING IN PROSPECTUS
12. Information with Respect to S-2 or S-3 Incorporation of Certain
Registrants Documents by Reference
13. Incorporation of Certain Information Incorporation of Certain
by Reference Documents by Reference
14. Information with Respect to *
Registrants Other than S-3 or S-2
Registrants
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect to S-3 *
Companies
16. Information with Respect to S-2 or S-3 *
Companies
17. Information with Respect to Summary Financial Data; Market Price;
Companies Other than S-3 or S-2 Information About BOL; Management's
Companies Discussion and Analysis of Financial
Condition and Results of Operations of BOL;
Financial Statements
D. VOTING AND MANAGEMENT
INFORMATION
18. Information if Proxies, Consents or Proxy Statement, Introduction; Summary of
Authorizations are to be Solicited Merger; Incorporation of Certain Documents
by Reference; Information about BOL;
Experts
19. Information if Proxies, Consents or *
Authorizations are not to be Solicited
or in an Exchange Offer
* Not applicable
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<PAGE>
PROXY STATEMENT OF
BANK OF LOUDOUN
30 Catoctin Circle
Leesburg, Virginia 22075
(703) 777-5353
FOR THE SPECIAL MEETING OF SHAREHOLDERS OF
BANK OF LOUDOUN TO BE HELD ON
JULY 28, 1994
PROSPECTUS FOR AN OFFERING OF UP TO 540,700 SHARES OF
COMMON STOCK OF JEFFERSON BANKSHARES, INC. IN CONNECTION
WITH THE MERGER OF THE BANK OF LOUDOUN INTO
JEFFERSON NATIONAL BANK, A WHOLLY-OWNED SUBSIDIARY
OF JEFFERSON BANKSHARES, INC.
This Proxy Statement-Prospectus is furnished to the holders of shares of
common stock of Bank of Loudoun ("BOL"), a Virginia corporation, ("BOL
Shareholders") in connection with the solicitation of proxies by the Board
of Directors of BOL for use at the Special Meeting of Shareholders
of BOL to be held on July 28, 1994 at 7:00 p.m. at Carrodoc Hall at the Ramada
Inn, 15 East Market Street, Route 7, Leesburg, Virginia (the "Special Meeting")
and at any adjournment thereof. This Proxy Statement-Prospectus also constitutes
a prospectus of Jefferson Bankshares, Inc., a Virginia corporation
("Jefferson Bankshares") relating to a maximum of 540,700 shares of Common
Stock, par value $2.50 per share, of Jefferson Bankshares ("Jefferson
Bankshares Common Stock") to be issued to BOL Shareholders pursuant to the
terms of the Agreement and Plan of Merger, dated April 4, 1994 (the "Merger
Agreement"), described in this Proxy Statement. Under the terms of the Merger
Agreement, BOL will be merged with and into Jefferson National Bank, a
national banking association ("JNB"), a wholly-owned subsidiary of
Jefferson Bankshares (the
(CONTINUED ON NEXT PAGE)
THE SHARES OF JEFFERSON BANKSHARES, INC. TO BE ISSUED IN CONNECTION WITH THE
MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The information contained in this Proxy Statement-Prospectus with
respect to BOL and its affiliates has been furnished by BOL and the
information contained herein with respect to Jefferson Bankshares, its
subsidiaries and affiliates has been furnished by Jefferson Bankshares.
The date of this Proxy Statement-Prospectus is June 23, 1994.
<PAGE>
"Merger"). Each outstanding share of BOL Common Stock, par value $5.00 per
share ("BOL Common Stock") will be converted into the right to receive, in
accordance with the terms of the Merger Agreement, shares of Jefferson
Bankshares Common Stock. After the consummation of the Merger, JNB will
continue to exist as a wholly-owned subsidiary of Jefferson Bankshares.
This Proxy Statement-Prospectus is first being mailed to BOL Shareholders
on or about June 27, 1994 in connection with the solicitation of proxies for
the Special Meeting.
No person has been authorized to give any information or to make any
representations not contained in this Proxy Statement-Prospectus in connection
with these matters, and, if given or made, such information or representation
should not be relied upon as having been authorized by Jefferson Bankshares or
BOL. This Proxy Statement-Prospectus does not constitute an offer
to sell or a solicitation of an offer to purchase, any securities other than
the registered securities to be issued in connection with the Merger or an
offer to sell or a solicitation of an offer to purchase such securities in any
jurisdiction to any person to whom such an offer or solicitation would be
unlawful. Neither the delivery of this Proxy Statement-Prospectus nor any
distribution of the securities to which this Proxy Statement-Prospectus relates
shall, under any circumstances, create an implication that there has been no
change in the affairs of Jefferson Bankshares or BOL or the information
contained herein since the date hereof.
<PAGE>
AVAILABLE INFORMATION
Jefferson Bankshares has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (the
"Registration Statement") (of which this Proxy Statement-Prospectus forms a
part) under the Securities Act of 1933, as amended (the "1933 Act"), with
respect to the shares of Jefferson Bankshares Common Stock to be issued in
connection with the transactions described herein. As permitted by the rules
and regulations of the Commission, this Proxy Statement-Prospectus omits
certain information, exhibits and undertakings contained in the Registration
Statement. For further information, reference is made to the Registration
Statement, including all amendments to the Registration Statement, and all the
exhibits and schedules filed as part of the Registration Statement. Statements
contained herein concerning provisions of documents are necessary summaries of
the documents and each statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Commission. The
Registration Statement can be inspected and copied at prescribed rates
at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661, and 75 Park Place, New York, New
York 10007.
Jefferson Bankshares is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and, in
accordance therewith, files reports, proxy statements and other
information with the Commission. Copies of such materials may be obtained at
prescribed rates from the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
A copy of Jefferson Bankshares' 1993 Annual Report to Shareholders (the
"1993 Annual Report") and a copy of its Quarterly Report to Shareholders for the
quarter ended March 31, 1994 (the "Quarterly Report") accompany this Proxy
Statement-Prospectus.
The following documents filed by Jefferson Bankshares with the Commission
under the 1934 Act (Commission File No. 0-9101) are incorporated in this Proxy
Statement-Prospectus by reference as of their respective dates of filing and
shall be deemed a part hereof:
(1) Jefferson Bankshares' Annual Report on Form 10-K for the
fiscal year ended December 31, 1993;
(2) Jefferson Bankshares' Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1994; and
(3) Jefferson Bankshares' Report on Form 10-C dated April 7, 1994.
i
<PAGE>
The following portions of the 1993 Annual Report and the Quarterly Report
are incorporated in this Proxy Statement-Prospectus by reference:
(1) The information appearing under the heading "Business of Jefferson
Bankshares" on page 4 of the 1993 Annual Report; and the information on
pages 7 through 10 of the 1993 Annual Report as to the distribution of
Jefferson Bankshares' assets, liabilities and shareholder's equity, on
pages 15 and 16 of the 1993 Annual Report as to Jefferson Bankshares'
investment portfolio, on pages 12 through 15 of the 1993 Annual Report
as to Jefferson Bankshares' loan loss experience, on pages 11 through 15
of the 1993 Annual Report as to Jefferson Bankshares' loan portfolio, on
pages 16 and 17 of the 1993 Annual Report as to Jefferson Bankshares'
deposits, on page 19 of the 1993 Annual Report as to Jefferson
Bankshares' return on equity and assets, and on page 17 of the 1993
Annual Report as to Jefferson Bankshares' short-term borrowings;
(2) With respect to the market price of and dividends on Jefferson
Bankshares' common equity and related shareholder matters, the
information on page 18 of the 1993 Annual Report under the heading
"Capital Resources" and in the table captioned "Common Stock Performance
and Dividends" on page 19 of the 1993 Annual Report; and the discussion
of restrictions on the payment of cash dividends in Note 8 (Long Term
Debt) to the financial statements in the 1993 Annual Report;
(3) With respect to selected financial data, the information in the table
captioned "Selected Financial Data" on page 5 of the 1993 Annual Report;
(4) With respect to supplementary financial information, the information in
the table captioned "Summary of Financial Results by Quarter" on page 6
of the 1993 Annual Report;
(5) With respect to management's discussion and analysis of financial
condition and results of operations, the information appearing under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 5 through 20 of the 1993 Annual Report,
except for the information in the tables captioned "Selected Financial
Data," "Summary of Financial Results by Quarter," and "Common Stock
Performance and Dividends" on pages 5, 6 and 19, respectively, of the
1993 Annual Report; and
(6) The information appearing under the heading "Financial Review" on pages
2 through 5 of the Quarterly Report and the information appearing in the
Consolidated Balance Sheets, Consolidated Statements of Income,
Consolidated Statements of Cash Flows, Consolidated Statements of
Changes in Shareholders' Equity and related notes on pages 6 through 12
of the Quarterly Report.
ii
<PAGE>
All documents filed by Jefferson Bankshares pursuant to Sections 13(a),
13(c), 14 or 15(d) of the 1934 Act after the date of this Proxy Statement-
Prospectus and prior to the Special Meeting shall be deemed to be incorporated
by reference in this Proxy Statement-Prospectus and to be a part hereof from
the date of filing of such documents. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be modified or superseded for purposes of this Proxy Statement-Prospectus to
the extent that a statement contained herein or in any subsequently filed
document, which is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement-Prospectus.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS, OTHER THAN
CERTAIN EXHIBITS THERETO, ARE AVAILABLE UPON REQUEST FROM JEFFERSON BANKSHARES,
INC., 123 EAST MAIN STREET, P. O. BOX 711, CHARLOTTESVILLE, VIRGINIA 22902,
ATTENTION: DONALD W. FULTON, JR., VICE PRESIDENT--INVESTOR RELATIONS
(TELEPHONE: (804) 972-1115). IN ORDER TO INSURE TIMELY DELIVERY OF
THE DOCUMENTS, REQUESTS SHOULD BE MADE BY JULY 10, 1994.
iii
<PAGE>
PROXY STATEMENT-PROSPECTUS
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
AVAILABLE INFORMATION....................................... i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. i
SUMMARY OF PROXY STATEMENT-PROSPECTUS....................... 1
The Companies................................. 1
The Special Meeting........................... 1
The Proposed Merger........................... 3
Market Prices................................. 6
SUMMARY FINANCIAL DATA...................................... 7
COMPARATIVE PER SHARE DATA.................................. 10
THE PROPOSED MERGER......................................... 11
General....................................... 11
Background and Reasons for the Merger......... 11
Effect of the Merger Upon Operations.......... 12
Conversion Ratio.............................. 12
Effective Date of the Merger.................. 13
Outstanding Stock Options..................... 13
Opinion of Financial Advisor.................. 14
Employment of Kenneth L. Crovo................ 15
Exchange of Certificates...................... 15
OCC Approval Process.......................... 17
Appraisal Rights.............................. 18
Certain Federal Income Tax Consequences....... 19
Conditions to the Merger...................... 21
Termination or Amendment of the Merger
Agreement..................................... 22
Expenses Related to the Merger................ 22
Option Agreement.............................. 22
Restrictions on Sale of Jefferson Bankshares
Common Stock After the Merger................. 23
Accounting Treatment.......................... 24
PRO FORMA FINANCIAL INFORMATION............................. 25
JEFFERSON BANKSHARES COMMON STOCK AND
COMPARISON WITH BOL COMMON STOCK.......................... 29
Jefferson Bankshares Common Stock............. 29
Comparison with BOL Common Stock.............. 29
</TABLE>
iv
<PAGE>
INFORMATION ABOUT BOL....................................... 30
Business...................................... 30
Beneficial Ownership of BOL Common Stock...... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BOL........ 33
Results of Operations......................... 33
Impact of Inflation........................... 36
LEGAL OPINION............................................... 36
EXPERTS..................................................... 36
INDEMNIFICATION............................................. 37
SHAREHOLDER PROPOSALS....................................... 37
OTHER MATTERS............................................... 37
FINANCIAL STATEMENTS OF BANK OF LOUDOUN AS OF DECEMBER
31, 1993 AND 1992 AND FOR EACH OF THE THREE YEARS ENDED
DECEMBER 31, 1993........................................... F-1
FINANCIAL STATEMENTS OF BANK OF LOUDOUN FOR THE THREE MONTHS
ENDED MARCH 31, 1994 AND 1993 (UNAUDITED)................... F-18
v
<PAGE>
SUMMARY OF PROXY STATEMENT-PROSPECTUS
Certain significant matters discussed in this Proxy Statement-
Prospectus are summarized below. This summary is not intended to be
complete and is qualified in all respects by reference to the detailed
information appearing elsewhere in this Proxy Statement-Prospectus
(including the Appendices and other documents to which this Proxy Statement-
Prospectus refers).
THE COMPANIES
BOL
BOL is a commercial bank organized under the laws of Virginia with its
executive offices at 30 Catoctin Circle, Leesburg, Virginia. The mailing
address for such offices is Post Office Box 2627, Leesburg, Virginia 22075.
BOL's telephone number is (703) 777-5353.
JEFFERSON BANKSHARES
Jefferson Bankshares is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended, and organized under the laws of
Virginia. Jefferson Bankshares' income is derived principally from a wide
variety of commercial banking and trust services provided to individuals,
businesses and governmental entities located primarily in Jefferson Bankshares'
trade area in Virginia. Jefferson Bankshares' executive offices are located at
123 East Main Street, Charlottesville, Virginia. The mailing address for such
offices is Post Office Box 711, Charlottesville, Virginia 22902. Jefferson
Bankshares' telephone number is (804) 972-1100.
JNB
JNB is Jefferson Bankshares' principal subsidiary. JNB is a national
banking association which conducts a banking and trust business. As of March
31, 1994, JNB operated 97 offices and 45 automated teller machines. JNB's
address for its executive offices, mailing address and telephone number are the
same as those for Jefferson Bankshares.
THE SPECIAL MEETING
The Special Meeting is scheduled to be held at the Ramada Inn, 15 East
Market Street, Route 7, Leesburg, Virginia on July 28, 1994, at 7:00 p.m.,
local time. The purpose of the Special Meeting is to consider and vote upon a
proposal to approve and adopt the Merger Agreement providing for the merger of
BOL with and into JNB.
The Board of Directors of BOL knows of no other business that will be
presented for consideration at the Special Meeting other than the matters
described in this Proxy Statement-Prospectus.
1
<PAGE>
All properly executed proxy cards delivered pursuant to this solicitation
and not revoked will be voted at the Special Meeting in accordance with the
directions given. IF NO SPECIAL INSTRUCTIONS ARE GIVEN WITH REGARD TO THE
MATTERS TO BE VOTED UPON, THE SHARES OF BOL COMMON STOCK REPRESENTED BY A SIGNED
PROXY CARD WILL BE VOTED "FOR" THE PROPOSAL LISTED ON THE PROXY CARD. IF ANY
OTHER MATTERS PROPERLY COME BEFORE THE SPECIAL MEETING, THE PERSONS NAMED AS
PROXIES WILL VOTE UPON SUCH MATTERS ACCORDING TO THEIR JUDGMENT.
Proxies may be revoked at any time before the Special Meeting by written
notice to the Secretary of BOL, by submission of a duly executed proxy bearing a
later date or by attending the Special Meeting and voting in person. All
written notices of revocation and other communications with respect to
revocation of proxies should be addressed as follows: Bank of Loudoun, Post
Office Box 2627, Leesburg, Virginia 22075, Attention: John E. Skilton,
Secretary.
HOLDERS OF BOL COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO BOL IN THE ACCOMPANYING POSTAGE-
PAID ENVELOPE.
Solicitations may be made by mail, telephone, telegram or personally by
directors, officers and regular employees of BOL, none of whom will receive
additional compensation for performing such services. BOL will bear the expense
of solicitation of proxies for the Special Meeting and will reimburse banks,
brokers and nominees for their out-of-pocket expenses in sending materials to
the beneficial owners of shares of BOL Common Stock held by them.
Only holders of record of BOL Common Stock at the close of business on June
14, 1994 (the "Record Date") are entitled to notice of and to vote at the
Special Meeting. As of May 1, 1994, there were 501,596 shares of BOL Common
Stock outstanding and entitled to vote, held of record by approximately 366
shareholders, with each share entitled to one vote. As of May 1, 1994,
approximately 119,730 of the outstanding shares of BOL Common Stock were
beneficially owned by directors and executive officers of BOL and their
affiliates. See "Information about BOL--Beneficial Ownership of BOL Common
Stock."
The presence, in person or by proxy, of a majority of the outstanding
shares of BOL Common Stock is necessary to constitute a quorum at the Special
Meeting. The affirmative vote of the holders of more than 66-2/3% of the shares
of BOL Common Stock issued, outstanding and entitled to vote (whether or not
represented in person or by proxy at the Special Meeting) is required to approve
the Merger Agreement. BOL believes that substantially all of the 119,730 shares
held by directors and executive officers of BOL, constituting approximately
23.9% of the outstanding BOL Common Stock, will be voted in favor of the Merger.
If all such shares are voted as anticipated, the affirmative vote of the
holders of a minimum of 214,668 additional shares, constituting approximately
42.8% of the outstanding BOL Common Stock, will be required to assure approval
of the Merger Agreement.
2
<PAGE>
THE PROPOSED MERGER
GENERAL
Under the terms of the Merger Agreement, BOL will be merged with and into
JNB. As the surviving corporation, JNB will remain a wholly-owned subsidiary of
Jefferson Bankshares.
The Shares of Jefferson Bankshares Common Stock currently outstanding will
remain outstanding shares of Jefferson Bankshares Common Stock. Shares of BOL
Common Stock will be converted into the right to receive shares of Jefferson
Bankshares Common Stock in accordance with the terms of the Merger Agreement.
Certificates representing shares of Jefferson Bankshares Common Stock received
as a result of the Merger will be issued after consummation of the Merger and,
in accordance with the Merger Agreement, upon surrender of certificates
representing shares of BOL Common Stock.
Consummation of the Merger is subject to approval of shareholders and of
regulatory authorities and to the satisfaction of certain conditions. See "The
Proposed Merger - OCC Approval Process; Opinion of Financial Advisor; Conditions
to the Merger." It is expected that all conditions can be satisfied and
approvals received by September 30, 1994. See "The Proposed Merger--Effective
Date of the Merger."
Upon consummation of the Merger, the office of BOL will become an office of
JNB.
CONVERSION RATIO
Pursuant to the Merger Agreement, each outstanding share of BOL Common
Stock will be converted into the right to receive one share of Jefferson
Bankshares Common Stock. In addition, each outstanding stock option of BOL will
be converted into an option to acquire shares of Jefferson Bankshares Common
Stock. See "The Proposed Merger -- Conversion Ratio" and "The Proposed
Merger -- Outstanding Stock Options."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of BOL approved the Merger and believes that the
Merger is in the best interest of BOL and its shareholders. It recommends that
its shareholders vote in favor of the Merger. See "The Proposed Merger--
Background and Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR
The Board of Directors of BOL has received an opinion from McKinnon &
Company, Inc., its financial advisor, to the effect that the financial terms of
the proposed transaction are fair, from a financial point of view, to the BOL
Shareholders. The text of the opinion of McKinnon & Company, Inc., is attached
as Appendix B hereto. See "The Proposed Merger--Opinion of Financial
Advisor."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The consummation of the Merger is subject to the receipt by BOL and
Jefferson Bankshares of an opinion of counsel, based on the representations and
assumptions set forth therein, to the effect that the Merger will qualify as a
"reorganization" as that term is defined in Section 368 of the
3
<PAGE>
Internal Revenue Code of 1986; that no taxable gain or loss will be recognized
by the parties to the Merger Agreement upon consummation of the Merger; that
no taxable gain or loss will be recognized by BOL Shareholders on the exchange
of BOL Common Stock for Jefferson Bankshares Common Stock; and that the basis
of such BOL Common Stock will include the holding period of the BOL Common
Stock surrendered in exchange therefor, if such BOL Common Stock is a capital
asset in the hands of the BOL Shareholder at the Effective Date. A BOL
Shareholder who dissents from the Merger and receives cash in lieu of shares
of Jefferson Bankshares Common Stock in the Merger will ordinarily recognize a
taxable gain or loss equal to the difference between the amount of cash
received and the BOL Shareholder's adjusted tax basis in the shares exchanged
therefor. See "The Proposed Merger--Certain Federal Income Tax Consequences."
THE OPTION
As a condition of Jefferson Bankshares' entering into the Merger Agreement,
and in consideration therefor, Jefferson Bankshares and BOL entered into an
Option Agreement dated as of April 4, 1994 (the "Option Agreement"). The Option
Agreement is intended to increase the likelihood that the Merger will be
consummated by making it more difficult and more expensive for another party to
obtain control of or acquire BOL. Under the terms of the Option Agreement, BOL
has granted Jefferson Bankshares an option (the "Option") to purchase up to
100,000 shares of BOL Common Stock at a price of $14 per share. Jefferson
Bankshares may exercise the Option only upon the occurrence of certain events
(none of which has occurred) and upon obtaining any regulatory approvals
necessary for the acquisition of the shares of BOL Common Stock subject to the
Option. The Option Agreement provides that the Option will terminate upon the
termination of the Merger Agreement in accordance with the provisions thereof.
See "The Proposed Merger--The Option."
APPRAISAL RIGHTS
Under federal banking law (12 U.S.C. (section mark)215a(b) through (d)),
any BOL Shareholder may receive payment for stock if the shareholder perfects
appraisal rights. To perfect such rights, a BOL Shareholder must either vote
against the Merger at the Special Meeting or give written notice to BOL, either
before or at the Special Meeting, that such BOL Shareholder dissents from the
Merger. Within 30 days after consummation of the Merger, such BOL Shareholder
must also send to JNB a written request to receive the value of such BOL
Shareholder's shares and at the same time surrender certificates for shares of
BOL Common Stock to JNB. If a BOL Shareholder dissents from the Merger, the
amount such BOL Shareholder will receive for his BOL Common Stock will be
determined by an appraisal. The amount paid will not necessarily be the value
of the Jefferson Bankshares Common Stock such BOL Shareholder would have
otherwise received. See "The Proposed Merger--Appraisal Rights."
4
<PAGE>
RESTRICTIONS ON SALE OF JEFFERSON BANKSHARES COMMON STOCK AFTER THE MERGER
The Jefferson Bankshares Common Stock to be issued in the Merger may be
subject to certain restrictions on the resale of such securities. See "The
Proposed Merger--Restrictions on Sale of Jefferson Bankshares Common Stock
After the Merger."
ACCOUNTING TREATMENT
It is a condition to consummation of the Merger that the Merger be
accounted for as a pooling of interests for accounting and financial reporting
purposes. See "The Proposed Merger--Accounting Treatment."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Merger Agreement contains provisions which require Jefferson Bankshares
to (i) expand its Northern Region Board of Directors and to appoint two current
non-employee directors of BOL to that Board, (ii) appoint the remaining non-
employee directors of BOL and all of the non-employee members of BOL's advisory
board to a local advisory board of JNB for Loudoun County, and (iii) to employ
BOL's President and Chief Executive Officer, Kenneth L. Crovo, as a Senior Vice
President of JNB, for a period of three years. Other than as set forth above,
no director or executive officer of Jefferson Bankshares or BOL has any direct
or indirect material interest in the Merger. See "The Proposed Merger--Effect
of the Merger Upon Operations" and "The Proposed Merger--Employment of
Kenneth L. Crovo."
5
<PAGE>
MARKET PRICES
Jefferson Bankshares Common Stock is traded in the over-the-counter market
and is quoted in the National Market System of the National Association of
Securities Dealers Automated Quotation System (NASDAQ) under the symbol "JBNK."
There is no recognized market for BOL Common Stock, although there are
occasional transactions in the stock. BOL's management knows of some
transactions in BOL Common Stock which have occurred during 1992, 1993 and 1994
at prices ranging from $8.00 to $13.50 per share. The following table sets
forth the quarterly high and low closing sale prices for Jefferson Bankshares
Common Stock for the periods indicated as reported by NASDAQ, and equivalent
share values for BOL Common Stock. The prices shown represent actual sales
prices without retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
EQUIVALENT SHARES
BOL COMMON STOCK
JEFFERSON
BANKSHARES 1 FOR 1
COMMON STOCK
PERIOD HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
1992
First Quarter.... $ 13.50 $ 12.38 $ 13.50 $ 12.38
Second Quarter... 15.25 12.00 15.25 12.00
Third Quarter.... 15.00 13.25 15.00 13.25
Fourth Quarter... 17.75 14.13 17.75 14.13
1993
First Quarter.... 21.00 16.63 21.00 16.63
Second Quarter... 21.00 18.00 21.00 18.00
Third Quarter.... 23.00 20.00 23.00 20.00
Fourth Quarter... 21.00 18.75 21.00 18.75
1994
First Quarter.... 22.75 18.50 22.75 18.50
</TABLE>
On January 10, 1994, the business day immediately preceding the public
announcement that Jefferson Bankshares and BOL had agreed in principle with
respect to the proposed Merger, the closing price for Jefferson Bankshares
Common Stock as reported by NASDAQ was $20.00. On May 6, 1994, the closing sale
price for Jefferson Bankshares Common Stock as reported by NASDAQ was $20.50.
BOL Shareholders are advised to obtain current market quotations for
Jefferson Bankshares Common Stock. No assurance can be given concerning the
market price of Jefferson Bankshares Common Stock before or after the Effective
Date. The market price of Jefferson Bankshares Common Stock may fluctuate
between the date of this Proxy Statement-Prospectus and the Effective Date. The
Conversion Ratio is fixed at one-for-one and will not adjust for changes in the
market value of Jefferson Bankshares Common Stock. See "The Proposed Merger--
Conversion Ratio."
6
<PAGE>
SUMMARY FINANCIAL DATA
The following tables set forth certain historical consolidated financial
information for Jefferson Bankshares and subsidiaries and certain historical
financial information for BOL. The Merger will be accounted for as a pooling-
of-interests in accordance with generally accepted accounting principles. For a
description of the pooling-of-interests method of accounting with respect to the
Merger and the related effects on the historical consolidated financial
statements of Jefferson Bankshares and subsidiaries, see "The Proposed Merger--
Accounting Treatment." This information has been derived from the consolidated
financial statements of Jefferson Bankshares and subsidiaries and the financial
statements of BOL appearing elsewhere in or incorporated in this Proxy
Statement-Prospectus and should be read in conjunction therewith. The selected
unaudited pro forma combined financial data included herein is not necessarily
indicative of the results of future operations of the combined entity or the
actual results that would have been achieved had the Merger been consummated
prior to the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED) YEARS ENDED DECEMBER 31,
1994 1993 1993 1992 1991 1990 1989
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
JEFFERSON BANKSHARES:
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income $ 30,024 $ 31,620 $ 125,205 $ 126,053 $ 134,574 $ 138,680 $ 137,171
Interest expense 10,740 11,990 46,442 55,098 73,190 80,015 78,170
Net interest income 19,284 19,630 78,763 70,955 61,384 58,665 59,001
Provision for loan losses 435 375 750 3,600 3,600 2,884 2,313
Net interest income after
provision for loan losses 18,849 19,255 78,013 67,355 57,784 55,781 56,688
Non-interest income 4,183 3,848 16,930 16,165 14,505 13,652 11,684
Non-interest expense 15,467 14,422 59,822 53,502 50,345 48,161 45,080
Income before income taxes 7,565 8,681 35,121 30,018 21,944 21,272 23,292
Provision for income tax
expense 2,516 2,759 11,303 9,078 6,069 6,107 6,377
Net income $ 5,049 $ 5,922 $ 23,818 $ 20,940 $ 15,875 $ 15,165 $ 16,915
PER SHARE DATA(1)
Net income $ 0.35 $ 0.41 $ 1.64 $ 1.54 $ 1.18 $ 1.10 $ 1.22
Dividends declared 0.17 0.15 0.62 0.53 0.50 0.50 0.50
Book value at period-end 13.42
Average number of shares
outstanding 14,600,630 14,502,856 14,559,277 13,573,776 13,422,918 13,762,994 13,874,002
FINANCIAL CONDITION
AVERAGE BALANCES
Total earning assets $ 1,690,084 $ 1,622,190 $ 1,654,644 $ 1,529,741 $ 1,431,110 $ 1,377,005 $ 1,333,197
Total assets 1,843,539 1,771,810 1,808,258 1,672,006 1,572,022 1,520,593 1,472,766
Total deposits 1,618,633 1,564,306 1,594,594 1,485,054 1,389,588 1,333,269 1,293,445
Long-term debt 1,063 1,982 1,632 2,763 4,177 5,590 7,390
Shareholders' equity 194,246 179,256 185,905 157,401 144,383 138,938 130,618
</TABLE>
See accompanying Notes to Summary Financial Data
7
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED) YEARS ENDED DECEMBER 31,
1994 1993 1993 1992 1991 1990 1989
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
BOL:
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income $ 892 $ 823 $ 3,634 $ 3,019 $ 2,683 $ 2,150 $ 1,738
Interest expense 340 336 1,379 1,407 1,388 1,071 777
Net interest income 552 487 2,255 1,612 1,295 1,079 961
Provision for loan losses 40 65 1,161 595 142 41 53
Net interest income after
provision for loan losses 512 422 1,094 1,017 1,153 1,038 908
Non-interest income 100 82 433 490 202 118 63
Non-interest expense 487 428 1,880 1,463 1,293 1,129 924
Income (loss) before income
tax expense 125 76 (353) 44 62 27 47
Provision for income tax
expense (benefit) 43 26 (120) (60) 10 4 7
Net income (loss) $ 82 $ 50 $ (233) $ 104 $ 52 $ 23 $ 40
PER SHARE DATA(2)
Net income (loss) $ 0.16 $ 0.10 $ (0.46) $ 0.21 $ 0.10 $ 0.05 $ 0.08
Dividends declared -- -- -- -- -- -- --
Book value at period-end 9.68
Average number of shares
outstanding 501,596 501,596 501,596 501,596 501,424 500,934 500,650
FINANCIAL CONDITION
AVERAGE BALANCES
Total earning assets $ 51,775 $ 46,316 $48,530 $ 35,281 $ 27,612 $ 20,742 $ 15,157
Total assets 54,703 48,684 51,954 40,559 29,354 22,302 16,737
Total deposits 49,728 43,447 46,086 35,057 24,104 17,149 11,666
Long-term debt -- -- -- -- -- -- --
Shareholders' equity 4,879 5,047 4,901 4,964 4,884 4,842 4,804
</TABLE>
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
See accompanying Notes to Summary Financial Data
8
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED) YEARS ENDED DECEMBER 31,
1994 1993 1993 1992 1991 1990 1989
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA COMBINED:
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income $ 30,916 $ 32,443 $ 128,839 $ 129,072 $ 137,257 $ 140,830 $ 138,909
Interest expense 11,080 12,326 47,821 56,505 74,578 81,086 78,947
Net interest income 19,836 20,117 81,018 72,567 62,679 59,744 59,962
Provision for loan losses 475 440 1,911 4,195 3,742 2,925 2,366
Net interest income after
provision for loan losses 19,361 19,677 79,107 68,372 58,937 56,819 57,596
Non-interest income 4,283 3,930 17,363 16,655 14,707 13,770 11,747
Non-interest expense 15,954 14,850 61,702 54,965 51,638 49,290 46,004
Income before income tax
expense 7,690 8,757 34,768 30,062 22,006 21,299 23,339
Provision for income tax
expense 2,559 2,785 11,183 9,018 6,079 6,111 6,384
Net income $ 5,131 $ 5,972 $ 23,585 $ 21,044 $ 15,927 $ 15,188 $ 16,955
PER SHARE DATA
Net income $ 0.34 $ 0.40 $ 1.57 $ 1.50 $ 1.14 $ 1.06 $ 1.18
Dividends declared 0.16 0.14 0.60 0.51 0.48 0.48 0.48
Book value at period-end 13.29
Average number of shares
outstanding 15,102,226 15,004,452 15,060,873 14,075,372 13,924,342 14,263,928 14,374,652
FINANCIAL CONDITION
AVERAGE BALANCES
Total earning assets $ 1,741,859 $ 1,668,506 $ 1,703,174 $ 1,565,022 1,458,722 $ 1,397,747 $ 1,348,354
Total assets 1,898,242 1,820,494 1,860,212 1,712,565 1,601,376 1,542,895 1,489,503
Total deposits 1,668,361 1,607,753 1,640,680 1,520,111 1,413,692 1,350,418 1,305,111
Long-term debt 1,063 1,982 1,632 2,763 4,177 5,590 7,390
Shareholders' equity 199,125 184,303 190,806 162,365 149,267 143,780 135,422
</TABLE>
NOTES TO SUMMARY FINANCIAL DATA:
(1) On March 23, 1993, Jefferson Bankshares declared a 2-for-1 stock split,
which was distributed to shareholders of record on April 30, 1993. Accordingly,
the average number of shares outstanding and per share amounts for net income,
dividends declared, and book value have been restated for all periods presented
to give effect to the split.
(2) On February 10, 1992, BOL declared a 2-for-1 stock split, which was
distributed to shareholders of record on March 9, 1992. Accordingly, the
average number of shares outstanding and per share amounts for net income (loss)
and book value have been restated for all periods presented to give effect to
the split.
9
<PAGE>
COMPARATIVE PER SHARE DATA
The following tabulation presents historical per share data for Jefferson
Bankshares and BOL, pro forma combined per share data, and equivalent share data
showing the value of one share of BOL Common Stock in the combined corporation.
Such data is based on and should be read in conjunction with the historical
consolidated financial statements for Jefferson Bankshares and subsidiaries,
historical financial statements for BOL and pro forma combined financial data.
The pro forma combined amounts give effect to the exchange of one share of
Jefferson Bankshares Common Stock for each share of BOL Common Stock in
accordance with the pooling-of-interests method of accounting under generally
accepted accounting principles. For a description of the pooling-of-interests
method of accounting with respect to the Merger and the related effects on the
historical consolidated financial statements of Jefferson Bankshares and
subsidiaries, see "The Proposed Merger--Accounting Treatment." The per share
data presented below is not necessarily indicative of the results of future
operations of the combined entity or the actual results that would have been
achieved had the Merger been consummated prior to the dates or period indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED
1994 DECEMBER 31,
(UNAUDITED) 1993
<S> <C> <C>
NET INCOME (LOSS) PER SHARE:
Jefferson--Historical $ 0.35 $ 1.64
BOL--Historical 0.16 (0.46)
Pro Forma Combined (unaudited) 0.34 1.57
CASH DIVIDENDS DECLARED PER SHARE: (1)
Jefferson--Historical $ 0.17 $ 0.62
BOL--Historical -- --
Pro Forma Combined (unaudited) 0.16 0.60
BOOK VALUE PER SHARE AT PERIOD-END:
Jefferson--Historical $ 13.42 $ 13.15
BOL--Historical 9.68 9.54
Pro Forma Combined (unaudited) 13.29 13.03
EQUIVALENT SHARE DATA AT PERIOD-END: (1)(2)
(unaudited)
Net Income Per Share $ 0.34 $ 1.57
Cash Dividends Declared Per Share 0.16 0.60
Book Value Per Share 13.29 13.03
</TABLE>
(1) Pro forma combined dividends declared per share are computed by dividing
the total of the actual dividends declared by Jefferson Bankshares and BOL
during each period by the average number of pro forma shares outstanding during
the respective periods.
(2) The equivalent share data allow comparisons of historical information
about one share of BOL Common Stock to the corresponding data about what one
share of BOL Common Stock will equate to in the combined corporation. The
amounts are computed by multiplying pro forma net income per share, pro forma
cash dividends declared per share, and pro forma book value per share by 1.0,
the number of shares of Jefferson Bankshares Common Stock to be exchanged for
one share of BOL Common Stock.
10
<PAGE>
THE PROPOSED MERGER
GENERAL
Subject to certain terms and conditions, the Merger Agreement provides for
the merger of BOL with and into JNB. The Merger Agreement also provides for the
conversion of shares of BOL Common Stock into the right to receive shares of
Jefferson Bankshares Common Stock. See "The Proposed Merger--Conversion
Ratio." JNB is a national banking association and a wholly-owned subsidiary of
Jefferson Bankshares. JNB, as the surviving corporation in the Merger, will
continue its business (and the business of BOL) as a wholly-owned subsidiary of
Jefferson Bankshares.
The following is a brief description of certain important terms of the
Merger and the Merger Agreement, which is attached hereto as Appendix A and
which is incorporated herein by reference. The information concerning the Merger
Agreement in this Proxy Statement-Prospectus is qualified in its entirety by
reference to the full text of the Merger Agreement.
BACKGROUND AND REASONS FOR THE MERGER
The Merger offers several benefits to BOL and its customers, employees and
shareholders. The financial services industry is constantly increasing in
complexity and competitiveness. The Boards of Directors of BOL and Jefferson
Bankshares believe that the Merger will help in responding to these changes.
Customers of BOL will have access to a much larger banking network with
greater services. These greater services include trust, brokerage, and higher
lending limits. Employees will benefit from having continued stable employment,
an expanded range of career opportunities and an expanded benefit package. BOL
Shareholders will benefit from receiving shares of a publicly traded company
with a regular history of providing dividends. To date, BOL has not paid any
dividends.
The Merger will permit Jefferson Bankshares to strengthen its position in a
rapidly growing area of Virginia presently being served by JNB.
On October 23, 1993, BOL's Board of Directors met at a strategic planning
retreat and considered various proposals for the bank's future, including
proposals to remain as a stand-alone community bank, to affiliate with one or
more other community banks, and to merge BOL with a regional community bank,
statewide bank or another financial institution. It was the consensus of BOL's
Board of Directors that BOL's management actively pursue the possibility of a
merger. Following the meeting, BOL's management discussed the possibility of a
merger with the investment banking firm of McKinnon & Company, Inc. ("McKinnon &
Company"). BOL engaged McKinnon & Company to serve as its financial advisor in
connection with a possible merger or sale of assets to another financial
institution.
11
<PAGE>
In November, 1993, McKinnon & Company introduced BOL to Jefferson Bankshares
and arranged for an informal meeting between Mr. Crovo and officers of Jefferson
Bankshares. Initial discussions with respect to the potential merger of BOL and
JNB began in December, 1993. On January 11, 1994, the parties reached an
agreement in principle to merge BOL into JNB conditioned upon, among other
things, the negotiation of a definitive Merger Agreement. In March 1994, the
Boards of Directors of BOL and Jefferson Bankshares approved a definitive Merger
Agreement, including the Option Agreement. The Board of Directors of BOL
believes that the terms of the proposed Merger, including the conversion ratio,
which were determined on the basis of arm's length negotiations, are fair and
equitable and take into account the relative earning power and financial
condition of Jefferson Bankshares and BOL, based upon both historical and
anticipated operations, financial positions and other relevant factors.
In analyzing the proposed Merger, the Board of Directors of BOL focused its
inquiry and examination on, among other things, the financial condition and
results of operations of Jefferson Bankshares, the fact that Jefferson
Bankshares Common Stock is publicly traded, and the tax-free nature of the
Merger.
For the reasons described above, the Board of Directors of BOL approved the
Merger Agreement and recommends that BOL Shareholders vote FOR approval of the
Merger Agreement.
EFFECT OF THE MERGER UPON OPERATIONS
Upon completion of the Merger, BOL will cease to be a separate bank, and
its office will become an office of JNB. JNB will be responsible for all
liabilities, contracts and obligations of BOL and will succeed to all of BOL's
property and contract rights. The employees of BOL will become employees of
JNB. Two current non-employee members of the Board of Directors of BOL will
become members of JNB's Northern Region Board of Directors and the remaining
non-employee members of the Board of Directors of BOL, and all non-employee
members of its Advisory Board, will become members of JNB's Advisory Board for
Loudoun County, Virginia. In addition, Kenneth L. Crovo, President and Chief
Executive Officer of BOL, will become a Senior Vice President of JNB. See "The
Proposed Merger--Employment of Kenneth L. Crovo."
CONVERSION RATIO
On the Effective Date, each issued and outstanding share of BOL Common
Stock (other than those shares as to which appraisal rights under federal
banking law have been perfected) will be converted into the right to receive one
share of Jefferson Bankshares Common Stock. The conversion ratio was determined
on the basis of arm's length negotiations, which took into account relative
earning power and financial condition of Jefferson Bankshares and BOL, based
upon both historical and anticipated operations, financial positions and other
relevant factors.
12
<PAGE>
If prior to the Effective Date Jefferson Bankshares declares or pays any
stock dividend to the holders of record of Jefferson Bankshares Common Stock
prior to the Effective Date, or otherwise splits, combines or reclassifies its
shares of Jefferson Bankshares Common Stock, then the number of shares of
Jefferson Bankshares Common Stock payable to the holders BOL Common Stock in the
Merger will be appropriately adjusted to give effect to such stock dividend,
stock split, combination or reclassification.
Except as described in the preceding paragraph, the conversion ratio in
the Merger is fixed and will not be adjusted upward or downward as the result of
changes in the market price of Jefferson Bankshares Common Stock. Accordingly,
if the Merger Agreement is approved, BOL Shareholders will bear the economic
risk of a decrease in the market price of Jefferson Bankshares Common Stock will
decline between the date of this Proxy Statement-Prospectus and the Effective
Date. If a decrease in the market price of Jefferson Bankshares Common Stock
occurs, then the shares of Jefferson Bankshares Common Stock issuable to BOL
Shareholders on the Effective Date will have a lesser value. Conversely, if the
market price of Jefferson Bankshares Common Stock increases during the period,
then the BOL Shareholders will receive shares having greater value.
EFFECTIVE DATE OF THE MERGER
Upon the approval of the Merger Agreement by BOL Shareholders, the approval
of the OCC, and upon the satisfaction or waiver of the other conditions set
forth in the Merger Agreement, the Merger will become effective on the date (the
"Effective Date") stated in the Certification Letter issued by the OCC. The
parties anticipate that the Merger will become effective during the third
quarter of 1994. See "The Proposed Merger--OCC Approval Process" and "The
Proposed Merger--Conditions to the Merger ."
OUTSTANDING STOCK OPTIONS
Under the terms of the Merger Agreement, BOL has agreed to use its best
efforts to cause the holders of outstanding stock options or stock awards, as
the case may be, (i) to exercise such options or awards at the applicable
exercise price or (ii) to execute agreements canceling and surrendering, at no
cost to Jefferson Bankshares or JNB, their options or awards on the Effective
Date. Any outstanding stock options or awards that have not been exercised or
canceled as of the Effective Date will be converted to options or awards to
acquire an equivalent number of shares of Jefferson Bankshares Common Stock.
However, shares of Jefferson Bankshares Common Stock issuable to the holder of
any such option or award after the Effective Date will be issued in reliance
upon an exemption from registration under the 1933 Act. Accordingly, they will
be restricted shares and the holder thereof will not be permitted to sell or
transfer them in the absence of registration or an exemption from registration
under the 1933 Act and applicable state securities laws.
As of March 31, 1994, there were BOL stock options or awards outstanding
entitling the holders thereof to purchase, in the aggregate, 37,104 shares of
BOL Common Stock at an exercise price of $10.00 per share.
13
<PAGE>
OPINION OF FINANCIAL ADVISOR
BOL has retained McKinnon & Company to act as its financial advisor in
connection with the Merger and McKinnon & Company has rendered its opinion to
the Board of Directors of BOL that the consideration to be paid to the BOL
Shareholders in connection with the Merger is fair to the BOL Shareholders from
a financial point of view. During the course of its engagement, and as a basis
for arriving at its opinion, McKinnon & Company reviewed and analyzed material
bearing upon the financial and operating condition of BOL and Jefferson
Bankshares and material prepared in connection with the Merger, including, among
other things, the following: (1) the Merger Agreement and the Option Agreement;
(2) the Form S-4 Registration Statement filed with the Commission in connection
with the Merger; (3) BOL's financial statements for the three years ended
December 31, 1993, as audited and examined by BOL's independent certified public
accounting firm; (4) BOL's unaudited financial statements for the three months
ended March 31, 1994 and 1993 and other internal information relating to BOL
prepared by BOL's management; (5) information regarding the trading market for
the common stocks of BOL and Jefferson Bankshares and the price ranges within
which the respective stocks have traded; (6) the relationship of prices paid to
relevant financial data such as net worth, loans, deposits and earnings in
certain bank and bank holding company mergers and acquisitions in Virginia in
recent years; and (7) Jefferson Bankshares' annual reports to shareholders and
audited financial statements for the three years ended December 31, 1993,
Jefferson Bankshares' unaudited financial statements for the three months ended
March 31, 1994, and other unaudited, internal information relating to Jefferson
Bankshares. In addition, McKinnon & Company discussed with members of
management of BOL and Jefferson Bankshares the background to the Merger, the
reasons and basis for the Merger and the business and future prospects of BOL
and Jefferson Bankshares individually and as a combined entity and took into
account its assessment of general economic, financial market and industry
conditions as they existed and could be evaluated at the date of its opinion, as
well as its experience in business valuation in general. McKinnon & Company
also conducted such other studies, analyses and investigations, particularly of
the banking industry, and considered such other information as it deemed
appropriate. No instructions or limitations were given or imposed by BOL in
connection with the scope of or the examination or investigation made by
McKinnon & Company in arriving at its findings.
In conducting its review and arriving at its opinion, McKinnon & Company
relied upon and assumed the accuracy and completeness of the information
furnished to it by or on behalf of BOL and Jefferson Bankshares. It did not
attempt independently to verify such information, nor did it make an independent
appraisal of the assets of BOL or Jefferson Bankshares.
A copy of the opinion, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached as Appendix B
hereto and should be read in its entirety.
McKinnon & Company's opinion is directed only to the financial
consideration and does not constitute a recommendation to any BOL Shareholder as
to how such shareholder should vote at the Special Meeting. The summary of the
opinion set forth in this Proxy Statement-Prospectus is qualified in its
entirety by reference to the full text of such opinion.
14
<PAGE>
The Board of Directors of BOL selected McKinnon & Company to serve as its
financial advisor based upon, among other considerations, its expertise and
experience in working with community banks in Virginia. McKinnon & Company, as
part of its investment banking business, is regularly engaged in the evaluation
of businesses, particularly banks, and their securities, in connection with
mergers and acquisitions, secondary distributions of debt and equity, initial
public offerings, private placements and evaluations for estate planning and
corporate recapitalizations. The Board of Directors of BOL believes that
McKinnon & Company has a thorough working knowledge of the banking industry
throughout Virginia, including potential acquirors.
Pursuant to the terms of McKinnon & Company's engagement letter, which was
accepted by BOL on January 10, 1994, BOL has agreed to pay McKinnon & Company a
cash fee in an amount equal to one percent of the market value of the Jefferson
Bankshares Common Stock issuable to BOL Shareholders for acting as its financial
advisor in connection with the Merger, including the rendering of its fairness
opinion. Accordingly, at the Effective Date, McKinnon & Company will be
entitled to receive a cash fee of $110,844 (assuming that the market value of
Jefferson Bankshares Common Stock on the Effective Date is 20.50, which was the
closing price of Jefferson Bankshares Common Stock on May 6, 1994 and that all
outstanding BOL stock options and awards are exercised on or before the
Effective Date). McKinnon & Company's fee is wholly contingent upon the
completion of the Merger.
EMPLOYMENT OF KENNETH L. CROVO
The consummation of the Merger is conditioned upon, among other things,
Kenneth L. Crovo's having entered into an employment agreement with JNB (the
"Crovo Employment Agreement"). Mr. Crovo is BOL's President and Chief Executive
Officer.
Under the terms of the Crovo Employment Agreement, JNB will employ Mr.
Crovo as a Senior Vice President for a three-year term beginning on the
Effective Date. As compensation for Mr. Crovo's services, JNB will pay Mr.
Crovo an annual salary of $107,500 during the first year, $115,000 during the
second year, and $122,500 during the third year. In addition, Mr. Crovo will be
entitled to participate in bonus plans adopted by JNB from time to time for
employees of comparable grade and responsibility and will receive certain other
benefits.
EXCHANGE OF CERTIFICATES
JNB, acting through its trust department, or its designee, will serve as the
Exchange Agent for the BOL Shareholders. Immediately prior to the Effective
Date, Jefferson Bankshares will cause to be delivered to the Exchange Agent
certificates representing the number of shares of Jefferson Bankshares Common
Stock which the holders of shares of BOL Common Stock are entitled to receive as
a result of the Merger.
As soon as practicable after the Effective Date, the Exchange Agent will
mail to each shareholder of record of BOL immediately prior to the Effective
Date a letter of transmittal which shall contain instructions for surrendering
BOL Common Stock certificates for certificates
15
<PAGE>
representing shares of Jefferson Bankshares Common Stock. The letter of
transmittal will specify that title to any certificate being submitted for
exchange shall pass only upon delivery of such certificate to, and receipt of
such certificate by, the Exchange Agent. Upon receipt by the Exchange Agent of
any such certificate, together with a duly executed letter of transmittal, such
certificate shall be cancelled and the Exchange Agent shall deliver to the
former holder of such certificate (or his transferee, as provided below) a
certificate representing the number of shares of Jefferson Bankshares Common
Stock to which such former holder shall be entitled.
If any certificate representing a share or shares of Jefferson Bankshares
Common Stock is to be issued in a name other than that in which the BOL Common
Stock certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the BOL Common Stock certificate
surrendered shall be properly endorsed and otherwise in proper form for
transfer, and that the person requesting such exchange shall (i) pay to the
Exchange Agent any transfer or other taxes required by reason of the issuance of
a certificate representing shares of Jefferson Bankshares Common Stock in any
name other than that of the registered holder of the BOL Common Stock
Certificate surrendered or (ii) establish to the satisfaction of the Exchange
Agent that such tax has been paid or that no such tax is payable.
After the Effective Date there will be no transfers on the stock transfer
books of BOL of the shares of BOL Common Stock which were issued and outstanding
immediately prior to the Effective Date.
No dividends or other distributions declared after the Effective Date with
respect to Jefferson Bankshares Common Stock, and payable to the holders of
record thereof after the Effective Date, will be paid to the holder of any
unsurrendered BOL Common Stock certificate until the holder of record has
surrendered such certificate for exchange. Subject to the effect, if any, of
applicable law, upon the surrender of a BOL Common Stock certificate for
exchange, the holder thereof will be entitled to receive such dividends or other
distributions, without interest thereon, as he would have been entitled to
receive had he surrendered such certificate for exchange immediately after the
Effective Date. All dividends or other distributions declared after the
Effective Date with respect to Jefferson Bankshares Common Stock, and payable to
the holders of record thereof after the Effective Date, which are payable to
holders of BOL Common Stock certificates not theretofore surrendered for
exchange as described herein shall be paid or delivered by Jefferson Bankshares
to the Exchange Agent, in trust for the benefit of such holders.
All dividends or other distributions held by the Exchange Agent for payment
to the holders of unsurrendered BOL Common Stock certificates and unclaimed at
the end of one year from the Effective Date will be delivered to Jefferson
Bankshares by the Exchange Agent, after which time any holders of BOL Common
Stock certificates who have not theretofore surrendered such certificates for
exchange will be required, subject to applicable law, to look only to Jefferson
Bankshares, as a general creditor, for payment of such dividends or
distributions, without interest thereon.
Any certificates for shares of Jefferson Bankshares Common Stock delivered
to the Exchange Agent under the provisions of the Merger Agreement and not
exchanged for shares of BOL Common
16
<PAGE>
Stock within one year after the Effective Date shall be returned to Jefferson
Bankshares by the Exchange Agent, and Jefferson Bankshares shall thereafter act
as exchange agent.
OCC APPROVAL PROCESS
In connection with the proposed Merger, Jefferson Bankshares caused JNB to
submit a merger application to the Office of the Comptroller of the Currency
(the "OCC") for approval on May 4, 1994. The OCC advised JNB that it had
accepted the application and had sent copies of the application to the
Department of Justice (the "DOJ"), the Federal Deposit Insurance Corporation
(the "FDIC"), and the appropriate Federal Reserve Bank (the "FRB") for their
views on the competitive effects of the proposed Merger. By statute, the DOJ,
the FDIC and the FRB generally have 30 days to review and comment on the
application.
In addition, JNB and BOL must jointly publish their intention to merge
three times during a 30-day period. By statute, the public comment period for
the proposed Merger is 30 days commencing on the date of the first publication.
Following receipt of the application, the OCC performed an analysis
of the application. The OCC strives to preserve the soundness of the national
banking system and to promote market structures conducive to competition.
Normally, it will approve a merger that would not have a substantially adverse
effect on competition and would be beneficial to the merging depository
institutions and to the public. Generally, the OCC will not approve a merger
that would result in substantially adverse competitive effects, unless the
probable effects of the merger on improved convenience and needs clearly
outweigh the adverse effects. In evaluating the Merger, the OCC considered
various factors, including the effect of the transaction on competition; the
convenience and needs of the community to be served; the financial history of
the merging institutions; the condition of the merging depository institutions,
including capital, management and earnings prospects; the existence of insider
transactions; and the adequacy of disclosure of the terms of the Merger.
By letter dated June 15, 1994, the OCC informed Jefferson Bankshares that it
has approved the Merger application, subject to certain standard conditions,
including consummation of the Merger on or before June 15, 1995. The Merger
cannot be consummated until 30 days after the OCC grants preliminary approval.
During the 30-day waiting period, the DOJ may seek an injunction that prohibits
consummation. In addition, JNB must advise the OCC at least 10 days before the
desired effective date for the Merger so that the OCC may issue a letter
certifying the Merger. The OCC will issue a certification letter (the
"Certification Letter") if JNB has met all conditions specified in its approval
letter. The Merger must be consummated within one year from the date of the
OCC's preliminary approval or the approval will lapse.
17
<PAGE>
APPRAISAL RIGHTS
Under 12 U.S.C. (section mark)215a(b) through (d), any BOL Shareholder who
has voted against the Merger at the Special Meeting, or who has before or at
the Special Meeting given written notice to BOL that he or she dissents from the
Merger will be entitled to receive the value of the shares held by such BOL
Shareholder upon written request made to JNB (sometimes hereinafter referred to
as the "Receiving Bank") at any time before 30 days after the Effective Date, if
such request is accompanied by the surrender of his or her stock certificates.
Failure either to vote against the Merger or to give timely written notice of
dissent will constitute a waiver of appraisal rights.
The value of the shares of any dissenting BOL Shareholder will be
ascertained as of the Effective Date by an appraisal made by a committee of
three persons composed of (i) one selected by the vote of the holders of a
majority of the shares of BOL Common Stock as to which appraisal rights have
been validly exercised; (ii) one selected by the directors of the Receiving
Bank; and (iii) one selected by the two appraisers so selected. The valuation
agreed upon by any two of the three appraisers shall govern. If the value so
fixed is not satisfactory to any such dissenting shareholder, he may, within
five days after being notified of the appraised value of such shares, appeal to
the Office of the Comptroller of the Currency, Washington, D.C. 20219, who will
cause a reappraisal to be made which will be final and binding as the value of
the shares of the dissenting shareholder requesting appraisal. If, more than 90
days from the Effective Date, for any reason, one or more of the appraisers is
not selected or the appraisers fail to determine the value of the shares, the
OCC will, upon written request of any interested party, cause an appraisal to be
made, which will be final and binding upon all parties.
In order to exercise appraisal rights, a dissenting BOL Shareholder must
not only vote against the Merger at the Special Meeting or give the notice
specified above, but must also make the written request to the Receiving Bank
within 30 days after the Effective Date and surrender share certificates to the
Receiving Bank at that time. Any shareholder who votes against the Merger at
the Special Meeting or who gives the notice specified above, will be notified of
the Effective Date.
The expenses of the OCC in making any appraisal or reappraisal, if
necessary, will be paid by the Receiving Bank. Dissenting shareholders and the
Receiving Bank will bear their own expenses in connection with all other aspects
of the appraisal process.
The appraised value of the shares as finally ascertained will be promptly
paid to dissenting BOL Shareholders by the Receiving Bank. Shares of BOL Common
Stock owned by any person who properly demands and perfects such person's
appraisal rights will not be deemed to be converted into shares of Jefferson
Bankshares Common Stock, but the holder thereof will receive instead the
appraised value of the shares as of the Effective Date.
Reference is made to Appendix C hereto for the complete text of the
provisions of 12 U.S.C. (section mark)215a(b) through (d) relating to the
rights of dissenting BOL Shareholders. The statements made herein are
qualified in their entirety by reference to Appendix C. The provisions of 12
U.S.C.(section mark)215a(b) through (d) are technical in nature and complex.
Any holder of BOL Common Stock who desires to dissent may wish to consult legal
counsel, particularly because the failure to comply
18
<PAGE>
strictly with the provisions of 12 U.S.C. (section mark)215a(b) through (d) may
defeat a dissenting shareholder's rights.
Exercise of appraisal rights by BOL Shareholders will result in recognized
gain or loss, as the case may be, for federal income tax purposes. See "The
Proposed Merger--Certain Federal Income Tax Consequences."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
McGuire, Woods, Battle & Boothe, counsel to Jefferson Bankshares, has
advised Jefferson Bankshares that the following discussion accurately
summarizes the material federal income tax consequences of the Merger for a BOL
Shareholder. This summary does not discuss all aspects of federal income
taxation that may be relevant to a BOL Shareholder, whether because of the
special investment circumstances of such Shareholder or the special treatment
provided for certain categories of investors (such as tax-exempt entities,
dealers in securities, and foreign persons). This discussion applies only to
BOL Shareholders who have held their Shares as capital assets. Furthermore,
this discussion does not discuss any aspect of state, local, or foreign tax
laws.
This summary is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), the regulations and administrative rulings issued thereunder, and
judicial decisions currently in effect, all of which are subject to change at
any time by legislation, administrative action, or judicial decisions; any such
changes could be implemented retroactively.
EACH SHAREHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER IN LIGHT OF SUCHSHAREHOLDER'S
PARTICULAR INVESTMENT CIRCUMSTANCES AND THE APPLICATION OF STATE, LOCAL, AND
FOREIGN TAX LAWS. A ruling will not be sought from the Internal Revenue Service
(the "Service") with respect to any of the tax consequences of the Merger.
THE MERGER. It is a condition to the Merger that Jefferson Bankshares
receive the opinion of McGuire, Woods, Battle & Boothe, dated as of the
Effective Date, that, for federal income tax purposes, the Merger will
constitute a reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the
Code, with the result that no taxable gain or loss will be recognized by BOL,
JNB or Jefferson Bankshares upon consummation of the Merger. The opinion may be
based on certain representations made by Jefferson Bankshares and BOL with
respect to factual matters required to qualify the Merger as a reorganization
under the Code. Such representations may include the following:
(a) The fair market value of the Jefferson Bankshares Common Stock received
by each BOL Shareholder will be approximately equal to the fair market value of
the BOL stock exchanged therefor.
19
<PAGE>
(b) Immediately after the Merger, the shareholders of BOL will own Jefferson
Bankshares Common Stock having a value, as of the date of the Merger, of at
least 50% of the aggregate value of the outstanding stock of BOL as of the date
of the Merger.
(c) Each officer and director of BOL has represented that he or she has no
current intention to dispose of any shares of Jefferson Bankshares Common Stock
received in the Merger and is not aware of any plan or intention on the part of
any other BOL Shareholders to sell, exchange, or otherwise dispose of any shares
of Jefferson Bankshares Common Stock received in the Merger.
(d) JNB will acquire at least 90% of the fair market value of the net assets
and at least 70% of the fair market value of the gross assets held by BOL
immediately prior to the Merger.
(e) Neither Jefferson Bankshares, JNB, or BOL will make any redemption or
dividend distribution prior to or in connection with the Merger, except that
Jefferson Bankshares may make its regular quarterly cash dividend payment
consistent with its historical practice.
(f) Following the Merger, JNB will continue the historic business of BOL.
(g) Jefferson Bankshares, JNB, BOL, and the BOL Shareholders will pay their
respective expenses, if any, incurred in connection with the Merger, except that
liability for certain expenses of BOL that are solely and directly related to
the transaction may be assumed by JNB in the Merger.
(h) There is no intercorporate indebtedness existing between BOL and JNB or
Jefferson Bankshares that was issued, acquired, or will be settled at, a
discount.
(i) No shares of JNB stock have been or will be issued to any BOL
Shareholder in connection with the Merger.
(j) None of the compensation received by any shareholder-employee of BOL
was separate consideration for, or allocable to, any of the shares of BOL Common
Stock; none of the shares of Jefferson Bankshares Common Stock received by any
such shareholder-employee was separate consideration for, or allocable to, any
employment agreement; and the compensation to be paid to each such shareholder-
employee will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
EXCHANGING SHAREHOLDERS. As a result of the Merger qualifying as a
reorganization under the Code, the following federal income tax consequences
will ensue:
(a) No taxable gain or loss will be recognized by a BOL Shareholder on the
exchange of BOL Common Stock solely in exchange for Jefferson Bankshares Common
Stock;
(b) the initial tax basis of a share of Jefferson Bankshares Common Stock
received in the Merger will be equal to the tax basis of the BOL Common Stock
exchanged therefor; and
20
<PAGE>
(c) the holding period of the Jefferson Bankshares Common Stock received in
the Merger will include the holding period of the BOL Common Stock exchanged
therefor, provided the BOL Common Stock was held as a capital asset on the date
of the Merger.
DISSENTING SHAREHOLDERS. A BOL Shareholder who dissents from the Merger
and receives solely cash for his entire interest in BOL Common Stock will be
treated as having had the BOL Common Stock redeemed in complete termination of
such interest within the meaning of Section 302(b)(3) of the Code, provided such
BOL Shareholder is not the constructive owner of any other shares of Jefferson
Bankshares Common Stock under the attribution rules of Section 318(a) of the
Code. Under Section 302 of the Code, such deemed redemption generally will
result in the recognition of taxable gain or loss equal to the difference
between (i) the amount of cash received, and (ii) the BOL Shareholder's
adjusted tax basis in the BOL Common Stock exchanged therefore. Such gain
or loss will be long-term capital gain or loss if the holding period of
the BOL shareholder in the BOL Common Stock exceeds one year. Under
present law, a BOL Shareholder's ability to deduct any long-term capital
loss is limited to the sum of the BOL Shareholder's net capital gain
from other sources plus $3,000.
BACKUP WITHHOLDING. Under the federal income tax backup withholding rules,
the Exchange Agent will withhold and remit to the IRS 31% of all cash
payments made to a dissenting shareholder unless the shareholder provides
his tax identification number and certifies that such number is correct or
unless an exemption from backup withholding is applicable.
CONDITIONS TO THE MERGER
In addition to requiring the approval of the shareholders of BOL to the
Merger and the approval of the OCC, the Merger Agreement requires the
satisfaction of a number of conditions before Jefferson Bankshares and BOL are
obligated to consummate the Merger, including: (a) the effectiveness of the
Registration Statement filed by Jefferson Bankshares for the shares of Jefferson
Bankshares Common Stock to be issued to the BOL Shareholders under the Merger
Agreement; (b) the receipt by Jefferson Bankshares of a commitment for title
insurance covering the real property owned by BOL; (c) the receipt by Jefferson
Bankshares of an opinion from KPMG Peat Marwick, its independent auditors, that
the Merger will be accounted for as a pooling-of-interests; (d) the execution
and delivery of the Crovo Employment Agreement by Kenneth L. Crovo; (e) the
absence of any court or administrative agency order restraining or prohibiting
the consummation of the Merger; (f) the absence of any statute, rule or
regulation, whether proposed or enacted, which does or might prohibit,
restrict or delay the consummation of the Merger; (g) the accuracy of
representations and warranties made in the Merger Agreement; and (h) the
performance of obligations and the compliance with all conditions required by
the Merger Agreement.
At any time on or prior to the Effective Date of the Merger, to the extent
legally permitted, the Boards of Directors of either Jefferson Bankshares or BOL
may waive compliance with any of the agreements or conditions which are
contained in the Merger Agreement for the benefit of such company.
21
<PAGE>
TERMINATION OR AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Date of the Merger, whether before or after obtaining shareholder approval: (a)
by the Boards of Directors or Executive Committees of both BOL and Jefferson
Bankshares; (b) by either Jefferson Bankshares or BOL (i) if there has been a
material breach by the other party of a representation, warranty or agreement
contained in the Merger Agreement or if any condition to the consummation of the
Merger which must be met by the other becomes impossible to fulfill, (ii) if any
action or proceeding before any court or other governmental body or agency has
been instituted or threatened to restrain or prohibit the Merger and such party
in good faith deems it inadvisable to proceed with the Merger,(iii) if the
holders of more than 66-2/3% of the outstanding shares of BOL Common Stock
shall have failed to vote in favor of the Merger at the Special Meeting, or
(iv) if the Closing has not occurred by 11:59 p.m. on December 31, 1994.
The Merger Agreement may be amended by the mutual agreement of the Boards
of Directors of Jefferson Bankshares and BOL at any time prior to the approval
of the Merger Agreement and Merger by the BOL Shareholders. After such approval
has been obtained, no amendment may be made to change the Merger Agreement in a
manner which is materially adverse to the BOL Shareholders unless such amendment
is approved by such shareholders.
The Merger Agreement also contains mutual covenants concerning the
obligations of each of the parties to use its best efforts to consummate the
Merger, the right of each party to review the other party's books and records,
and other customary matters.
EXPENSES RELATED TO THE MERGER
Jefferson Bankshares and BOL each has agreed to pay its own expenses
incurred with regard to the Merger Agreement and the transactions contemplated
thereby, except that, in the event that the Merger is not consummated as a
result of the failure of the BOL Shareholders to approve the Merger, Jefferson
Bankshares and BOL have agreed to share equally all expenses reasonably incurred
by either party in connection with the preparation, filing, printing or
distribution of the Registration Statement and this Proxy Statement-Prospectus.
OPTION AGREEMENT
As a condition to Jefferson Bankshares' entering into the Merger Agreement
and in consideration therefor, BOL and Jefferson Bankshares entered into the
Option Agreement. The Option Agreement is intended to increase the likelihood
that the Merger will be consummated by making it more difficult and more
expensive for another party to obtain control of or acquire BOL. The Option
entitles Jefferson Bankshares to purchase up to 100,000 fully paid and non-
assessable shares of BOL Common Stock, representing 19.9% of the shares of BOL
Common Stock issued and outstanding as of March 31, 1994 without giving effect
to any shares subject or issued pursuant to the Option, at a price of $14 per
share. The aggregate purchase price for the shares of BOL Common Stock that may
be purchased upon the exercise of the Option is $1,400,000.00.
22
<PAGE>
The Option Agreement provides that Jefferson Bankshares may exercise the
Option, in whole or in part, at any time prior to the date on which the Merger
Agreement is terminated (the "Termination Date") if Jefferson Bankshares is not,
at the time of exercise, in material breach of its obligations under the Merger
Agreement and if any of the following events has occurred: (a) the making, by
any person or group of persons other than Jefferson Bankshares or any of its
subsidiaries (an "Acquiror"), of a tender offer or exchange offer for a
sufficient number of Shares such that such Acquiror would, upon the completion
of such tender or exchange, beneficially own 20% or more of the outstanding
shares of BOL Common Stock; (b) the acquisition, by any Acquiror, of beneficial
ownership of 20% or more of the outstanding shares of BOL Common Stock; or (c)
the making, by any Acquiror, by public announcement or private communication to
BOL, of a firm proposal (i) to acquire BOL by merger, consolidation, purchase
of all or a substantial portion of the assets of BOL, or other similar
transaction, or (ii) to make a tender offer or exchange offer described in
clause (a) above. As of the date hereof, none of these events ("Triggering
Events") has occurred.
At any time after Jefferson Bankshares acquires shares issuable upon the
exercise of the Option, Jefferson Bankshares may require BOL to repurchase such
shares for an amount equal to the price Jefferson Bankshares paid for such
shares, plus any interest earned by BOL on such funds (the "Repurchase Price").
In addition, if Jefferson Bankshares and BOL have not consummated the Merger by
the Termination Date (other than as a result of a material breach of the Merger
Agreement by BOL), then BOL may repurchase all of such shares at the Repurchase
Price. If BOL exercises such right and, during the 12-month period following
such repurchase, any Acquiror acquires or agrees to acquire BOL by merger,
consolidation, or purchase of all or substantially all of BOL's assets, then BOL
(or its successor) will promptly notify Jefferson Bankshares and, upon the
successful completion of such a merger, consolidation or purchase of all or
substantially all of BOL's assets, will pay Jefferson Bankshares in cash an
amount equal to the difference between the Repurchase Price and the average
price per share such Acquiror has paid, multiplied by the number of shares
repurchased under the Option Agreement.
The Merger Agreement may be terminated at any time prior to the Effective
Date by either BOL or Jefferson Bankshares if the Merger is not approved at the
Special Meeting. Accordingly, if no Triggering Event has occurred, the holders
of at least 33 1/3% of the outstanding shares of BOL Common Stock vote against
the Merger at the Special Meeting, and either BOL or Jefferson Bankshares
terminates the Merger Agreement as a result thereof, the Option will terminate.
RESTRICTIONS ON SALE OF JEFFERSON BANKSHARES COMMON STOCK AFTER THE MERGER
Jefferson Bankshares has registered under the Securities Act the shares of
Jefferson Bankshares Common Stock which the BOL Shareholders will be entitled to
receive upon consummation of the Merger. Those BOL Shareholders who are not
deemed to be "affiliates" of BOL may freely sell, without additional
registration under the Securities Act or an exemption (including Rule 145
promulgated under the Securities Act) from the registration requirements
thereof, the shares of Jefferson Bankshares Common Stock which they receive in
the Merger. BOL Shareholders who are deemed to be "affiliates" of BOL may not
use this Proxy Statement-Prospectus to effect resales of the shares of Jefferson
Bankshares Common Stock they receive.
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<PAGE>
BOL has determined that each of its directors and executive officers, and
their respective affiliates, are or may be "affiliates" of BOL under the
Securities Act. Based upon information supplied by them, these persons will
receive approximately 142,834 shares (or approximately 27.2%) of the shares of
Jefferson Bankshares Common Stock to be delivered to the BOL Shareholders. BOL
has agreed to deliver to Jefferson Bankshares, at or prior to the Effective
Date, an agreement signed by each of such "affiliates" covering various rights
and obligations of such persons with respect to the shares of Jefferson
Bankshares Common Stock they will receive.
ACCOUNTING TREATMENT
Consummation of the Merger is conditioned upon the Merger being accounted
for as a pooling-of-interests and the receipt by Jefferson Bankshares of an
opinion to that effect from KPMG Peat Marwick, Jefferson Bankshares' independent
auditors. Under the pooling-of-interests method of accounting, the recorded
amounts of the assets and liabilities of Jefferson Bankshares and BOL will be
carried forward at their previously recorded amounts. Revenues and expenses
will be retroactively presented as if Jefferson Bankshares and BOL were combined
for the entire fiscal period in which the Merger occurs and for all periods
prior to the Merger at previously recorded amounts.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
24
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements
give effect to the Merger using the pooling-of-interests method of accounting.
For a description of the pooling-of-interests method of accounting with respect
to the Merger and the related effects on the historical consolidated financial
statements of Jefferson Bankshares and subsidiaries, see "The Proposed
Merger--Accounting Treatment."
The pro forma combined condensed balance sheet combines the consolidated
balance sheet of Jefferson Bankshares and the balance sheet of BOL as of March
31, 1994. The pro forma combined condensed income statements for the year ended
December 31, 1993 and for the three months ended March 31, 1994 combine the
consolidated results of operations of Jefferson Bankshares and the results of
operations of BOL for the year ended December 31, 1993 and for the three months
ended March 31, 1994, respectively. Certain income, expenses, and other items
in the BOL financial statements have been reclassified to conform to Jefferson
Bankshares' presentation. The pro forma combined condensed balance sheet as of
March 31, 1994 and the pro forma combined condensed income statement for the
three months ended March 31, 1994, have been derived from unaudited financial
statements. Such financial statements, in the opinion of management of BOL and
Jefferson Bankshares, include all adjustments necessary for a fair presentation
of the financial statements. The pro forma combined condensed income statement
for the year ended December 31, 1993 has been derived from audited financial
statements incorporated by reference or included elsewhere herein.
The information shown is not necessarily indicative of the results of
future operations of the combined entity or the actual results that would have
occurred had the Merger been in effect during the periods presented. These
statements and the related notes should be read in conjunction with the related
consolidated financial statements of Jefferson Bankshares and the notes thereto
included in Jefferson Bankshares' Form 10-K for the fiscal year ended December
31, 1993 incorporated herein by reference, in conjunction with the financial
statements of BOL and the notes thereto appearing elsewhere herein, and in
conjunction with the notes of the Jefferson Bankshares and BOL Summary Financial
Data appearing elsewhere herein.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
25
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JEFFERSON PRO FORMA
BANKSHARES BOL(1) ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 106,812 $ 2,109 $ 108,921
Money market investments 4,773 5,886 10,659
Securities available for sale, at market 196,693 984 197,677
Securities held to maturity, at cost 499,536 11,169 510,705
Loans 1,000,940 36,241 1,037,181
Less: Unearned income (227) (53) (280)
Allowance for loan losses (12,870) (1,161) (14,031)
Net loans 987,843 35,027 1,022,870
Other assets 94,743 833 95,576
Total assets $ 1,890,400 $ 56,008 $ 1,946,408
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits $ 1,665,972 $ 51,068 $ 1,717,040
Short-term borrowings 12,154 -- 12,154
Long-term debt 983 -- 983
Other liabilities 15,229 82 15,311
Total liabilities 1,694,338 51,150 1,745,488
Preferred stock -- -- --
Common stock 36,529 2,508 (2,508) (2) 37,783
1,254 (2)
Capital surplus 40,733 2,508 1,254 (2) 44,495
Retained earnings 117,553 (149) 117,404
Unrealized gain on securities
available for sale, net of taxes 1,247 (9) 1,238
Total shareholders' equity 196,062 4,858 200,920
Total liabilities and shareholders'
equity $ 1,890,400 $ 56,008 $ 1,946,408
<FN>
(1) Certain amounts included in BOL's balance sheet have been reclassified
to conform to reporting classifications in Jefferson Bankshares' balance sheet.
(2) To reflect the cancellation of 501,596 shares of BOL Common Stock at
$5.00 per share par value and the issuance of shares of Jefferson Bankshares
Common Stock at $2.50 per share par value, based on an exchange ratio of one
share of Jefferson Bankshares Common Stock for each share of BOL Common Stock.
For information about outstanding BOL stock options, see "The Proposed Merger
- -- Outstanding Stock Options."
</TABLE>
26
<PAGE>
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
JEFFERSON COMBINED
BANKSHARES BOL (UNAUDITED)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 77,816 $ 3,043 $ 80,859
Income on investment securities
U.S. Treasury 14,143 118 14,261
U.S. Government agencies 17,742 306 18,048
States and political subdivisions
(tax-exempt) 1,886 4 1,890
Other securities 12,603 9 12,612
Other interest income 1,015 154 1,169
Total interest income 125,205 3,634 128,839
INTEREST EXPENSE
Interest-bearing transaction accounts 21,564 737 22,301
Certificates of deposit
$100,000 and over 2,662 188 2,850
Other time deposits 21,701 437 22,138
Short-term borrowings 429 17 446
Long-term debt 86 -- 86
Total interest expense 46,442 1,379 47,821
NET INTEREST INCOME 78,763 2,255 81,018
PROVISION FOR LOAN LOSSES 750 1,161 1,911
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 78,013 1,094 79,107
NON-INTEREST INCOME
Trust income 4,037 -- 4,037
Service charges on deposit accounts 8,350 296 8,646
Investment securities gains, net 88 137 225
Other income 4,455 -- 4,455
Total non-interest income 16,930 433 17,363
NON-INTEREST EXPENSE
Salaries and employee benefits 33,803 842 34,645
Occupancy expense, net 4,556 181 4,737
Equipment expense 5,616 100 5,716
Other expense 15,847 757 16,604
Total non-interest expense 59,822 1,880 61,702
Income (loss) before income tax expense 35,121 (353) 34,768
Provision for income tax expense (benefit) 11,303 (120) 11,183
NET INCOME (LOSS) $ 23,818 $ (233) $ 23,585
NET INCOME (LOSS) PER COMMON $ 1.64 $ (0.46) $ 1.57
SHARE
AVERAGE SHARES OUTSTANDING 14,559 502 15,061
</TABLE>
27
<PAGE>
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JEFFERSON PRO FORMA
BANKSHARES BOL COMBINED
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 18,543 $ 737 $ 19,280
Interest on securities available for sale
U.S. Treasury 3,340 -- 3,340
U.S. Government agencies -- 10 10
Income on investment securities
U.S. Treasury -- 20 20
U.S. Government agencies 4,712 82 4,794
States and political subdivisions
(tax-exempt) 377 1 378
Other securities 2,943 15 2,958
Other interest income 109 27 136
Total interest income 30,024 892 30,916
INTEREST EXPENSE
Interest-bearing transaction accounts 5,060 191 5,251
Certificates of deposit
$100,000 and over 632 45 677
Other time deposits 4,912 104 5,016
Short-term borrowings 119 - 119
Long-term debt 17 - 17
Total interest expense 10,740 340 11,080
NET INTEREST INCOME 19,284 552 19,836
PROVISION FOR LOAN LOSSES 435 40 475
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 18,849 512 19,361
NON-INTEREST INCOME
Trust income 1,100 -- 1,100
Service charges on deposit accounts 2,040 100 2,140
Other income 1,043 -- 1,043
Total non-interest income 4,183 100 4,283
NON-INTEREST EXPENSE
Salaries and employee benefits 8,986 220 9,206
Occupancy expense, net 1,257 45 1,302
Equipment expense 1,375 41 1,416
Other expense 3,849 181 4,030
Total non-interest expense 15,467 487 15,954
Income before income tax expense 7,565 125 7,690
Provision for income tax expense 2,516 43 2,559
NET INCOME $ 5,049 $ 82 $ 5,131
NET INCOME PER COMMON SHARE $ 0.35 $ 0.16 $ 0.34
AVERAGE SHARES OUTSTANDING 14,601 502 15,103
</TABLE>
28
<PAGE>
JEFFERSON BANKSHARES COMMON STOCK AND
COMPARISON WITH BOL COMMON STOCK
JEFFERSON BANKSHARES COMMON STOCK
Jefferson Bankshares is authorized to issue 32,000,000 shares of common
stock, $2.50 par value, of which 14,611,466 shares were issued and outstanding
as of March 31, 1994. Jefferson Bankshares is also authorized to issue
1,000,000 shares of preferred stock, $10.00 par value. No shares of preferred
stock are issued and outstanding. The Board of Directors of Jefferson
Bankshares could at any time, without additional approval of the holders of
Jefferson Bankshares Common Stock, issue either authorized and unissued shares
of preferred stock in series or additional authorized and unissued shares of
Jefferson Bankshares Common Stock. At present there are no plans to issue
shares of preferred stock.
Holders of Jefferson Bankshares Common Stock are entitled to receive
dividends when and if declared by the Board of Directors of Jefferson Bankshares
out of funds legally available therefor, but only after payment of all required
dividends on any outstanding preferred stock. Holders of Jefferson Bankshares
Common Stock are entitled to cast one vote for each share held of record and are
not entitled to cumulate votes for the election of directors or any other
matter. The holders of such stock have voting powers on all matters requiring
approval of shareholders, subject to the voting rights of the holders of any
preferred stock that may be issued and outstanding to the extent provided in the
applicable articles of serial designation or otherwise pursuant to the Virginia
Stock Corporation Act. In the event Jefferson Bankshares were liquidated, after
payment of all debts and expenses, the remaining assets of Jefferson Bankshares,
if any, would be distributed to the holders of Jefferson Bankshares Common Stock
ratably, subject to the liquidation preferences of any preferred stock that may
be issued and outstanding. The holders of Jefferson Bankshares Common Stock do
not have preemptive rights to subscribe for any additional securities issued by
Jefferson Bankshares.
Jefferson Bankshares is a party to a loan agreement limiting dividends
which may be paid by Jefferson Bankshares. The loan agreement, repayable in
installments through 1994, limits dividends to 100% of current year's net income
less any required principal payments on indebtedness and has a minimum capital
requirement of $77,000,000 to be met at the end of 1984 with subsequent required
cumulative increases of the greater of $4,000,000 per year or 40% of Jefferson
Bankshares' cumulative consolidated net income for years after 1984. As of
December 31, 1993, the minimum capital required to be met was $135,000,000.
COMPARISON WITH BOL COMMON STOCK
BOL is a Virginia corporation authorized to issue 1,000,000 shares of
common stock, $5.00 par value, of which 501,596 shares were issued and
outstanding as of March 31, 1994. Holders of BOL Common Stock do not have
cumulative voting rights or preemptive rights to subscribe to any additional
securities issued by BOL. The directors of BOL are elected annually for a one-
year term.
29
<PAGE>
Under Virginia law, the holders of BOL Common Stock and the holders of
Jefferson Bankshares Common Stock have the same rights. Holders of BOL Common
Stock would generally not have appraisal rights in connection with a merger,
consolidation or plan of exchange but would have appraisal rights in connection
with a sale of all or substantially all of BOL's assets. Holders of Jefferson
Bankshares Common Stock would generally have appraisal rights in the case of a
merger, plan of exchange or sale of all or substantially all of Jefferson
Bankshares' assets only if the consideration to be received were other than (a)
cash, (b) shares or shares and cash in lieu of fractional shares of (i) the
surviving or acquiring corporation or (ii) another corporation which are listed
on a national securities exchange or held of record by more than two thousand
shareholders or (c) a combination of the above.
Appraisal rights which the holders of BOL Common Stock have in connection
with the Merger arise under federal banking law since BOL is being merged into
JNB.
INFORMATION ABOUT BOL
BUSINESS
BOL was organized in 1986 and commenced operations in 1988 as a bank under
the laws of the Commonwealth of Virginia and operates in the town of Leesburg in
Loudoun County, Virginia. BOL's deposits are insured by the Bank Insurance Fund
(the "BIF"), as administered by the Federal Deposit Insurance Corporation. BOL
is a full-service commercial bank serving primarily Loudoun County, which is
located in Northern Virginia. Retail banking services offered to individuals
and businesses in its service area include deposit accounts, business loans,
personal loans, residential mortgages, education loans, safe deposit and night
depository services. Twenty-four hour banking services are provided by BOL
through an automated teller machine (ATM) located at its office in Leesburg,
Virginia.
BOL leases one office building, which is occupied as banking offices and is
located in a major retail business district of Leesburg, Virginia.
BOL does not obtain any material portion of its deposits from a single
individual, one particular business, or from state or federal governments. The
loans of BOL are not concentrated within a single industry, group of related
industries or any individual customer. BOL is not subject to any discernible
seasonable trends. Further, BOL has no foreign banking activities.
There is substantial competition within the service area in which BOL
maintains offices. In addition to competing with other commercial banks from
both within and outside its service area, BOL competes with other financial
institutions such as savings and loan associations, credit unions, money market
funds, brokerage firms and finance companies. Deregulation of the banking
industry, the increased competition from non-bank entities for the cash balances
of individuals and businesses and continued developments in the computer and
communications industries have caused significant changes in BOL as well as
other banks.
30
<PAGE>
New products that been introduced by BOL in recent years include ATM and
VISA/MasterCard services.
BENEFICIAL OWNERSHIP OF BOL COMMON STOCK
The following table sets forth, as of May 6, 1994, information regarding
the ownership of (1) each person known to be the beneficial owner of more than
five percent (5%) of the outstanding shares of BOL Common Stock, (2) each
director who owns BOL Common Stock, (3) each individual serving as BOL's chief
executive officer or acting in a similar capacity during the last completed
fiscal year (the "CEO") and each of the four most highly compensated executive
officers other than the CEO who were serving as executive officers at the end of
the last completed fiscal year, and (4) all directors and executive officers of
BOL as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL NUMBER OF SHARES
OWNER, DIRECTOR OR OFFICER BENEFICIALLY OWNED (1) PERCENTAGE OF TOTAL (2)
<S> <C> <C>
W. Gray Price, IV (3) 53,050 10.5%
P. O. Box 60
Middleburg, Virginia 22117
Harold L. Shotwell (4) 28,500 5.6%
1106-C Sterling Road
Sterling, Virginia 22170
Georgia W. Bange (5) 10,350 2.1%
303 Belmont Place, S.W.
Leesburg, Virginia 22075
Kenneth L. Crovo (6) 20,900 4.1%
1001 Foster Place, S.W.
Leesburg, Virginia 22075
John E. Skilton (7) 4,600 *
3505 Perry Street
Fairfax, Virginia 22030
Lawrence N. Grant (8) 22,100 4.4%
P. O. Box 2168
Leesburg, Virginia 22075
Marvin E. Dodson, Jr. 800 *
P. O. Box 362
Leesburg, Virginia 22075
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL NUMBER OF SHARES
OWNER, DIRECTOR OR OFFICER BENEFICIALLY OWNED (1) PERCENTAGE OF TOTAL (2)
<S> <C> <C>
Joseph B. Humphries (9) 2,400 *
8726 Foxhall Terrace
Fairfax Station, Virginia 22039
Jody V. Buel 134 *
10818 Campaign Court
Manassas, Virginia 22110
All directors and officers as a group 142,834 27.2%
(9 persons)
<FN>
* Less than one percent
(1) The information shown is based on information furnished to Jefferson Bankshares by the named persons. The amount and
percentage of securities beneficially owned by an individual are determined in accordance with the definition of beneficial
ownership set forth in the regulations of the Securities and Exchange Commission and, accordingly, may include securities owned by
or for, among others, the spouse and/or minor children of the individual and any other relative who has the same home as such
individual, as well as other securities as to which the individual has or shares voting or investment power or has the right to
acquire within 60 days after May 6, 1994. Beneficial ownership may be disclaimed as to certain of the securities. Unless otherwise
indicated, the persons and entities named have sole voting and dispositive power over their shares.
(2) Individual percentages have been rounded. Shares subject to outstanding stock options or warrants which the individual has
the right to acquire within 60 days after May 6, 1994, are deemed to be outstanding for the purpose of computing the percentage of
outstanding securities of the class owned by such individual, or any group including such individual, but are not deemed outstanding
for the purpose of computing the percentage of the class owned by any other individual.
(3) Includes 4,000 shares issuable upon the exercise of stock options and 38,050 shares held by Mr. Price as custodian for
certain of his children.
(4) Includes 3,554 shares issuable upon the exercise of stock options. The figure also includes 5,000 shares held of record by
the Shotwell Money Purchase Pension Plan (of which Mr. Shotwell is plan administrator and a beneficiary) and 5,000 shares held of
record by J.B. Shotwell & Son, Excavating & Grading (of which Mr. Shotwell is President, director, and controlling shareholder).
32
<PAGE>
(5) Includes 3,550 shares issuable upon the exercise of stock options.
(6) Includes 4,000 shares issuable upon the exercise of stock options. The figure also includes 223 shares held by Mr. Crovo's
wife, 10,000 shares held by Mr. Crovo as trustee under various revocable living trust agreements for the benefit of G. W. Detty,
III, K. E. Detty, and A. K. Detty, and 5,800 shares held of record by Auer & Co. in a retirement account for the benefit of Mr.
Crovo.
(7) Includes 2,000 shares issuable upon the exercise of stock options.
(8) Includes 4,000 shares issuable upon the exercise of stock options. The figure also includes 3,750 shares held of record by
First Trust Corp. in retirement accounts for the benefit of Mr. Grant and/or his wife, and 2,500 shares held of record by
Independent Insurance Center Money Pension Plan (of which Mr. Grant and his wife are co-trustees and beneficiaries).
(9) Includes 2,000 shares issuable pursuant to an award on July 1, 1994 and 200 shares held by Mr. Humphries as custodian for
certain of his children.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BOL
The following discussion is intended to assist the reader in understanding
and evaluating the financial condition and results of operations of BOL. This
review should be read in conjunction with the financial statements and
accompanying notes. The analysis attempts to identify trends and material
changes which occurred during the periods presented.
RESULTS OF OPERATIONS
Fiscal Years Ended December 31, 1993,
December 31, 1992, and December 31, 1991
OVERVIEW TO RESULTS OF OPERATIONS. In 1993, BOL incurred a net loss of
$232,606 as compared to net income of $104,449 in 1992 and $52,060 in 1991.
The net loss in 1993 resulted primarily from an increase in the provision
for loan loss from $594,744 in 1992 to $1,160,500 in 1993. The additional
provision for loan losses was made as a result of management's review of BOL's
loan portfolio and applying the loan loss provision calculation
methodology utilized by JNB (see Provision for Loan Losses).
33
<PAGE>
On a per share basis, the net loss in 1993 was $.46 compared with net income of
$.21 per share for the same period of 1992 and $.10 per share for the same
period of 1991. Excluding the special charge to the loan loss provision and
certain merger-related expenses totaling $100,000, BOL would have reported net
income of $272,000 or $.54 per share.
Deposits as of December 31, 1993, were $50,736,588 and represented an
increase of $9,300,497 or 22% above the same period in 1992. Loans, net of loan
loss provision, were $34,744,093 at December 31, 1993, and represented an
increase of $4,406,404 or 14% above the same period in 1992.
Total assets increased during 1993 by approximately $9,639,686 or 20.45%.
The net income of BOL is affected by three major factors: Net interest
income or the difference between interest income earned and interest expense
incurred; other operating income which is made up primarily of service
charges, fees and securities transactions; and other operating expenses
consisting of the salaries and other expenses incurred by BOL in day-today
operations.
NET INTEREST INCOME. Net interest income is the primary source of earnings
for BOL. With the additions to the special addition to the loan loss provision
(see Provision for Loan Losses), net interest income after loan loss provision
increased slightly to $1,094,931 in 1993 from $1,017,537 in 1992 and represented
an increase of 7.60%. Net interest income before loan loss provision increased
to $2,255,431 in 1993 from $1,612,281 in 1992, and represented an increase of
39.89%.
OTHER INCOME. Other operating income for 1993 included income from service
charges and fees related to deposit accounts, bank card fees, insurance premiums
on credit life and health policies, and gains on the sale of SBA loans. Total
non-interest income totaled $432,623 in 1993 and was slightly less than the
$489,839 amount received in 1992. The difference is primarily attributable to a
reduction in amount received from gains on the sale of loans. In 1993,
approximately $111,199 less was received on gains from the sale of loans. In
1993, service charges on other fees income amounted to $295,661 or $53,983 above
the same period in 1992. The increase in service charges and other fee income
increased as a result of higher transaction levels and revised fee schedules.
OTHER EXPENSES. Salaries and employee benefits are the most significant
component of the other expenses for BOL. Other components of this category are
similar to those incurred by other service industries and include taxes,
supplies, data processing, furniture and equipment depreciation expenses and net
occupancy expenses.
The overall increase in other operating expenses was 28.50% in 1993 and
13.15% in 1992. Salaries and employee benefits increased 30.66% in 1993 and
15.30% in 1992. This primarily resulted from the increased costs of additional
34
<PAGE>
employees and other employee benefits. Occupancy expense declined 11.15% in
1993, due to subleasing surplus office space. Other categories of other
operating expenses increased, except depreciation expense, which declined 3.41%
in 1993.
PROVISION FOR LOAN LOSSES. In conjunction with the merger, the Board of
Directors of BOL elected to adopt a methodology for computing BOL's allowance
for possible loan losses which is consistent with that of JNB. Under this
methodology, certain specific allocations and factors led BOL to increase its
allowance for possible loan losses by $670,000. This amount which was charged
to BOL's provision for possible loan losses, along with an additional charge of
$100,000 for certain merger-related expenses, caused BOL to record a net loss
after taxes in 1993 of $232,606, or $.46 per share. Excluding these charges,
BOL would have reported net income of $272,000, or $.54 per share.
Three Months Ended March 31,
1994 and March 31, 1993
OVERVIEW TO RESULTS OF OPERATIONS. Results for the three months ended
March 31, 1994, were favorably impacted by an increase of approximately $65,000
in the net interest spread and margin. Interest and fees on loans and
investments increased $68,698 while interest expense on deposits remained
relatively unchanged. Net interest income after provision for loan losses
improved as a result of a $25,000 less provision expense in 1994 as compared to
1993.
Loans, net of loan loss provision, as of March 31, 1994, were $35,027,135
and were slightly above the year end amount of $34,744,093. Total earning
assets as a percentage of total assets remain stable at 94.7%.
Deposits of $51,068,942 at March 31, 1994, were approximately $330,000
above deposits at December 31, 1993. Deposit growth continues to reflect the
characteristics of the Loudoun market served by BOL.
OTHER INCOME. Non-interest income of $100,177 as of March 31, 1994,
compared favorably to $82,369 for the same period in 1993. The improvement
resulted from an increase in service fee collections in all categories, plus a
new category of fee income for mortgage loan originations.
OTHER EXPENSES. Salaries and employee benefits continue to be the most
significant component of non-interest expense. For the three months ended March
31, 1994, salaries and employee benefit expense of $220,245 represented an
increase of $26,610 or 13.7% above the comparable period in 1993. The increase
is attributable to expenses related to additional staff required to meet desired
customer service levels. Occupancy expense was virtually unchanged for the
three months ended March 31, 1993 and March 31, 1994. Other non-interest
expense increased from $187,041 as of March 31, 1993 to $222,759, an increase of
$35,718 or 19.1% as of March 31, 1994. The increase in other expenses occurred
primarily in FDIC assessment changes ($7,000), overdraft charge refunds
($9,500), data processing ($3,500), and legal fees ($13,500).
35
<PAGE>
PROVISION FOR LOAN LOSSES. As of March 31, 1994, BOL contributed $40,000
to the loan loss provision compared to $65,000 for the same period in 1993.
The lower amount contributed reflected management's assessment of comparative
loan quality. During the first three months of 1994, the bank charged off
loans in the aggregate amount of $10,036 and recovered $1,361 on loans
previously charged off.
LIQUIDITY AND CAPITAL RESOURCES
A strong capital base provides support for growth and expansion activities
gives stability in current operations and adds greatly to the community's
confidence in BOL. One widely accepted measure of capital adequacy
is the ratio of average shareholder's equity to average total assets. This
ratio for BOL was 9.15% for 1993 and 8.67% for the first three months of 1994,
and compares favorably with those of peer group banks.
The liquidity of BOL is measured by its ability to meet the financial needs
of its depositors and borrowers. Sources of liquidity are provided by the sale
or maturity of assets or by acquiring additional deposits or other borrowings.
BOL's asset liquidity consists of cash and funds due from banks and
money market investments, which totaled $20,149,328 as of March 31, 1994.
IMPACT OF INFLATION
Since most of the assets and liabilities of BOL are monetary in nature,
changes in interest rates can have a significant effect on earnings. BOL's
management concentrates on asset and liability management, in order to react to
and compensate for the volatility of interest rates in a changing economy.
LEGAL OPINION
McGuire Woods Battle & Boothe, counsel for Jefferson Bankshares, will pass
upon the validity of the shares of Jefferson Bankshares Common Stock to be
issued in connection with the Merger and upon certain other matters. As of
June 20, 1994, members of the firm owned or had authority with respect to the
voting or investment of 14,115 shares of Jefferson Bankshares Common Stock.
EXPERTS
The consolidated financial statements of Jefferson Bankshares and
subsidiaries as of December 31, 1993 and 1992, and for each of the years in the
three-year period ended December 31, 1993, included in Jefferson Bankshares'
1993 Annual Report provided with this Proxy Statement-Prospectus,
have been incorporated by reference in this Proxy Statement-Prospectus in
reliance upon the report, included in such Annual Report and incorporated by
reference herein, of KPMG Peat Marwick, independent auditors, and upon the
authority of that firm as experts in accounting and auditing. The firm audited
36
<PAGE>
the consolidated financial statements of Jefferson Bankshares and subsidiaries
for 1991, 1992, and 1993.
The financial statements of BOL as of December 31, 1993 and 1992, and for
each of the years in the three-year period ended December 31, 1993, included in
this Proxy Statement-Prospectus, have been included herein in reliance upon the
report included herein of Grant Thornton, independent certified public
accountants, and upon the authority of that firm as experts in accounting and
auditing.
Representatives of KPMG Peat Marwick and Grant Thornton are expected to be
present at the Special Meeting and to be available to respond to appropriate
questions.
INDEMNIFICATION
Article VII of Jefferson Bankshares' Articles of Incorporation and Article
10 (Section 13.1-696, et seq.) of the Virginia Stock Corporation Act authorize
indemnification of directors, officers, employees and agents of Jefferson
Bankshares in certain circumstances; allow advances of the costs of defending
against litigation; and permit the purchase of insurance on behalf of directors,
officers, employees and agents against liabilities whether or not in the
circumstances Jefferson Bankshares would have the power to indemnify against
such liabilities under the provisions of the articles or the statute. Jefferson
Bankshares maintains a policy of directors and officers liability insurance
which provides for the indemnification of directors and officers under certain
circumstances. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
37
<PAGE>
SHAREHOLDER PROPOSALS
If the Merger is approved and a BOL Shareholder becomes a shareholder of
Jefferson Bankshares, he or she will be able to present matters for
consideration at meetings of shareholders of Jefferson Bankshares. If any such
BOL Shareholder intends to present a proposal at the 1995 Annual Meeting of
Shareholders and wishes to have it included in Jefferson Bankshares' proxy
statement under applicable proxy rules, the proposal must be received by
Jefferson Bankshares at its principal executive offices before November 18,
1994.
OTHER MATTERS
BOL knows of no matter other than the Merger to be brought to a vote at the
Special Meeting, but, if any such matter is properly presented, the persons
named in the proxies will vote in accordance with their best judgment.
38
<PAGE>
BANK OF LOUDOUN
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1993 AND 1992 AND
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 1993
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Bank of Loudoun
We have audited the accompanying statements of condition of Bank of Loudoun
as of December 31, 1993 and 1992, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial condition of the Bank of Loudoun as of
December 31, 1993 and 1992 and the results of its operations and cash flows for
each of the three years in the period ended December 31, 1993, in conformity
with generally accepted accounting principles.
GRANT THORNTON
Certified Public Accountants
Washington, D.C.
February 4, 1994
F-2
<PAGE>
BANK OF LOUDOUN
STATEMENTS OF CONDITION, DECEMBER 31,
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,184,384 $ 1,555,295
Federal funds sold and other short term investments 5,407,000 5,061,000
Investment securities (market value: $12,154,396
and $9,096,252, repectively) 12,098,193 9,112,464
Loans, net (notes A2, A4, and C) 34,744,093 30,337,689
Accrued interest and other assets (note A3) 410,315 374,727
Bank property and equipment, net (notes A5 and D) 415,194 400,434
Federal Reserve stock 150,500 148,700
Virginia Bankers' Bank stock 50,000 37,600
Other real estate owned (note A8) 19,997 66,081
Deferred income tax benefit (note J) 294,298 40,298
Total assets $ 56,773,974 $ 47,134,288
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note E) $ 50,736,588 $ 41,436,091
Accrued interest and other liabilities 1,253,060 681,265
Total liabilities $ 51,989,648 $ 42,117,356
Commitments (note F) -- --
Stockholders' equity:
Common stock, par value $5.00, 1,000,000 shares
authorized; 501,596 shares outstanding (note I) 2,507,980 2,507,980
Additional paid in capital 2,507,980 2,507,980
Retained earnings (deficit) (231,634) 972
Total stockholders' equity $ 4,784,326 $ 5,016,932
Total liabilities and stockholders' equity $ 56,773,974 $ 47,134,288
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
BANK OF LOUDOUN
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans (note A3) $ 3,042,936 $ 2,351,700 $ 2,087,264
Interest on Federal funds sold and
investments 591,575 667,264 596,154
Total interest income $ 3,634,511 $ 3,018,964 $ 2,683,418
INTEREST EXPENSE
Interest on deposits $ 1,379,080 $ 1,406,683 $ 1,388,223
Net interest income $ 2,255,431 $ 1,612,281 $ 1,295,195
Provision for possible loan losses
(notes A2 and C) 1,160,500 594,744 141,700
Net interest income after provision
for possible loan losses $ 1,094,931 $ 1,017,537 $ 1,153,495
NONINTEREST INCOME
Service charges and other 295,661 241,678 201,977
Gain on sale of investments and loans 136,962 248,161 --
----------- ------------ ------------
Total noninterest income 432,623 489,839 201,977
----------- ------------ ------------
1,527,554 1,507,376 1,355,472
NONINTEREST EXPENSE
Salaries and employee benefits 842,074 644,428 558,870
Occupancy expense 181,514 204,297 202,605
Furniture and equipment expense 99,927 97,957 89,072
Other expenses 756,645 516,476 442,565
----------- ------------ ------------
Total noninterest expense 1,880,160 1,463,158 1,293,112
----------- ------------ ------------
Income (loss) before income taxes and (352,606) 44,218 62,360
change in accounting method
</TABLE>
CONTINUED ON NEXT PAGE
F-4
<PAGE>
BANK OF LOUDOUN
STATEMENTS OF INCOME, CONTINUED
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Income tax expense (benefit) (note J)
Current 134,000 (12,723) 16,300
Deferred (254,000) (3,605) (6,000)
(120,000) (16,328) 10,300
Income (loss) before change in (232,606) 60,546 52,060
accounting method
Cumulative effect at January 1, 1992 of
change in accounting for income taxes
(note J) -- 43,903 --
NET INCOME (LOSS) $ (232,606) $ 104,449 $ 52,060
PER SHARE AMOUNTS (NOTE I)
Income (loss) before change in
accounting method $ (.46) $ .12 $ .10
Cumulative effect of change in
accounting method -- .09 --
NET INCOME (LOSS) $ (.46) $ .21 $ .10
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
BANK OF LOUDOUN
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31,
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
<S> <C> <C> <C> <C>
Balance, January 1, 1991 $ 2,506,080 $ 2,506,080 $ (155,537) $ 4,856,623
Issuance of 330 shares of
common stock 1,650 1,650 -- 3,300
Net income -- -- 52,060 52,060
Balance, December 31, 1991 2,507,730 2,507,730 (103,477) 4,911,983
Issuance of 50 shares of
common stock 250 250 -- 500
Net income -- -- 104,449 104,449
Balance, December 31, 1992 2,507,980 2,507,980 972 5,016,932
Net income (loss) -- -- (232,606) (232,606)
Balance, December 31, 1993 $ 2,507,980 $ 2,507,980 $ (231,634) $ 4,784,326
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
BANK OF LOUDOUN
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1992 1991
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (232,606) $ 104,449 $ 52,060
Adjustments to reconcile net income (loss)
to net cash used by operating activities
(Premium) discount accretion on investments (7,507) 1,898 1,278
Deferred loan fees, net 7,770 6,243 19,747
Provision for possible loan losses 1,160,500 594,744 141,700
Loans charged off, net (390,396) (474,584) (13,325)
Depreciation and amortization of 74,884 77,521 72,445
property and equipment
Increase in other assets (35,588) (58,765) (50,624)
Increase in deferred income tax benefit (254,000) (40,298) --
Increase in accrued interest and 571,795 287,534 55,753
other liabilities
Gain on sale of investments and loans (136,932) (248,161) --
Total adjustments 990,526 146,132 226,974
Net cash provided from operating
activities 757,920 250,581 279,034
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale or maturity of 1,725,000 6,434,023 2,148,998
investment securities
Purchase of investment securities (4,703,222) (8,271,772) (5,789,849)
Net increase in loans (5,001,262) (7,872,040) (6,877,157)
Purchase of Federal Reserve stock (1,800) (1,400) (1,700)
Purchase of Virginia Bankers' stock (12,400) -- --
Capital expenditures (89,644) (47,782) (11,261)
Net cash used by investing
activities $(8,083,328) $(9,758,971) $(10,530,969)
</TABLE>
continued on next page
F-7
<PAGE>
BANK OF LOUDOUN
STATEMENTS OF CASH FLOWS, CONTINUED
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1992 1991
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits, NOW accounts, 8,024,799 11,960,584 6,484,163
and savings accounts
Net increase in certificates of deposit 1,275,698 797,376 2,664,574
Proceeds from issuance of common stock -- 500 3,300
--------- ---------- ---------
Net cash provided by financing
activities 9,300,497 12,758,460 9,152,037
Net increase (decrease) in cash
and cash equivalents 1,975,089 3,250,070 (1,099,898)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,616,295 3,366,225 4,466,123
CASH AND CASH EQUIVALENTS, END OF YEAR $ 8,581,384 $ 6,616,295 $3,366,225
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
BANK OF LOUDOUN
NOTES TO FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bank of Loudoun (the Bank) was incorporated under the laws of the
Commonwealth of Virginia to engage in the general banking business in Loudoun
County, Virginia. The Bank commenced operations as a commercial bank on April
19, 1988.
The accounting policies of Bank of Loudoun conform to generally accepted
accounting principles and general practices within the banking industry. Those
policies which materially affect the determination of financial condition,
results of operations and cash flows are presented below.
1.INVESTMENT SECURITIES
Investment securities are primarily composed of short-term debentures
issued by various Federal agencies. As of December 31, 1993, these investments
are carried at the historical cost plus discount accretion.
As of January 1, 1994, the Bank will adopt Statement of Financial
Accounting Standard (SFAS) 115, "Accounting for Certain Investments in Debt and
Equity Securities," which will require investments in securities to be
classified in one of three categories: held to maturity, trading, and available
for sale. Debt securities which the Bank has the positive intent and ability to
hold to maturity will be classified as held to maturity, and will be reported at
amortized cost. The balance of its debt securities and any equity securities
will be classified as either available for sale or held to maturity. Net
unrealized gains and losses for such securities available for sale will be
required to be recognized as a separate component of stockholders' equity and
excluded from the determination of net income. The Bank has determined that
approximately $1 million of the Investment Securities existing at December 31,
993, will be categorized as available for sale as of the adoption of SFAS 115.
Due to the nature of the market for debt and equity securities, the Bank cannot
predict the ultimate impact of SFAS 115 on the 1994 financial condition and
results of operations of the Bank.
2. LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans are stated at their principal amount outstanding. The allowance for
possible loan losses is established through a provision charged to expense.
Loans are charged against the allowance for possible loan losses when management
believes that the collectibility of the principal is unlikely. The allowance is
an amount that management believes will be adequate to absorb possible losses on
existing loans that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of any specific problem loans, and
current economic conditions that may affect the borrower's ability to pay.
The FASB has also issues SFAS 114, "Accounting for Creditors for Impairment
of a Loan, which requires that a bank measure impairment based on the present
value of expected future cash flows discounted at the loan's effective interest
rate, except that as a practical expedient, a bank may measure impairment based
on a loan's observable market price, or the fair value of the collateral if the
loan is collateral-dependent. Regardless of the measurement method, a bank must
measure impairment based on the fair value of the collateral when the bank
determines that foreclosure is probable. SFAS 114, when adopted, is not
expected to have a material effect on the financial statements. The Bank will
be required to adopt this new standard for its year ended December 31, 1995.
F-9
<PAGE>
BANK OF LOUDOUN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. INTEREST INCOME ON LOANS
Interest is calculated using the simple interest method on daily balances
of principal outstanding. The accrual of interest is discounted when management
believes, after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that collection of
interest is doubtful.
4. LOAN ORIGINATION AND COMMITMENT FEES
Loan origination and commitment fees and certain direct loan origination
costs are being deferred and the net amount amortized as an adjustment of the
related loan's yield. The Bank is generally amortizing these amounts over the
contractual life of the related loans.
5. BANK PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation of furniture and equipment is provided for over
the useful lives of the respective assets. Amortization of leasehold
improvements is provided for over the shorter of the lives of the respective
leases or the lives of the assets. Provisions for depreciation and amortization
included in the accompanying statement of operations are computed on the
straight-line basis, while accelerated methods are used for tax purposes.
6. INCOME (LOSS) PER SHARE
Income (loss) per share is computed by dividing the income (loss) by the
weighted average number of shares outstanding during the year (501,596, 501,571
and 501,242 shares, respectively, for 1993, 1992 and 1991.) All per share
amounts have been adjusted to give effect to the two for one stock split
discussed in Note I.
7. STATEMENT OF CASH FLOW
For purposes of reporting cash flow, cash and cash equivalents include cash
on hand, amounts due from banks, Federal funds sold and other short-term
investments with original maturities of three months or less.
8. OTHER REAL ESTATE OWNED
The Bank's other real estate owned (which was acquired by deed in lieu of
foreclosure) is carried at the lower of cost or fair market value at the date of
acquisition and carried at the lower of acquisition value or net realizable
value subsequent to the date of acquisition. Costs relating to the improvement
of the property are capitalized; holding costs are charged to expense as
incurred.
F-10
<PAGE>
BANK OF LOUDOUN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE B INVESTMENT SECURITIES
The amortized cost and estimated market values
of investment in debt securities at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
CARRYING UNREALIZED GAINS UNREALIZED MARKET
AMOUNT LOSSES VALUE
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
U.S. Government and $1,748,380 $ 14,276 -- $ 1,762,656
Agency Securities
Obligations of states and 75,000 3,608 -- 78,608
political subdivisions
Mortgage-backed 9,574,813 34,626 (14,465) 9,594,974
securities
Other Securities 700,000 18,158 -- 718,158
Total $ 12,098,193 $ 70,668 $(14,465) $ 12,154,396
DECEMBER 31, 1992
U.S. Government and $ 2,248,324 $ 25,502 $(13,046) $ 2,260,780
Agency Securities
Obligations of states and 100,410 726 -- 101,136
political subdivisions
Mortgage-backed 5,863,730 11,431 (46,731) 5,828,430
securities
Other Securities 900,000 5,906 -- 905,906
Total $ 9,112,464 $ 43,565 $(59,777) $ 9,096,252
</TABLE>
F-11
<PAGE>
BANK OF LOUDOUN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The amortized cost and estimated market value of debt securities at December
31, 1993 and 1992, by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
1993 1992
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
<S> <C> <C> <C> <C>
Due in one year or less $ 4,251,398 $ 4,263,673 $ 524,809 $ 538,757
Due after one year through five 6,869,835 6,913,379 7,584,549 7,554,233
years
Due after five years through ten 500,618 500,625 1,003,106 1,003,262
years
Due after ten years 476,342 476,719 -- --
Total $ 12,098,193 $ 12,154,396 $ 9,112,464 $ 9,096,252
</TABLE>
During 1992, the Bank sold investment securities for total proceeds of
$6,434,012, which included accrued interest through the date of sale totaling
$77,337. The Bank recognized a gain of $248,161 on the transactions. No
investment securities were sold during 1993 or 1991.
F-12
<PAGE>
BANK OF LOUDOUN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE C LOANS
The following schedule reflects loans, by type, included in the
statements of conditions at December 31:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Commercial 10,887,645 $11,462,059
Real estate 17,318,087 14,783,775
Installment 2,547,543 1,480,872
Construction 2,419,610 1,065,475
Home equity 2,228,656 1,517,061
Other 536,285 444,306
35,937,826 30,753,548
Less:
Allowance for possible loan losses (1,129,375) (359,271)
Deferred loan fees, net (64,358) (56,588)
Total loans, net 34,744,093 $30,337,689
</TABLE>
A summary of transactions in the allowance for possible loan losses for the
period ending December 31, 1993, 1992 and 1991 follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Balance at beginning of year $ 359,271 $239,112 110,737
Provision charged to operations 1,160,500 594,744 141,700
Loans charged off (426,282) (504,041) (17,244)
Recoveries 35,886 29,456 3,919
Balance at end of year $1,129,375 $359,271 239,112
</TABLE>
At December 31, 1993, 1992 and 1991 the Bank was contingently liable for
undrawn loan commitments and outstanding letters of credit amounting to
approximately $7,300,000, $4,970,000, and $5,675,000 respectively.
F-13
<PAGE>
BANK OF LOUDOUN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE D BANK PROPERTY AND EQUIPMENT
An analysis of Bank property and equipment at December 31, 1993 and 1992
follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Furniture and equipment $693,813 $626,064
Leasehold improvements 67,740 67,740
Less accumulated depreciation and amortization
(346,359) (293,370)
Total bank property and equipment $415,194 $400,434
</TABLE>
NOTE E DEPOSITS
Deposits consist of the following at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Noninterest bearing $ 8,898,224 $ 6,613,876
Interest bearing
Regular Savings 6,133,611 3,156,010
NOW accounts 7,864,052 3,572,630
Money market accounts 12,280,819 13,732,449
Cash management funds 296,820 363,762
Certificates of deposit less
than $100,000 10,765,847 10,097,712
Certificates of deposit of
$100,000 or more 4,497,215 3,899,652
Total interest bearing 41,838,364 34,822,215
Total deposits $ 50,736,588 $ 41,436,091
</TABLE>
F-14
<PAGE>
BANK OF LOUDOUN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE F OFFICE LEASE
The Bank has a ten-year lease agreement for approximately 9,600 square
feet of retail banking space. The agreement was made in the ordinary course of
business with a related party lessor. The terms of the lease agreement are
substantially the same as those prevailing at that time for comparable
transactions with independent third parties. The lease provides for an initial
rental of $115,896 which will be escalated annually by 4%. Rent expense is
being recognized on a straight line basis over the life of the lease. The Bank
has sublet a portion of this space to tenants under several lease agreements.
The minimum payments under the Bank's lease agreement including annual
escalations are:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
<S> <C>
1994 $ 140,350
1995 158,239
1996 168,111
1997 174,352
1998 180,843
1999 and beyond 90,422
$ 912,317
</TABLE>
The Bank incurred approximately $138,000, $133,000, and $112,000 in rent
expense for the years ended December 31, 1993, 1992 and 1991, respectively.
NOTE G RELATED PARTY TRANSACTIONS
Certain directors, officers and stockholders of the Bank, including their
immediate families and companies in which they have significant ownership, were
either loan customers or depositors of the Bank during 1993 and 1992. Related
party loans and deposits are made in the ordinary course of business and on
substantially the same credit terms including interest rate and
collateralization, as those prevailing at the time for comparable transactions
with unrelated third parties, and did not involve more than normal risk of
collectibility. Total loans to stockholders of more than one percent of bank
stock and other related parties as defined above at December 31, 1993 and 1992
amounted to approximately $2,030,000 and $1,267,000.
NOTE H SUPPLEMENTAL CASH FLOWS INFORMATION
The Bank paid $1,391,796, $1,424,665, and $1,374,194 for interest on
deposits during the years ended December 31, 1993, 1992 and 1991, respectively,
and $150,000, $31,219, and $544 for income taxes during the years ended December
31, 1993, 1992 and 1991, respectively.
F-15
<PAGE>
BANK OF LOUDOUN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE I STOCKHOLDERS' EQUITY
On March 9, 1992, the Bank affected a two for one stock split. All
presentation of outstanding shares and per share amounts reflect the split.
The Board of Directors and shareholders approved a stock option plan for
the benefit of the Bank's organizers on May 23, 1988. An aggregate of 50,000
shares of common stock of the Bank are subject to the Plan from authorized but
unissued shares. The price at which shares may be purchased is $10.00 per
share. On May 23, 1993 the Bank's stockholders approved an amendment to the
plan which extended the option period for certain organizing directors until May
22, 1998. As of December 31, 1993, 42,000 options have been granted, of which
4,000 have expired, 896 have been exercised, and 37,104 remain outstanding at
December 31, 1993.
NOTE J INCOME TAXES
Effective January 1, 1992, the Bank adopted Statement of Financial
Accounting No. 109, "Accounting for Income Taxes." The Statement allows the Bank
to recognize deferred tax benefits resulting from temporary differences between
items of income or expense reported in the financial statements, and those
reported for income tax purposes. These differences relate principally to the
use of the cash basis method of accounting for income tax purposes, depreciation
of property and equipment, and provision for possible loan losses. The
components of the deferred tax benefit under FASB 109 at December 31, 1993 and
1992 are:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Cash basis method of accounting for income $17,073 $(13,880)
tax purposes
Depreciation of property and equipment (28,893) (24,112)
Deferred loan fees 21,881 19,240
Provision for loan losses 284,237 59,050
Total 294,298 $ 40,298
</TABLE>
F-16
<PAGE>
BANK OF LOUDOUN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE K REGULATORY MATTERS
The Bank is required to maintain minimum amounts of capital to total
minimum amounts of capital to total "risk weighted" assets, as defined by the
banking regulators. The Bank's compliance with these ratios at December 31,
1993 is as follows:
<TABLE>
<CAPTION>
MINIMUM ALLOWABLE RATE ACTUAL RATIO
DECEMBER 31, 1993
<S> <C> <C>
Tier 1 4.00% 8.56%
Total 8.00% 9.81%
</TABLE>
NOTE L EMPLOYMENT CONTRACTS
The Bank has entered into employment agreements with certain officers.
These one-year agreements provide for compensation levels, automobile usage, and
possible performance bonuses. In addition, in August 1994, an officer of the
Bank will be granted 2,000 shares of stock (value of $10.00 per share).
NOTE M SUBSEQUENT EVENT
On January 11, 1994, the Bank reached an agreement in principle under
which Bank of Loudoun would merge with Jefferson National Bank, a subsidiary of
Jefferson Bankshares. The agreement provides for shareholders of Bank of
Loudoun to receive one share of Jefferson Bankshares' common stock for each
share of Bank of Loudoun common stock. The merger is subject to approval by
Bank of Loudoun's stockholders and regulatory authorities.
F-17
<PAGE>
BANK OF LOUDOUN
FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 1994 AND 1993
(UNAUDITED)
F-18
<PAGE>
BANK OF LOUDOUN
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
ASSETS March 31, December 31
1994 1993
(unaudited) (audited)
<S> <C> <C>
Cash and due from banks $ 2,109,399 $ 3,184,384
Federal funds sold 5,486,000 5,407,000
Investment securities available for sale 983,906 --
Investment securities held to maturity 11,369,523 12,098,193
Loans, net 35,027,135 34,744,093
Accrued interest and other assets 116,264 410,315
Bank property and equipment 395,404 415,194
Federal reserve stock 150,500 150,500
Virginia Bankers' Bank stock 50,000 50,000
Other real estate owned 19,997 19,997
Deferred income tax benefit 300,425 294,298
$ 56,008,553 $ 56,773,974
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 51,068,942 $ 50,736,588
Accrued interest and other liabilities 82,310 1,253,060
Total liabilities 51,151,252 51,989,648
STOCKHOLDERS' EQUITY
Common stock ($5.00 par value 1,000,000 shares
authorized; 501,596 shares outstanding) 2,507,980 2,507,980
Additional paid-in capital 2,507,980 2,507,980
Retained deficit (149,467) (231,634)
Unrealized loss on investments available for sale (9,192) --
4,857,301 4,784,326
$ 56,008,553 $ 56,773,974
</TABLE>
The accompanying statements are an integral part of these unaudited statements.
F-19
<PAGE>
BANK OF LOUDOUN
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 737,367 $ 680,341
Interest on federal funds sold and investments 154,381 142,709
Total interest income 891,748 823,050
INTEREST EXPENSE
Interest on deposits 339,415 335,799
Net interest income 552,333 487,251
Provision for possible loan losses 40,000 65,000
Net interest income after
provision for loan losses 512,333 422,251
NON-INTEREST INCOME
Service charges and other 100,177 82,369
NON-INTEREST EXPENSE
Salaries and employee benefits 220,245 193,635
Occupancy expense 44,339 45,244
Other expenses 222,759 187,041
Loss on sale of securities -- 2,364
Total non-interest expense 487,343 428,284
Income before income taxes 125,167 76,336
Income tax expense (benefit) 43,000 25,953
NET INCOME $ 82,167 $ 50,383
PER SHARE AMOUNTS $ 0.16 $ 0.10
</TABLE>
The accompanying statements are an integral part of these unaudited statements.
F-20
<PAGE>
BANK OF LOUDOUN
STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
LOSS ON
ADDITIONAL RETAINED INVESTMENTS TOTAL
COMMON STOCK PAID-IN EARNINGS AVAILABLE STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) FOR SALE EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 501,596 $ 2,507,980 $ 2,507,980 $ (231,634) $ -- $ 4,784,326
Net income for the period -- -- -- 82,167 -- 82,167
Change in method of
accounting for
investments, net of
deferred tax benefit
(note B) -- -- -- -- (1,949) (1,949)
Change in net unrealized
loss on investments
available for sale,
net of deferred tax
benefit -- -- -- -- (7,243) (7,243)
Balance, March 31, 1994 501,596 $ 2,507,980 $2,507,980 $(149,467) $(9,192) $ 4,857,301
Balance, January 1, 1993 501,596 $ 2,507,980 $2,507,980 $ 972 $ -- $ 5,016,932
Net income for the period -- -- -- 50,383 -- 50,383
Balance, March 31, 1993 501,596 $ 2,507,980 $2,507,980 $51,355 $ -- $ 5,067,315
</TABLE>
The accompanying statements are an integral part of these unaudited statements.
F-21
<PAGE>
BANK OF LOUDOUN
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 82,167 $ 50,383
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation expense 19,790 17,163
Unrealized loss on investments available
for sale (9,192) --
Premium accretion on investments (5,236) --
Amortization of deferred loan fees 11,197 10,562
Provision for possible loan losses 40,000 65,000
Decrease in accrued interest receivable
and other assets 294,051 202,785
Increase in deferred tax benefit (6,127) --
Decrease in accrued interest payable and
other liabilities (1,170,750) (577,376)
Total adjustments (826,267) (281,866)
Net cash used in operating
activities (744,100) (231,483)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment -- (31,674)
Net increase in loans (334,239) (3,371,912)
Purchases of investments (3,250,000) (438,990)
Proceeds from maturity of investments 3,000,000 --
Net cash used in investing
activities (584,239) (3,842,576)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts
and savings certificates 653,942 4,648,970
Net (decrease) increase in certificates of deposit (321,588) 666,707
Net cash provided by financing
activities 332,354 5,315,677
Net (decrease) increase in cash
and cash equivalents (995,985) 1,241,618
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,591,384 6,616,295
CASH AND CASH EQUIVALENTS AT END OF PERIOD $7,595,399 $7,857,913
</TABLE>
The accompanying statements are an integral part of these unaudited statements.
F-22
<PAGE>
BANK OF LOUDOUN
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
NOTE A - ACCOUNTING POLICIES AND OTHER DATA
Reference should be made to the notes to financial statements included in
the Annual Report to stockholders for the year ended December 31, 1993, which
contain the Bank's accounting policies and other data.
NOTE B - INVESTMENT SECURITIES
As of January 1, 1994, the Bank adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which requires investments to be classified in one of three
categories: held to maturity, trading, or available for sale. Debt securities
which the Bank has the positive intent and ability to hold to maturity are
classified as held to maturity and reported at amortized cost. The remaining
securities are classified as available for sale. Unrealized gains and losses on
these securities, net of tax effects, are recognized as a separate component of
stockholders' equity and excluded from determination of net income. Adoptation
of SFAS No. 115 at January 1, 1994 reduced stockholders' equity by $1,949, net
of tax impact.
The amortized cost and estimated market values of investments in debt
securites available for sale at March 31, 1994 are as follows:
<TABLE>
<CAPTION>
Carrying Unrealized Unrealized
Amount Gains Losses Market Value
<S> <C> <C> <C> <C>
Mortgage-backed securites $ 999,225 $ -- $ (15,319) $ 983,906
</TABLE>
The amortized cost and estimated market value of debt securities available
for sale at March 31, 1994 by maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have right to
prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Market Value
<S> <C> <C>
Due in one year or less $ 499,225 $ 498,906
Due after one year through five years 500,000 485,000
$ 999,225 $ 983,906
</TABLE>
The accompanying statements are an integral part of these unaudited statements.
F-23
<PAGE>
The amortized cost and estimated market values of investments in debt
securities held to maturity at March 31, 1994 are as follows:
<TABLE>
<CAPTION>
Carrying Unrealized Unrealized
Amount Gains Losses Market Value
<S> <C> <C> <C> <C>
U.S. Government and Agency
Securities $ 1,498,375 $ -- $ (3,218) $ 1,495,157
Obligations of states and
political subdivisions 75,000 2,206 -- 77,206
Mortgage-backed securities 8,796,148 11,336 (29,812) 8,777,672
Other securities 1,000,000 8,813 -- 1,008,813
$ 11,369,523 $ 22,355 $ (33,030) $ 11,358,848
</TABLE>
The accompanying statements are an integral part of these unaudited statements.
F-24
<PAGE>
BANK OF LOUDOUN
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1994
(UNAUDITED)
NOTE B - INVESTMENT SECURITIES - Continued
The amortized cost and estimated market value of debt securities held to
maturity at March 31, 1994 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
<S> <C> <C>
Due in one year or less $ 4,120,507 $ 4,126,115
Due after one year through five years 6,271,795 6,266,658
Due after five years through ten years 500,600 500,625
Due after ten years 476,621 465,450
$ 11,369,523 $ 11,358,848
</TABLE>
The amortized cost and estimated market values of investments in debt
securities at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
CARRYING UNREALIZED UNREALIZED
AMOUNT GAINS LOSSES MARKET VALUE
<S> <C> <C> <C> <C>
U.S. Government and Agency
Securities $ 1,748,380 $ 14,276 $ -- $ 1,762,656
Obligations of states and
political subdivisions 75,000 3,608 -- 78,608
Mortgage-backed securities 9,574,813 34,626 (14,465) 9,594,974
Other securities 700,000 18,158 -- 718,158
$ 12,098,193 $ 70,668 $ (14,465) $ 12,154,396
</TABLE>
The amortized cost and estimated market value of debt securities at December
31, 1993 by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
<S> <C> <C>
Due in one year or less $ 4,251,398 $ 4,263,673
Due after one year through five years 6,869,835 6,913,379
Due after five years through ten years 500,618 500,625
Due after ten years 476,342 476,719
$ 12,098,193 $ 12,154,396
</TABLE>
The accompanying statements are an integral part of these unaudited statements.
F-25
<PAGE>
BANK OF LOUDOUN
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1994
(UNAUDITED)
NOTE C - LOANS
The following schedule reflects loans, by type, included in the
statements of condition:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
<S> <C> <C>
Commercial $ 11,862,006 $10,887,645
Real estate 16,827,351 17,318,087
Installment 2,672,489 2,547,543
Construction 2,206,059 2,419,610
Home equity 2,118,946 2,228,656
Other 554,146 536,285
36,240,997 35,937,826
Less:
Allowance for possible loan losses (1,160,701) (1,129,375)
Deferred loan fees, net (53,161) (64,358)
Total loans, net $ 35,027,135 $34,744,093
NOTE D - DEPOSITS
Deposits consist of the following:
MARCH 31, DECEMBER 31,
1994 1993
Non-interest bearing $ 8,781,472 $ 8,898,224
Interest bearing
Regular savings 6,628,747 6,133,611
NOW accounts 7,056,687 7,864,052
Money market accounts 13,680,562 12,577,639
Certificates of deposit less than $100,000 10,407,828 10,765,847
Certificates of deposit of $100,000 or more 4,513,646 4,497,215
Total interest bearing 42,287,470 41,838,364
Total deposits $ 51,068,942 $50,736,588
</TABLE>
NOTE E - INCOME TAXES
Federal income taxes are computed on an annualized basis.
The accompanying statements are an integral part of these unaudited statements.
F-26
<PAGE>
BANK OF LOUDOUN
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1994
(UNAUDITED)
NOTE F - SALE OF BANK
On January 11, 1994, the Bank reached an agreement in principle under which
Bank of Loudoun would merge with Jefferson National Bank, a subsidiary of
Jefferson Bankshares. The agreement provides for shareholders of Bank of
Loudoun to receive one share of Jefferson Bankshares common stock for each share
of Bank of Loudoun common stock. The merger is subject to approval by Bank of
Loudoun's stockholders and regulatory authorities.
The accompanying statements are an integral part of these unaudited statements.
F-27
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of April 4,
1994, among BANK OF LOUDOUN, a Virginia corporation ("BOL"), JEFFERSON NATIONAL
BANK, a national banking association organized under the laws of the United
States ("Jefferson National Bank"), and JEFFERSON BANKSHARES, INC., a Virginia
corporation ("Jefferson Bankshares") (Jefferson National Bank and Jefferson
Bankshares are collectively referred to as "Jefferson").
The Boards of Directors of BOL, Jefferson National Bank and Jefferson
Bankshares deem a merger of BOL into Jefferson National Bank (the "Merger"),
pursuant to which each shareholder of BOL will receive, on the terms set forth
herein, one share of the Common Stock, $2.50 par value per share, of Jefferson
Bankshares ("Jefferson Bankshares Common Stock") in exchange for each share of
the Common Stock, $5.00 par value per share, of BOL ("BOL Common Stock") held by
such shareholder, advisable and in the best interests of their respective
shareholders and have authorized the Merger pursuant to the authority given by
and in accordance with the applicable provisions of the laws and regulations
thereunder of the United States and the Commonwealth of Virginia.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements contained herein, the parties hereto agree as follows:
SECTION 1 - TERMS AND PLAN OF MERGER
1.1 THE MERGER. Subject to the terms of this Agreement, on the Effective
Date (as defined below), BOL will merge with and into and under the charter of
Jefferson National Bank (sometimes hereinafter referred to as the "Receiving
Bank"). From and after the Effective Date, the name of the Receiving Bank will
remain Jefferson National Bank and the Articles of Association and Bylaws of the
Receiving Bank in effect immediately prior to the Effective Date will continue
to be its Articles of Association and Bylaws, until amended or repealed in a
manner provided by law. The business of the Receiving Bank will remain that of
a national banking association and will be conducted at its main office at 123
East Main Street in Charlottesville, Virginia, and at its various authorized
branch offices, including the sole office of BOL.
1.2 STATUS OF RECEIVING BANK; PROPERTY RIGHTS AND INTERESTS VESTED AND HELD
AS FIDUCIARY. At the Effective Date, the corporate existence of BOL shall be
merged into and continued in the Receiving Bank and the Receiving Bank shall be
deemed to be the same corporation as each bank or banking association
participating in the Merger. All rights, franchises, and interests of BOL in
and to every type of property (real, personal, and mixed) and choses in action
shall be transferred to and vested in the Receiving Bank by virtue of the Merger
without any deed or other transfer. The Receiving Bank, upon the Merger and
without any order or other action on the part of any court or otherwise, shall
hold and enjoy all rights of property, franchises, and interests, including
appointments, designations, and nominations, and all other rights and interests
as trustee, executor, administrator, registrar of stocks and bonds, guardian of
estates, assignee, receiver and committee of estates of lunatics, and in every
other fiduciary capacity, in the same manner and to the same extent as such
rights, franchises and interests were held or enjoyed by BOL at the time of the
Merger, subject to the right of any court of competent jurisdiction, in
accordance with applicable law, to remove the Receiving Bank and to appoint in
lieu thereof a substitute trustee, executor or other fiduciary.
A-1
<PAGE>
1.3 LIABILITIES OF MERGING BANK. From and after the Effective Date, the
Receiving Bank shall be responsible for all liabilities, debts, obligations and
contracts of BOL, matured or unmatured, accrued, absolute, contingent or
otherwise, whether or not reflected or reserved against on the balance sheets,
books of account or records of BOL, none of which shall be released or impaired
by virtue of the Merger.
1.4 CAPITAL OF THE RECEIVING BANK. At the Effective Date, the amount of
capital of the Receiving Bank will consist of capital stock equal to $20,000,000
divided into 8,000,000 shares of common stock, par value $2.50 per share; a
surplus equal to $44,339,850; and undivided profits, including capital reserves,
equal to $118,834,640 adjusted, however, for normal income and expenses of BOL
and the Receiving Bank between January 1, 1994 and the Effective Date, the
merger of BOL with and into Receiving Bank, and for any dividends, cash
payments, and other transactions not in contravention of this Agreement.
1.5 DIRECTORS OF THE RECEIVING BANK. The directors of Jefferson National
Bank immediately prior to the Effective Date will be the directors of the
Receiving Bank from and after the Effective Date and will serve until their
successors are duly elected or appointed and qualified.
1.6 APPROVAL BY SHAREHOLDERS AND REGULATORY AUTHORITIES. The affirmative
vote of at least two-thirds of the outstanding shares of Jefferson National
Bank's common stock and more than two-thirds of the outstanding shares of BOL's
Common Stock is required to approve this Agreement. Jefferson Bankshares, in
its capacity as the sole shareholder of Jefferson National Bank as well as in
its capacity as a party to this Agreement, has approved this Agreement. This
Agreement will be submitted for ratification and approval to the shareholders of
BOL at a meeting called and held in accordance with Section 7.2 and applicable
provisions of the laws of the Commonwealth of Virginia and the United States.
The parties hereto will proceed expeditiously and will cooperate fully in making
application for all necessary regulatory approvals, in the procurement of any
other consents and approvals and in the taking of any other actions and the
satisfaction of all other requirements prescribed by law or otherwise necessary
for the consummation of the Merger on the terms herein provided.
1.7 THE CLOSING. Subject to satisfaction of the conditions set forth in
Sections 8 and 9 and of this Agreement, the closing of the Merger will take
place at the offices of Jefferson Bankshares in Charlottesville, Virginia, or at
such other place as may be designated by Jefferson Bankshares, on the date (the
"Effective Date") so designated by the Office of the Comptroller of the Currency
(the "OCC") in a certificate issued by the OCC approving the Merger.
SECTION 2 - CONVERSION OF SHARES
2.1 CONVERSION OF SECURITIES.
(a) Subject to the provisions of this Section 2, each share of BOL Common
Stock issued and outstanding immediately prior to the Effective Date, other than
shares, if any, as to which the holders have asserted and not effectively
withdrawn or otherwise lost their dissenters' rights as provided in 12 U.S.C.
(section mark)215a(b) ("Dissenting Shareholders") shall, as a result of the
Merger and without any action on the part of the holder thereof, be canceled
and converted into the right to receive one (1) share of Jefferson Bankshares
Common Stock. Each certificate which, immediately prior to the Effective Date,
represented a share or shares of BOL Common Stock shall, at and after the
Effective Date, be deemed for all purposes to represent the right to receive
the number of shares of Jefferson Bankshares Common Stock specified herein.
A-2
<PAGE>
(b) Each share of the Common Stock of Jefferson National Bank issued and
outstanding immediately prior to the Effective Date shall continue to be issued
and outstanding shares of the Receiving Bank.
2.2 NO FRACTIONAL SHARES. No fractional shares of Jefferson Bankshares
Common Stock, and no certificates or scrip representing such fractional shares,
shall be issued upon the surrender of any BOL Common Stock certificate for
exchange. In lieu of any such fractional share, the Exchange Agent (as defined
in Section 2.3(a)) will pay to each holder of a BOL Common Stock certificate who
otherwise would be entitled to receive a fractional share of Jefferson
Bankshares Common Stock an amount of cash (without interest thereon) determined
by multiplying (i) the mean of the high and low sale prices of Jefferson
Bankshares Common Stock on the Effective Date, or, if such stock is not traded
on such date, on the nearest preceding trade date upon which such stock was
traded, as reported in THE WALL STREET JOURNAL by (ii) the fractional share
interest to which such holder would otherwise be entitled.
2.3 EXCHANGE OF SHARES.
(a) Jefferson National Bank, acting through its trust department, will
serve as agent (the "Exchange Agent") for the shareholders of BOL. Immediately
prior to the Effective Date, Jefferson Bankshares will cause to be delivered to
the Exchange Agent certificates representing the number of shares of Jefferson
Bankshares Common Stock which the holders of shares of BOL Common Stock are
entitled to receive as a result of the Merger and from time to time Jefferson
Bankshares shall, at the request of the Exchange Agent, promptly make available
to the Exchange Agent sufficient cash to make the cash payments in respect of
fractional shares of Jefferson Bankshares Common Stock required by Section 2.2.
(b) As soon as practicable after the Effective Date, the Exchange Agent
will mail to each shareholder of record of BOL immediately prior to the
Effective Date a letter of transmittal which shall contain instructions for
surrendering BOL Common Stock certificates for certificates representing shares
of Jefferson Bankshares Common Stock. The letter of transmittal shall specify
that title to any certificate being submitted for exchange shall pass only upon
delivery of such certificate to, and receipt of such certificate by, the
Exchange Agent. Upon receipt by the Exchange Agent of any such certificate,
together with a duly executed letter of transmittal, such certificate shall be
canceled and the Exchange Agent shall deliver to the former holder of such
certificate (or his transferee, as provided in Section 2.4): (i) a certificate
representing the number of shares of Jefferson Bankshares Common Stock to which
the former holder of BOL Common Stock is entitled; and (ii) cash in lieu of the
former holder's fractional share interest, if any, of Jefferson Bankshares
Common Stock in accordance with Section 2.2.
(c) Notwithstanding anything to the contrary in this Section 2.3, if any
holder of BOL Common Stock shall be unable to surrender his certificate for
shares of BOL Common Stock because such certificate has been lost or destroyed,
such holder may deliver in lieu thereof an indemnity bond in form and substance
and with surety satisfactory to Jefferson Bankshares.
2.4 TRANSFER OF CERTIFICATES.
(a) If any certificate representing a share or shares of Jefferson
Bankshares Common Stock is to be issued in a name other than that in which BOL
Common Stock certificate surrendered in exchange therefor is registered, it
shall be a condition of the issuance thereof that BOL Common Stock certificate
surrendered shall be properly endorsed and otherwise in proper form for
transfer, and that the person requesting such exchange shall (i) pay to the
Exchange Agent any transfer or other taxes required by reason of the issuance of
a certificate representing shares of Jefferson Bankshares Common Stock in any
name other than that of the registered holder of BOL Common Stock certificate
surrendered or
A-3
<PAGE>
(ii) establish to the satisfaction of the Exchange Agent that such tax has
been paid or that no such tax is payable.
(b) After the Effective Date there shall be no transfers on the stock
transfer books of BOL of the shares of BOL Common Stock which were issued and
outstanding immediately prior to the Effective Date.
2.5 DISSENTING SHAREHOLDERS. Shares of BOL Common Stock held by a
Dissenting Shareholder shall not be converted into the right to receive shares
of Jefferson Bankshares Common Stock (and cash for fractional shares) unless and
until such Dissenting Shareholder shall have effectively withdrawn or otherwise
lost the right to dissent and receive payment of the value of his shares under
12 U.S.C. (section mark)215a(b), at which time such shares shall be converted
into a right to receive shares of Jefferson Bankshares Common Stock (and cash
for any fractional shares).
2.6 POST MERGER DIVIDENDS ON JEFFERSON BANKSHARES COMMON STOCK; UNDELIVERED
BOL COMMON STOCK CERTIFICATES. No dividends or other distributions declared
after the Effective Date with respect to Jefferson Bankshares Common Stock, and
payable to the holders of record thereof after the Effective Date, shall be paid
to the holder of any unsurrendered BOL Common Stock certificate until the holder
of record shall have surrendered such certificate for exchange. Subject to the
effect, if any, of applicable law upon the surrender of a BOL Common Stock
certificate for exchange, the holder thereof shall be entitled to receive such
dividends or other distributions, without interest thereon, as he would have
been entitled to receive had he surrendered such certificate for exchange
immediately after the Effective Date. All dividends or other distributions
declared after the Effective Date with respect to Jefferson Bankshares Common
Stock, and payable to the holders of record thereof after the Effective Date,
which are payable to holders of BOL Common Stock certificates not theretofore
surrendered for exchange pursuant to this Section 2 shall be paid or delivered
by Jefferson Bankshares to the Exchange Agent, for the benefit of such holders.
2.7 TERMINATION OF DUTIES OF EXCHANGE AGENT.
(a) All dividends or other distributions held by the Exchange Agent for
payment to the holders of unsurrendered BOL Common Stock certificates and
unclaimed at the end of one year from the Effective Date shall be delivered to
Jefferson Bankshares by the Exchange Agent, after which time any holders of BOL
Common Stock certificates who have not theretofore surrendered such certificates
for exchange shall, subject to applicable law, look only to Jefferson
Bankshares, as a general creditor, for payment of such dividends or
distributions, without interest thereon.
(b) Any certificates for shares of Jefferson Bankshares Common Stock or
cash delivered or made available to the Exchange Agent pursuant to subparagraph
(a) of this Section 2.7 and not exchanged for shares of BOL Common Stock within
one year after the Effective Date shall be returned to Jefferson Bankshares by
the Exchange Agent, and Jefferson Bankshares shall thereafter act as exchange
agent. Any whole shares of Jefferson Bankshares Common Stock representing an
aggregate of fractional shares thereof in respect of which cash payments have
been made to the former shareholders of BOL shall be delivered to Jefferson
Bankshares by the Exchange Agent.
2.8 ANTI-DILUTION. If, after the date hereof and prior to the Effective
Date, Jefferson Bankshares declares or pays any stock dividend to the holders of
record of Jefferson Bankshares Common Stock prior to the Effective Date, or
otherwise splits, combines or reclassifies its shares of Jefferson Bankshares
Common Stock, then the number of shares of Jefferson Bankshares Common Stock
payable to the holders of BOL Common Stock shall be appropriately adjusted to
give effect to such stock dividend, stock split, combination or
reclassification.
A-4
<PAGE>
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF BOL
BOL represents and warrants to Jefferson Bankshares and Jefferson National
Bank the following:
3.1 ORGANIZATION; QUALIFICATION. BOL is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Virginia and has corporate power and authority to own all of its properties and
assets and to carry on its business as now being conducted. BOL does not own or
lease property or operate any business in any jurisdiction other than Virginia
and, as such, is not required to qualify to do business in any jurisdiction
other than Virginia. BOL has heretofore delivered to Jefferson Bankshares
complete and correct copies of its Articles of Incorporation and Bylaws, as
currently in effect.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. BOL has corporate power and
authority to execute and deliver this Agreement and to consummate the Merger.
The execution and delivery by BOL of this Agreement and the consummation of the
Merger have been duly authorized by the Board of Directors of BOL and, except
for obtaining the approval of the holders of more than two-thirds of the
outstanding shares of BOL Common Stock, no other corporate proceedings on the
part of BOL are necessary with respect thereto. Subject to the aforementioned
shareholder approval, and assuming that Jefferson National Bank and Jefferson
Bankshares have duly authorized the execution, delivery and performance of this
Agreement, this Agreement constitutes a valid and binding obligation of BOL.
3.3 CAPITAL STOCK. The authorized, issued and outstanding shares of
capital stock of BOL are as set forth on Schedule 3.3. hereto and all such
issued and outstanding shares are validly issued, fully paid and nonassessable.
Except as set forth on Schedule 3.3, there are not authorized or outstanding any
subscriptions, options, conversion rights, warrants or other agreements,
securities or commitments of any nature whatsoever (whether oral or written and
whether firm or conditional) obligating BOL to issue, deliver or sell, or cause
to be issued, delivered or sold, any shares of its capital stock, or any
securities convertible into or exchangeable for shares of its capital stock, or
obligating BOL to grant, extend or enter into any such agreement or commitment.
3.4 SUBSIDIARIES; STOCK OWNERSHIP. BOL has no subsidiaries and, except as
set forth on Schedule 3.4, further does not own, directly or indirectly, any
equity interest in any bank, corporation or other entity, other than in a
fiduciary capacity, except as collateral security for loans.
3.5 FINANCIAL STATEMENTS. BOL has previously furnished Jefferson
Bankshares with true and complete copies of the audited financial statements of
BOL for the years ending December 31, 1991, 1992, and 1993 including the notes
thereto (the "Audited BOL Financial Statements"), together with the report on
such statements of BOL's auditors for such periods. Such financial statements,
taken as a whole, present fairly the financial position of BOL as of such dates
and the results of its operations and cash flows for such periods, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis except as set forth on Schedule 3.5.
3.6 CONSENTS AND APPROVALS. Except as set forth in Schedule 3.6, and other
than in connection or in compliance with the provisions of the Virginia Stock
Corporation Act, Title 6.1 of the Code of Virginia, and 12 U.S.C. (section
mark)(section mark)215a and 1828, there is no requirement applicable to BOL to
make any filing
A-5
<PAGE>
with, or to obtain any permit, authorization, consent or
approval of any public body, governmental agency or regulatory authority as a
condition to the consummation of the Merger or that any party to any material
contract, lease, or license or permit of BOL consent to the execution of this
Agreement by BOL or to the consummation of the Merger.
3.7 NON-CONTRAVENTION. The execution and delivery by BOL of this Agreement
does not, and except as set forth on Schedule 3.6 and subject to the requisite
approval of the shareholders of BOL and the approval of the OCC, the
consummation of the Merger will not (i) violate or result in a breach of any
provision of the Articles of Incorporation or Bylaws of BOL, (ii) to the best of
BOL's knowledge, result in a default (or give rise to any right of termination,
cancellation or acceleration) under the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, agreement, lease or other instrument
or obligation to which BOL is a party or by which BOL or the business conducted
by it may be bound, or (iii) violate any order, writ, injunction, decree, or, to
the best of BOL's knowledge, statute, rule or regulation applicable to BOL or to
the business conducted by it.
3.8 ENVIRONMENTAL MATTERS. The term "Environmental Permits" as used herein
means federal, state and local governmental permits, licenses and other
authorizations and approvals which relate to the environment or to public health
and safety or worker health and safety as they may be affected by the
environment, including, without limitation, those relating to (i) emissions,
discharges or threatened discharges of pollutants, contaminants, hazardous or
toxic substances or petroleum into the air, surface water, ground water or the
ocean, or on or into the land ("Hazardous Emissions") and (ii) the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, hazardous or toxic substances, or
petroleum ("Handling Hazardous Substances"). There are no Environmental Permits
that BOL is required to obtain in order to conduct its business as it is
presently being operated. BOL is in material compliance with all of the terms
and conditions contained in or required of it by any law, regulation, policy,
guideline, order, judgment or decree of any federal, state, local or foreign
court or governmental authority applicable to or having jurisdiction over it or
its business relating to the environment or to public health and safety or
worker health and safety as they may be affected by the environment. Except as
set forth on Schedule 3.8 and as expressly limited by Section 12.2, no
conditions exist which, to the best of BOL's knowledge, (x) interfere with,
prevent, or, with the passage of time, could interfere with or prevent continued
material compliance with any of the aforementioned laws, regulations, policies,
guidelines, orders, judgments or decrees, (y) may give rise to any liability
(whether based in contract, tort, implied or express warranty, criminal or civil
statute or otherwise) under any law, regulation, policy or guideline relating to
the Hazardous Emissions or Handling Hazardous Substances or (z) obligate BOL or,
with the passage of time, could cause it to be obligated to clean up, remedy or
otherwise restore to a former condition, by itself or jointly with others, any
contaminated surface water, ground water, soil or any natural resources
associated therewith.
3.9 LICENSES AND PERMITS. The term "Licenses and Permits" as used in this
Agreement means federal, state and local governmental licenses, permits,
approvals and authorizations, other than Environmental Permits. BOL has all of
the Licenses and Permits that are material for or used in the conduct of its
business as it is presently being operated except for Licenses and Permits the
absence of which would not have a material adverse effect on BOL, its business
or its properties. BOL is an "insured depository institution" as defined in the
Federal Deposit Insurance Act, whose deposit accounts are insured by the Bank
Insurance Fund (the "BIF") as administered by Federal Deposit Insurance
Corporation (the "FDIC"), to the maximum extent permitted by federal law, and
BOL has paid all premiums and assessments, has filed all reports required in
connection therewith and is in compliance in all material respects will all
laws, rules, regulations and other conditions and requirements of the FDIC for
the maintenance of insurance by the FDIC. BOL has furnished all information due
to be filed with or furnished to all other applicable regulatory authorities,
including, without limitation, the Bureau of Financial Institutions of the State
A-6
<PAGE>
Corporation Commission of Virginia. Schedule 3.9 contains a complete and
correct list of all of such Licenses and Permits, all of which are in full force
and effect. Except as disclosed in Schedule 3.9, no notice of a violation of
any such License or Permit has been received by BOL or, to the knowledge of BOL,
recorded or published, and no proceeding is pending or, to the knowledge of BOL
threatened, to revoke or limit any of them. No application has been or is
proposed to be made to amend any such License or Permit or to acquire any
additional Licenses or Permits related to the business of BOL and BOL has no
reason to believe that any of its Licenses and Permits will not be renewed.
3.10 COMPLIANCE WITH LAWS. To the best of BOL's knowledge, BOL has
operated its business in compliance with all laws, regulations, orders,
policies, guidelines, judgments or decrees of any federal, state, local or
foreign court or governmental authority applicable to its business including,
without limitation, those related to antitrust and trade matters, civil rights,
zoning and building codes, public health and safety, worker health and safety
and labor and nondiscrimination, the failure to comply with which could
reasonably be expected to affect, materially and adversely, the earnings,
assets, financial condition or operations of BOL. Furthermore, except as
disclosed in Schedule 3.9, BOL has not received any notice alleging non-
compliance with any of the aforementioned laws, regulations, policies,
guidelines, orders, judgments or decrees.
3.11 LITIGATION. To the best of BOL's knowledge, except as set forth in
Schedule 3.11, there are no actions, suits, claims, investigations or
proceedings (legal, administrative or arbitrative) pending or threatened against
BOL, whether at law or in equity and whether civil or criminal in nature, before
any federal, state, municipal or other court, arbitrator, governmental
department, commission, agency or instrumentality, domestic or foreign, nor are
there any judgments, decrees or orders of any such court, arbitrator,
governmental department, commission, agency or instrumentality outstanding
against BOL.
3.12 ABSENCE OF CHANGES.
(a) Except as set forth on Schedule 3.12, since December 31, 1993, there
has not been:
(i) any change, or development involving a prospective change, including,
without limitation, any damage, destruction or loss (whether or not
covered by insurance) which can reasonably be expected to affect,
materially and adversely, the earnings, assets, financial condition or
operations of BOL;
(ii) except for deposits taken by BOL in the ordinary and usual course of
business, any obligation or liability involving more than $25,000
(whether matured, absolute, accrued, contingent, or otherwise)
incurred by BOL;
(iii) any general uniform increase in the compensation of the employees of
BOL (including, without limitation, any increase pursuant to any
bonus, pension, profit sharing, stock option or other plan);
(iv) any increase (other than normal increases consistent with past
practices and those required by law or collective bargaining
agreements) in the compensation payable to any employee (including
officers) of BOL;
(v) any material amendment to any employment agreement to which any
employee of BOL is subject;
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<PAGE>
(vi) any sale of assets by BOL other than in the ordinary and usual course
of business;
(vii) any material deterioration of relations between BOL and its suppliers,
borrowers, account holders, or other customers;
(viii) any direct or indirect redemption, purchase or other acquisition of
any shares of the capital stock of BOL;
(ix) any split, combination or other similar change in the outstanding
capital stock of BOL;
(x) any declaration, setting aside or payment of any dividend (whether in
cash, capital stock or property) with respect to BOL Common Stock; or
(xi) any issuance by BOL of any shares of its capital stock, or any
securities or obligations convertible into or exchangeable for, or
giving any person the right to acquire from it, any shares of its
capital stock.
3.13 NO UNDISCLOSED LIABILITIES. BOL has no liabilities or obligations,
whether absolute, accrued, contingent or otherwise, including, without
limitation, any uninsured liabilities (i) which were not accrued or reserved
against in the Audited BOL Financial Statements, (ii) which were incurred after
December 31, 1993 other than in the ordinary course of business, or (iii) which
have or can be expected to have a material adverse effect upon the earnings,
assets, financial condition or operations of BOL.
3.14 BOOKS AND RECORDS. The books and records of BOL pertaining to its
business are complete and correct in all material respects, accurately setting
forth the basis for the financial condition and results of operations reflected
in its financial statements.
3.15 TITLE TO PROPERTY.
(a) Schedule 3.15 contains a complete and correct list of all of the real
property, together with the fixtures and other improvements located thereon and
the appurtenances thereto, owned by BOL (the "Real Property"). Except as set
forth in Schedule 3.15 and except for Permitted Exceptions (as hereinafter
defined), BOL has good and marketable title to all of the Real Property free and
clear of any liens, charges, pledges, security interests or other encumbrances.
The term "Permitted Exceptions" as used in this Section 3.15 means (i) statutory
liens for current taxes or assessments not yet due or delinquent; (ii)
mechanics', carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary and usual course of business relating to obligations as
to which there is no default or as to which default has been cured, provided
that the same shall be fully discharged of record before the Effective Date;
(iii) exceptions shown on the surveys furnished by BOL to Jefferson Bankshares
or obtained by Jefferson Bankshares on or before the date hereof and agreed to
in writing by Jefferson Bankshares; and (iv) such other liens, imperfections in
title, charges, easements, restrictions and encumbrances which have been agreed
to by Jefferson Bankshares.
(b) Except as set forth in Schedule 3.15, BOL has good title to all of the
personal property, tangible and intangible, owned by it, free and clear of any
liens, charges, pledges, security interests or other encumbrances.
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3.16 LEASES. Schedule 3.16 sets forth a complete and correct list of
each lease, agreement or commitment to lease into which BOL has entered, whether
as lessor or lessee, which relates to either real or personal property, other
than monthly leases of personal property which may be canceled upon not
more than 60 days' notice and require the payment of not more than $250 per
month. Except as set forth in Schedule 3.16, there is not, with respect to any
of such leases, any existing default, or event of default, or event which, with
or without due notice or with the lapse of time, or both, would constitute a
default or an event of default on the part of BOL or, to the best of the
knowledge of BOL, any other party thereto. Complete copies of all of such
leases have been delivered to Jefferson Bankshares.
3.17 MATERIAL CONTRACTS.
(a) Schedule 3.17 sets forth a complete and correct list of each contract,
agreement or commitment of BOL (except for leases set forth on Schedule 3.16):
(i) upon which any material part of its business is dependent or which, if
breached, could reasonably be expected to affect, materially and adversely, the
earnings, assets, financial condition or the business of BOL;
(ii) which provides for aggregate future payments of more than $15,000,
except for loan agreements and similar banking transactions arising in the
ordinary and usual course of business, in which case they are listed only if
any party thereto is obligated to make payments pursuant thereto aggregating
more than $100,000;
(iii) which extends for more than one year from the date hereof and is not
cancelable by either party on 30 days' notice;
(iv) which provides for the sale, after the date hereof and other than in
the ordinary and usual course of business, of any of its assets;
(v) which relates to the employment, retirement or termination of the
services of any officer or former officer; or
(vi) which provides for the indemnification of any past or current
director, officer, employee or agent of BOL.
(b) Except as set forth in Schedule 3.17, all of such contracts, agreements
and commitments are in full force and effect and there has not occurred, with
respect to any such contract, agreement or commitment, any default or event of
default, or event which, with or without due notice or with the lapse of time,
or both, would constitute a default or event of default on the part of BOL or,
to the best of BOL's knowledge, any other party thereto. Complete copies of all
such contracts, agreements and commitments have been delivered to Jefferson
Bankshares.
(c) Except as set forth in Schedule 3.17, BOL is not a party to any
agreement pursuant to which any employee of BOL has a right to receive any cash
or other payment as a result of the Merger or upon the occurrence of a "change
of control" of BOL or other similar event specified in such agreement.
3.18 EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.18 lists all of the employee benefit plans and programs
including, without limitation, all retirement, savings and other pension plans
("Pension Plans"), all health, severance, insurance, disability and other
employee welfare plans ("Welfare Plans") and all incentive, vacation and
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other similar plans that are maintained by BOL with respect to its employees or
to which BOL has contributed or is now contributing on behalf of its employees.
BOL is not a party to any multi-employer plan as defined in Section 3(37) of
ERISA. BOL has heretofore delivered to Jefferson Bankshares complete and
correct copies of all Pension Plans and Welfare Plans, as currently in effect.
(b) As to each of the Pension Plans, BOL has complied, in all material
respects, with all applicable laws and regulations in administering such plans,
including specifically the provisions of ERISA and the qualification provisions
of Section 401 of the Internal Revenue Code. No prohibited transaction, as
defined in Section 4975 of the Internal Revenue Code, has occurred with respect
to any of the Pension Plans and none of the Pension Plans has incurred any
accumulated funding deficiency, as defined in Section 412 of the Internal
Revenue Code, whether or not waived. None of the Pension Plans has been
completely or partially terminated and there has not been, with regard to any
such plan, any reportable event, as defined in Section 4043(b) of ERISA, that is
required to be reported to the Pension Benefit Guaranty Corporation ("PBGC") by
law or regulation. The fair market value of the assets of each of the Pension
Plans equals or exceeds the present value of all benefits accrued under such
plan, whether or not vested, based on the actuarial assumptions that would be
used by the PBGC if the plan were terminated as of the date of this Agreement or
as of the Effective Date.
(c) As to each of the Welfare Plans and other employee benefit plans and
programs, BOL has complied, in all material respects, with all applicable laws
and regulations in the administration thereof, including, without limitation,
the provisions of ERISA when applicable.
3.19 TAX MATTERS. Except as set forth on Schedule 3.19, BOL has timely
filed all returns, reports and forms (collectively, "Tax Returns") required to
be filed in respect of any and all federal, state, county, local, foreign and
other taxes and governmental assessments owed by it, including, without
limitation, income taxes, estimated taxes, withholding taxes, use taxes, gross
receipts taxes, sales taxes, real property or other transfer taxes, excise
taxes, real and personal property taxes, ad valorem taxes, payroll related
taxes, employment taxes, social security taxes, minimum taxes, license fees,
franchise taxes and import duties, together with any related liabilities,
penalties, fines, additions to tax or interest (collectively, "Taxes"). All
Taxes shown to be due on such Tax Returns have been timely paid and there are no
agreements in effect to extend the period of limitations for the assessment or
collection of any Taxes for which BOL may be liable. The provisions made for
Taxes in the Audited BOL Financial Statements as of December 31, 1993 are
sufficient for the payment of all Taxes, whether or not disputed, which are
properly accruable.
3.20 CONDITION OF PROPERTIES. Except as previously disclosed in writing to
Jefferson Bankshares, the buildings, structures and appurtenances owned, leased
or occupied by BOL are in good operating condition and in a state of good
maintenance and repair, are adequate and suitable for the purposes for which
they are presently being used, comply in all material respects with applicable
zoning and other laws and with applicable municipal regulations, building
regulations and other regulations of governmental authorities having
jurisdiction thereof, and except as set forth on Schedule 3.20, to the best of
BOL's knowledge, contain no latent defects.
3.21 BROKER. Except as set forth on Schedule 3.21 no broker, finder or
investment banker is entitled to any fee or commission from BOL for services
rendered on behalf of BOL in connection with the transactions contemplated by
this Agreement.
3.22 REGISTRATION STATEMENT; PROXY STATEMENT. At the time the registration
statement which Jefferson Bankshares is required to file with the Securities and
Exchange Commission (the "SEC") to register the shares of Jefferson Bankshares
Common Stock to be issued to the shareholders of BOL in connection with the
Merger (the "Registration Statement") becomes effective, the Registration
Statement,
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insofar as it relates to BOL or is based on information furnished by
or on behalf of BOL will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements contained therein, in light of the circumstances under
which they were made, not misleading. At the time of the mailing of the proxy
statement to be used by BOL in obtaining the approval of its shareholders for
the Merger (the "Proxy Statement") and at the time of the BOL Meeting, the
Proxy Statement, insofar as it relates to BOL or is based on information
furnished by or on behalf of BOL, (i) will comply with all applicable laws and
regulations and (ii) will not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements contained
therein, in the light of the circumstances under which they were made, not
misleading.
3.23 INSIDER INTERESTS. Except as listed in Schedule 3.23, no officer,
director or holder of 10% or more of the shares of Common Stock of BOL (i)
competes with or is involved in or has a direct or indirect interest in any
business entity which competes with the business conducted by BOL, (ii) has any
agreement with BOL other than agreements evidencing loans that (A) are not
nonaccrual, past due, restructured or potential problems and (B) were made in
the ordinary course of business on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and did not involve more than the normal risk
of collectibility or present other unfavorable features, or (iii) has any
interest, direct or indirect, in any property, real or personal, tangible or
intangible, used in or pertaining to the business of BOL, except as a
shareholder or employee of BOL.
3.24 LOAN PORTFOLIO. Each loan outstanding on the books of BOL is a bona
fide loan, made in the ordinary and usual course of business, was not known to
be uncollectible at the time it was made and was made in accordance with BOL's
standard loan policies. The records of BOL regarding all loans outstanding on
its books are accurate in all material respects. Except as set forth on
Schedule 3.24, BOL is not a party to any loan participation agreement other than
loan participations with Jefferson National.
3.35 PROPERTY FORECLOSURES. Schedule 3.25 contains a list of all
foreclosed property currently owned by BOL. BOL has accounted for all such
property in accordance with generally accepted accounting principles and in
compliance with applicable regulatory guidelines.
3.26 FULL DISCLOSURE. None of the representations and warranties of BOL
which are made in this Agreement (a representation and warranty being deemed to
include the information contained in any schedule hereto or furnished in
connection herewith) contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF JEFFERSON BANKSHARES
Jefferson Bankshares represents and warrants to BOL the following:
4.1 ORGANIZATION; QUALIFICATION. Jefferson Bankshares is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia and has corporate power and authority to own all of its
properties and assets and to carry on its business as now being conducted.
Jefferson Bankshares is duly qualified and in good standing to do business in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary.
Jefferson Bankshares has heretofore delivered to BOL complete and correct copies
of its Articles of Incorporation and Bylaws, as currently in effect. Jefferson
Bankshares is a bank holding company registered pursuant to the Bank Holding
Company Act of 1956, as amended, and is in good standing with the Federal
Reserve System.
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4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Jefferson Bankshares has
corporate power and authority to execute and deliver this Agreement and to
consummate the Merger. The execution and delivery by Jefferson Bankshares of
this Agreement and the consummation of the Merger have been duly authorized by
the Board of Directors of Jefferson Bankshares and no other corporate
proceedings on the part of Jefferson Bankshares are necessary with respect
thereto. Assuming that BOL and Jefferson National Bank each has duly authorized
the execution, delivery and performance of this Agreement, this Agreement
constitutes a valid and binding obligation of Jefferson Bankshares.
4.3 CAPITAL STOCK. As of the date of this Agreement, the authorized,
issued and outstanding shares of capital stock of Jefferson Bankshares are set
forth on Schedule 4.3 hereto and all such issued and outstanding shares are
validly issued, fully paid and nonassessable. Further, as of the date of this
Agreement, Jefferson Bankshares is authorized to issue 420,954 shares of
Jefferson Bankshares Common Stock pursuant to its incentive stock plan and has
reserved for issuance 134,219 shares of Jefferson Bankshares common stock under
its dividend reinvestment plan. Otherwise, Jefferson Bankshares has no
commitment to issue or sell any shares of its capital stock or any securities or
obligations convertible or exchangeable for, or giving any person any right to
acquire from it any shares of its capital stock.
4.4 FINANCIAL STATEMENTS. Jefferson Bankshares has, as part of the
information furnished to BOL under Section 4.12, previously furnished BOL with
true and complete copies of the audited financial statements of Jefferson
Bankshares for the years ending December 31, 1991, 1992 and 1993 including the
notes thereto, together with the report on such statements of Jefferson
Bankshares auditors for such periods. Such financial statements, taken as a
whole, present fairly the financial position of Jefferson Bankshares and its
subsidiaries as of such dates and the results of its operations and cash flows
for such periods, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis.
4.5 CONSENTS AND APPROVALS. Except as set forth in Schedule 4.5, and other
than in connection or in compliance with the Securities Act of 1933 (the
"Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act"),
and consents, authorizations, approvals or exemptions required under the Bank
Holding Company Act of 1956, as amended (12 U.S.C. (section mark)1841 ET
SEQ.), there is no requirement applicable to Jefferson Bankshares to make any
filing with, or to obtain any permit, authorization, consent or approval of
any public body, governmental agency or regulatory authority as a condition to
the consummation of the Merger or that any party to any material contract,
lease, or license or permit of Jefferson Bankshares consent to the execution
of this Agreement by Jefferson Bankshares or to the consummation of the Merger.
4.6 NON-CONTRAVENTION. The execution and delivery of this Agreement by
Jefferson Bankshares does not, and, except as set forth on Schedule 4.5 and
subject to the requisite approval of the OCC, the consummation of the Merger
will not (i) violate or result in a breach of any provision of the Articles of
Incorporation or Bylaws of Jefferson Bankshares, (ii) result in a default (or
give rise to any right of termination, cancellation or acceleration) under the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which Jefferson Bankshares
is a party or by which Jefferson Bankshares or the business conducted by it may
be bound, or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Jefferson Bankshares or to the business conducted by
it.
4.7 LICENSES AND PERMITS. Jefferson Bankshares and its subsidiaries have
all of the Licenses and Permits that are material for or used in the conduct of
their respective businesses as presently being operated except for Licenses and
Permits the absence of which would not have a material adverse effect
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on Jefferson Bankshares and its subsidiaries, their businesses or their
properties. Except as disclosed in Schedule 4.7, no notice of a violation of
any such License or Permit has been received by Jefferson Bankshares or, to the
knowledge of Jefferson Bankshares, recorded or published, and no proceeding is
pending or, to the knowledge of Jefferson Bankshares threatened, to revoke or
limit any of them.
4.8 COMPLIANCE WITH LAWS. To the best of Jefferson Bankshares' knowledge,
Jefferson Bankshares and its subsidiaries have operated their respective
businesses in compliance with all laws, regulations, orders, policies,
guidelines, judgments or decrees of any federal, state, local or foreign court
or governmental authority applicable to their businesses including, without
limitation, those related to antitrust and trade matters, civil rights, zoning
and building codes, public health and safety, worker health and safety and labor
and nondiscrimination, the failure to comply with which could reasonably be
expected to affect, materially and adversely, the earnings, assets, financial
condition or operations of Jefferson Bankshares and its subsidiaries taken as a
whole. Furthermore, except as disclosed on Schedule 4.7, Jefferson Bankshares
and its subsidiaries have not received any notice alleging non-compliance with
any of the aforementioned laws, regulations, policies, guidelines, orders,
judgments or decrees.
4.9 UNDISCLOSED LIABILITIES. Jefferson Bankshares has no material
liabilities or obligations, whether absolute, accrued, contingent or otherwise,
including, without limitation, any uninsured liabilities (i) which were not
accrued or reserved against in Jefferson Bankshares audited financial statements
for the years ending December 31, 1991, 1992, and 1993, (ii) which were incurred
after December 31, 1993 other than in the ordinary course of business, or (iii)
which have or can be expected to have a material adverse effect upon the
earnings, assets, financial condition or operations of Jefferson Bankshares and
its subsidiaries taken as a whole.
4.10 BOOKS AND RECORDS. The books and records of Jefferson Bankshares
pertaining to its business are complete and correct in all material respects,
accurately setting forth the basis for the financial condition and results of
operations reflected in its financial statements.
4.11 BROKER. No broker, finder or investment banker is entitled to any fee
or commission from Jefferson Bankshares for services rendered on behalf of
Jefferson Bankshares in connection with the transactions contemplated by this
Agreement.
4.12 REGISTRATION STATEMENT; PROXY STATEMENT. At the time the Registration
Statement becomes effective, the Registration Statement, insofar as it relates
to Jefferson Bankshares or its subsidiaries or is based on information furnished
by or on behalf of Jefferson Bankshares or any of its subsidiaries, will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. At the time of the mailing of the Proxy Statement and at the time
of the BOL meeting, insofar as such proxy statement relates to Jefferson
Bankshares and its subsidiaries or is based on information furnished by or on
behalf of Jefferson Bankshares or any of its subsidiaries (i) will comply in all
material respects with the provisions of the Securities Act and the Exchange Act
and (ii) will not contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained therein, in the
light of the circumstances under which they were made, not misleading.
4.13 VALIDITY OF THE SHARES TO BE ISSUED. The shares of Jefferson
Bankshares Common Stock to be issued to the shareholders of BOL as a result of
the Merger have been duly authorized and, upon delivery thereof pursuant to the
provisions of this Agreement will be validly issued, fully paid and
nonassessable and not subject to any preemptive rights.
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4.14 REPORTS; CURRENT INFORMATION. Jefferson Bankshares has, since January
1, 1991, made all applicable filings with the SEC and appropriate banking
regulatory agencies. Further, Jefferson Bankshares has previously delivered to
BOL (i) a true and complete copy of each report, each proxy statement, and any
other material (excluding registration statements), together with all amendments
thereto, filed by Jefferson Bankshares with the SEC since January 1, 1991, and
(ii) each communication sent by Jefferson Bankshares to its shareholders
generally since that date, and will continue to furnish such filings and
communications to BOL until the Effective Date. At the time of filing, mailing
or delivery thereof, none of such documents or information contained or will
contain an untrue statement of a material fact or omitted or will omit to state
a material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
4.15 LITIGATION. To the best of Jefferson Bankshares' knowledge, except as
previously disclosed to BOL's counsel, there are no actions, suits, claims,
investigations or proceedings (legal, administrative or arbitrative) pending or
threatened against Jefferson Bankshares or its subsidiaries, whether at law or
in equity and whether civil or criminal in nature, before any federal, state,
municipal or other court, arbitrator, governmental department, commission,
agency or instrumentality, domestic or foreign, nor are there any judgments,
decrees or orders of any such court, arbitrator, governmental department,
commission, agency or instrumentality outstanding against Jefferson Bankshares
or its subsidiaries which have or, if adversely determined, could reasonably be
expected to have a material adverse effect upon the earnings, assets, financial
condition or operations of Jefferson Bankshares and its subsidiaries taken as a
whole.
4.16 FULL DISCLOSURE. None of the representations and warranties of
Jefferson Bankshares which are made in this Agreement (a representation and
warranty being deemed to include the information contained in any schedule
hereto or furnished in connection herewith) contains an untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
SECTION 5 - REPRESENTATIONS AND WARRANTIES OF JEFFERSON NATIONAL BANK
Jefferson National Bank represents and warrants to BOL the following:
5.1 ORGANIZATION; QUALIFICATION. Jefferson National Bank is a corporation
duly organized and validly existing under the laws of the United States and has
corporate power and authority to own all of its properties and assets and to
carry on its business as now being conducted. Jefferson National Bank is duly
qualified and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification necessary.
5.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Jefferson National Bank has
corporate power and authority to execute and deliver this Agreement and to
consummate the Merger. The execution and delivery by Jefferson National Bank of
this Agreement and the consummation of the Merger have been duly authorized by
the Board of Directors of Jefferson National Bank and, have been approved by its
sole shareholder, Jefferson Bankshares, and no other corporate proceedings on
the part of Jefferson National Bank are necessary with respect thereto.
Assuming that BOL and Jefferson Bankshares each has duly authorized the
execution, delivery and performance of this Agreement, this Agreement
constitutes a valid and binding obligation of Jefferson National Bank.
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5.3 CONSENTS AND APPROVALS. Except as set forth in Schedule 5.3, and other
than in connection or in compliance with the provisions of 12 U.S.C. (section
mark)(section mark)215a and 1828, there is no requirement applicable to
Jefferson National Bank to make any filing with, or to obtain any permit,
authorization, consent or approval of any public body, governmental agency or
regulatory authority as a condition to the consummation of the Merger or that
any party to any material contract, lease, or license or permit of Jefferson
National Bank consent to the execution of this Agreement by Jefferson National
Bank or to the consummation of the Merger.
5.4 NON-CONTRAVENTION. The execution and delivery of this Agreement by
Jefferson National Bank does not, and, except as set forth on Schedule 5.3 and
subject to the requisite approval of the OCC, the consummation of the Merger
will not (i) violate or result in a breach of any provision of the Articles of
Association or Bylaws of Jefferson National Bank, (ii) result in a default (or
give rise to any right of termination, cancellation or acceleration) under the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
agreement, lease or other instrument or obligation to which Jefferson National
Bank is a party or by which Jefferson National Bank or the business conducted by
it may be bound, or (iii) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Jefferson National Bank or to the business
conducted by it.
5.5 LICENSES AND PERMITS. Jefferson National is an "insured depository
institution" as defined in the Federal Deposit Insurance Act, whose deposit
accounts are insured by BIF as administered by the FDIC, to the maximum extent
permitted by federal law, and Jefferson National has paid all premiums and
assessments, has filed all reports required in connection therewith and is in
compliance in all material respects with all laws, rules, regulations and other
conditions and requirements of the FDIC for the maintenance of insurance by the
FDIC.
5.6 BROKER. No broker, finder or investment banker is entitled to any fee
or commission from Jefferson National Bank for services rendered on behalf of
Jefferson National Bank in connection with the transactions contemplated by this
Agreement.
SECTION 6 - MATTERS PENDING MERGER
6.1 CONDUCT OF BUSINESS OF BOL
(a) From the date hereof until the Effective Date, BOL will (i) conduct its
business only in the ordinary and usual course, and in a manner consistent with
past practices; (ii) maintain in good repair, at its own expense, all of its
tangible personal property; and (iii) use its best efforts to preserve intact
its present business organization and operations, keep available the services of
its officers and employees, and preserve its relationships with licensers,
suppliers, dealers, customers and others having business relationships with it.
BOL's management will communicate or, as necessary, meet with Jefferson
Bankshares and Jefferson National Bank, on a regular basis, to discuss the
general status of the ongoing operations of BOL and any material problems
relating to the conduct of its business.
(b) BOL will promptly notify Jefferson Bankshares and Jefferson National
Bank (i) of any material change in the normal conduct of the business or
operations of BOL, including, without limitation, any material deterioration of
relations between BOL and its suppliers, borrowers, account holders or other
customers, (ii) of the threat of, or initiation of, any material litigation
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against BOL of which BOL has knowledge, and (iii) of the initiation of any
investigation of BOL by any party, whether private or governmental, of which BOL
has knowledge, and will keep Jefferson Bankshares and Jefferson National Bank
fully informed of developments with respect to such events and afford Jefferson
Bankshares' and Jefferson National Bank's representatives access to all
materials in its possession relating thereto.
6.2 FORBEARANCES BY BOL. Except as contemplated by this Agreement, BOL
will not, from the date hereof until the Effective Date, without the prior
written consent of Jefferson Bankshares, which consent will not be unreasonably
withheld:
(i) sell, dispose of, transfer or encumber any of its assets except
in the ordinary and usual course of business;
(ii) amend, modify or cancel any material contract or lease except in
the ordinary and usual course of business, provided any such amendment,
modification or cancellation does not materially adversely affect the
business or properties of BOL;
(iii) make any commitments for capital expenditures in excess of $1,500
individually or incur any other obligation or liability other than
obligations or liabilities with respect to deposits received and loans made
and similar banking transactions entered into in the ordinary and usual
course of business;
(iv) except for transactions in the usual and ordinary course of
business involving BOL's investment portfolio, make any investment by means
of the purchase of stock or securities, contributions to capital or the
purchase of property or assets from any other individual, corporation or
entity;
(v) assume, guarantee, endorse, or otherwise become responsible for the
obligations of any other individual or business entity, or make loans or
advances to any ndividual or business entity except in the ordinary and
usual course of business;
(vi) except as disclosed in Schedule 6.2, increase in any manner the
compensation of any of its officers, pay or agree to pay any pension or
retirement allowance not required by an existing plan or agreement to any
officer or employee, or enter into or amend any employment agreement or any
incentive compensation, profit sharing, stock purchase, stock option, stock
appreciation rights, savings, consulting, deferred compensation,
retirement, pension or other benefit plan or arrangement with or for the
benefit of any of its officers, employees or for the benefit of any other
person;
(vii) make any change to the composition of its Board of Directors or
management personnel; provided, however, that members of the Board of
Directors and management personnel will be permitted to resign;
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(viii) alter in any way the manner in which it regularly and
customarily maintains its books of account and records;
(ix) declare, set aside or pay any dividend in cash or property with
respect to its capital stock;
(x) split, combine or otherwise change its capital stock, or redeem any
of its capital stock;
(xi) authorize the creation or issuance of, or issue or sell any shares
of, its capital stock or any securities or obligations convertible into or
exchangeable for, or giving any person any right to acquire any shares of
its capital stock;
(xii) merge or consolidate with any other corporation;
(xiii) acquire all of the stock or business of any individual or
business entity other than in connection with debts previously contracted
for in the usual and ordinary course of business;
(xiv) amend its Articles of Incorporation or Bylaws;
(xv) cancel or allow any of its existing insurance policies to lapse;
(xvi) file any application for branch offices; or
(xvii) enter into an agreement to do any of the things described in
clauses (i) through (xvi) above.
6.3 NEGOTIATIONS WITH OTHERS. From the date hereof until the Effective
Date, BOL will not, directly or indirectly, without the written consent of
Jefferson Bankshares, initiate discussions or engage in negotiations with any
corporation, partnership, person or entity, other than Jefferson Bankshares,
concerning any merger or sale of capital stock or assets of BOL, except for the
sale of assets in the usual and ordinary course of business where such sale does
not materially adversely affect the business of BOL. Notwithstanding the
foregoing, BOL may furnish information concerning its business, properties or
assets, and may engage in negotiations and discussions in connection with any
such transaction, if the Board of Directors of BOL, based on the advice of
counsel, determines that the exercise of its fiduciary responsibilities requires
that such information be furnished or such negotiations be commenced. BOL will
notify Jefferson Bankshares promptly of any inquiry (including the terms thereof
and the person making such inquiry) which it may receive in respect of any such
transaction and, to the extent it can do so without breaching its fiduciary
responsibilities, keep Jefferson Bankshares fully informed as to the progress
thereof.
6.4 EXAMINATION OF BOOKS AND RECORDS. From the date hereof until the
Effective Date, each of BOL and Jefferson Bankshares will, and will cause their
respective subsidiaries, if any, to, afford the other and the other's attorneys,
accountants, financial advisors and other representatives complete access
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at all reasonable times to its and their officers, employees, properties,
contracts, books and records. In addition, each shall furnish the other with
such financial, operating and additional data as the other may reasonably
request concerning its business, operations, properties and personnel and those
of its subsidiaries, including, without limitation, all working papers of their
auditors to the extent that BOL and Jefferson Bankshares, as the case might be,
have access thereto.
6.5 CONFIDENTIALITY; HIRING OF EMPLOYEES.
(a) Pursuant to the provisions of this Agreement, BOL has supplied and will
supply Jefferson with certain documents and information for use in investigating
the business of BOL and Jefferson has supplied and will supply BOL with certain
documents and information for use in investigating the business of Jefferson.
Such material is hereinafter referred to as "Evaluation Material." Each of BOL
and Jefferson agrees to hold in confidence any Evaluation Material it has
received or will receive and not to disclose all or any part of such material to
anyone except its officers, directors, employees or other representatives who
need such information to perform their respective duties in connection with the
Merger. If this Agreement is terminated, each of BOL and Jefferson will return
to the other, or cause to be destroyed and will not retain, or permit any person
to whom it has given copies thereof to retain, the originals or any copies of
any documents constituting a part of the Evaluation Material furnished to it or
any notes or memoranda prepared using such Evaluation Material. After
termination both BOL and Jefferson will continue to honor their confidentiality
agreements contained herein and neither will use or disclose, directly or
indirectly, any information obtained from the Evaluation Material. The
confidentiality agreements contained in this Section 6.5 will terminate upon the
earlier of three years after the date hereof or upon consummation of the
transactions contemplated hereby. Notwithstanding the foregoing, either BOL or
Jefferson may use and disclose any such information to the extent that (i) it
had acquired such information on a non-confidential basis prior to receipt
thereof from the other, (ii) such information has become generally available to
the public, (iii) such information is provided to the party disclosing the same
by a third party who has obtained such information other than as a result of a
breach of this Agreement, or (iv) such information is independently developed by
it based upon non-confidential information. Furthermore, either BOL or Jefferson
may disclose such information to the extent that it is required to do so in
order to comply with a governmental or judicial order or decree, but upon
receiving notice that any such order or decree is being sought, it will promptly
notify the other and will, at the other's expense, cooperate with the other's
efforts, if any, to contest the issuance of such order or decree. It is
understood that each of BOL and Jefferson will be deemed to have satisfied its
obligation to hold information confidential, pursuant to the provisions of this
Section 6.5 if it exercises the same care with regard to such information as it
takes to preserve confidentiality for its own similar information.
(b) If this Agreement is terminated, neither BOL nor Jefferson will,
without the prior consent of the other, hire any of each others employees for a
period of two years following termination.
6.6 EFFORTS TO CONSUMMATE. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable to consummate, as promptly as practicable, the
transactions contemplated hereby, including, but not limited to, the obtaining
of all necessary consents, waivers, authorizations, orders and approvals of
third parties, whether private or governmental, required of it by this
Agreement. Each party agrees to cooperate fully with each of the other parties
in assisting them to comply with the provisions of this Section, and in the
event any claim, action, suit, investigation or other proceeding by any
governmental body or other person is commenced which questions the validity or
legality of the Merger or seeks damages in connection therewith, the parties
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agree to cooperate and use their best efforts to defend against such claim,
action, suit, investigation or other proceeding. If an injunction or other
order is issued in any such action, suit or other proceeding, the parties agree
to use their best efforts to have such injunction or other order lifted.
Notwithstanding the foregoing, no party hereto shall be required to make any
substantial payment or incur any material economic burden, other than a payment
otherwise required of it, to obtain any consent, waiver, authorization, order or
approval, or for the defense of proceedings against the Merger, or the removal
of impediments to the Merger, and if, despite its efforts, any party is unable
to obtain any consent, waiver, authorization, order or approval, or dismissal
or removal of impediments to the Merger within a reasonable time, the other
parties may terminate this Agreement and shall have no liability therefor,
except as is provided in Section 10.2.
6.7 BOL STOCK OPTIONS. Upon fulfillment or waiver of the conditions
precedent to the consummation of the Merger which are set forth in Sections 8
and 9, but prior to the Effective Date, BOL will use its best efforts to cause
the holders of outstanding stock options or stock awards, as the case might be,
to (i) exercise such options or awards at the applicable exercise price or (ii)
execute agreements canceling and surrendering, at no cost to Jefferson
Bankshares or Jefferson National, their options or awards on the Effective Date
and will deliver to Jefferson Bankshares copies of all such agreements. Any
outstanding stock options that have not been exercised or canceled as of the
Effective Date will be converted to options to acquire an equivalent number of
shares of Jefferson Bankshares Common Stock. The provisions of Section 2.8 will
apply to the BOL stock options.
6.8 BOL EMPLOYMENT CONTRACTS. Upon fulfillment or waiver of the conditions
precedent to the consummation of the Merger which are set forth in Sections 8
and 9, but prior to the Effective Date, the employment agreements between BOL
and Kenneth L. Crovo and Joseph B. Humphries will be terminated, at no cost to
BOL, Jefferson National or Jefferson Bankshares, on the Effective Date, and BOL
will deliver to Jefferson Bankshares copies of all documents evidencing the
termination. On the Effective Date, Jefferson National Bank and Kenneth L.
Crovo will enter into an employment agreement in the form attached hereto as
Exhibit A.
6.9 EXPENSES. Whether or not the Merger is consummated, all expenses
incurred in connection with this Agreement and the transaction contemplated
hereby will be paid by the party incurring such expenses, except that, in the
event that the Merger is not consummated as a result of BOL's shareholders
failure to approve the Merger, Jefferson Bankshares and BOL will share equally
all expenses reasonably incurred by either party in connection with the
preparation, filing, printing or distribution of the Registration Statement and
the Proxy Statement and the preparation and submission of any application for a
tax ruling.
6.10 ANNOUNCEMENTS. The parties will consult with each other before
issuing any press releases or otherwise making any public statements with
respect to this Agreement and the Merger and will not issue any such press
release or make any such public statement without the consent of the other
unless such action is required by law.
6.11 CHANGE OF SUBSIDIARY. In the event that Jefferson Bankshares
determines that it is desirable to merge BOL into a direct bank subsidiary of
Jefferson Bankshares other than Jefferson National Bank (including, but not
limited to, a bank subsidiary formed solely for such purpose), then BOL will
consent to such amendments to this Agreement as may be necessary or desirable to
effect a substitution of such other subsidiary for Jefferson National Bank and
to conform this Agreement to the requirements of law applicable to such a
merger, provided that no such amendment to this Agreement shall adversely affect
the economic benefit to the shareholders of BOL resulting from the Merger.
SECTION 7 - SECURITIES MATTERS.
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7.1 SECURITIES ACT AFFILIATES. BOL will cause all persons deemed by counsel
for Jefferson Bankshares to be an "affiliate" of BOL as such term is used in
Rule 145 of the Securities Act to deliver to Jefferson Bankshares, prior to the
Effective Date, a written agreement, in form and substance satisfactory to
Jefferson Bankshares, stating that he will not offer, sell, assign, transfer or
otherwise dispose of any of the shares of Jefferson Bankshares Common Stock
issued to him in the Merger in violation of the Securities Act or the rules and
regulations of the SEC thereunder.
7.2 REGISTRATION STATEMENT AND PROXY STATEMENT.
(a) As soon as is reasonably practicable Jefferson Bankshares will prepare
and file with the SEC the Registration Statement and will use all reasonable
efforts to have the Registration Statement declared effective. Jefferson
Bankshares will also take any action reasonably required to be taken under state
blue sky or securities laws in connection with the issuance of the shares of
Jefferson Bankshares Common Stock to the shareholders of BOL pursuant to this
Agreement. BOL will furnish Jefferson Bankshares all information concerning BOL
as Jefferson Bankshares may reasonably request in connection with any such
action.
(b) BOL agrees that the Proxy Statement will contain the prospectus which
is in the Registration Statement. BOL further agrees that it will not mail the
Proxy Statement to its shareholders prior to receiving advice from Jefferson
Bankshares that the Registration Statement has become effective under the
Securities Act, that no stop order suspending the effectiveness of the
Registration Statement has been issued and that no proceeding for that purpose
has been initiated or threatened by the Federal Reserve or the SEC.
(c) The parties hereto agree to cooperate with each other to maintain the
accuracy and completeness of the information contained in the Registration
Statement and in the Proxy Statement and to inform the other parties promptly of
any material change, occurring before the Effective Date, whether adverse or
favorable, in the condition of such party or any of its subsidiaries, financial
or otherwise, which may affect the accuracy or completeness of the information
contained in the Registration Statement or the Proxy Statement.
(d) BOL will call a meeting of its shareholders for the purpose of
obtaining their approval of the Merger and the consummation of the transactions
contemplated by this Agreement. Such meeting shall be held not later than 60
days following the date upon which the Registration Statement becomes effective.
BOL will recommend that its shareholders vote to approve the Merger.
SECTION 8 - CONDITIONS TO OBLIGATIONS OF JEFFERSON BANKSHARES AND
JEFFERSON NATIONAL BANK
The obligations of Jefferson Bankshares and Jefferson National Bank to
consummate the Merger are subject, to the extent not waived, to the following
conditions:
8.1 REPRESENTATIONS AND WARRANTIES. Except for changes contemplated by
this Agreement, the representations and warranties of BOL contained in Section 3
of this Agreement shall be true and correct in all material respects as of the
date of this Agreement and as of the Effective Date, with the same force and
effect as if made on the Effective Date, and BOL shall have delivered to
Jefferson Bankshares and Jefferson National Bank a certificate to that effect
signed by its Chairman or President.
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8.2 PERFORMANCE OF THIS AGREEMENT. BOL shall have performed all obligations
and complied with all conditions required of it by this Agreement and shall have
delivered to Jefferson Bankshares and Jefferson National Bank a certificate to
that effect signed by its Chairman or President.
8.3 CORPORATE AUTHORIZATION. All corporate action required to be taken by
BOL (including receiving the requisite approval of its shareholders) in
connection with the Merger shall have been taken, all documents incident thereto
shall be reasonably satisfactory in substance and form to Jefferson Bankshares,
and Jefferson Bankshares shall have received such originals or copies of such
documents as it may reasonably request.
8.4 CONSENTS AND APPROVALS. All consents, authorizations, orders, waivers,
exemptions or approvals of governmental or regulatory authorities and of
individuals or business entities which BOL is required to obtain in order to be
able to consummate the Merger shall have been obtained and all waiting periods
specified by law with respect thereto shall have passed.
8.5 INJUNCTION, LITIGATION, ETC. No order of any court or governmental
agency shall be in effect which restrains or prohibits the consummation of the
Merger, and there shall not have been threatened, nor shall there be pending,
any action or proceeding by or before any such court or governmental agency
seeking to prohibit or delay or challenging the validity of the Merger.
8.6 LEGISLATION. No statute, rule or regulation will be in effect which
prohibits or is reasonably likely to prohibit, restrict or delay the
consummation of the Merger.
8.7 TITLE INSURANCE. Jefferson Bankshares shall have received commitments
for title insurance, or other assurances, satisfactory to it, that BOL has good
and marketable title the Real Property and that the Real Property is free and
clear of all liens, charges, pledges and other encumbrances, other than
Permitted Exceptions.
8.8 TAX RULING OR OPINION. Jefferson Bankshares shall have received
advance revenue rulings from the Internal Revenue Service and the Virginia State
Tax Commissioner or, in lieu thereof, an opinion of McGuire, Woods, Battle &
Boothe, counsel to Jefferson Bankshares and Jefferson National Bank, dated as of
the Effective Date, in form and substance reasonably satisfactory to Jefferson
Bankshares and substantially to the effect that, (i) the Merger will constitute
a "reorganization" as that term is defined in Section 368(a) of the Internal
Revenue Code, (ii) no taxable gain or loss will be recognized by the parties
upon consummation of the Merger, (iii) no taxable gain or loss will be
recognized by BOL shareholders on the exchange of shares of BOL Common Stock for
shares of Jefferson Bankshares Common Stock, except to the extent that they
receive cash in lieu of fractional shares, (iv) the basis of such Jefferson
Bankshares Common Stock will be the same as the basis of BOL Common Stock
surrendered in exchange therefor, and (v) the holding period of such Jefferson
Bankshares Common Stock will include the holding period of BOL Common Stock
surrendered in exchange therefor, if such BOL Common Stock is a capital asset in
the hands of the shareholder at the Effective Date.
8.9 ACCOUNTING TREATMENT. Jefferson Bankshares shall have received
adequate assurances from its independent auditors that the Merger will be
treated as a pooling of interests for accounting purposes.
8.10 EMPLOYMENT AGREEMENT WITH KENNETH L. CROVO. Kenneth L. Crovo shall
have executed and delivered to Jefferson National the employment agreement in
the form attached hereto as Exhibit A.
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8.11 OPINION OF COUNSEL FOR BOL. Jefferson Bankshares and Jefferson
National shall have received an opinion from Verner, Liipfert, Bernhard,
McPherson and Hand, Counsel for BOL, substantially in the form attached hereto
as Exhibit B.
8.12 DISSENTING SHAREHOLDERS. The holders of not more than ten percent of
the issued and outstanding shares of BOL Common Stock will have elected to
become Dissenting Shareholders pursuant to the provisions of 12 U.S.C. (section
number) 215a(b).
8.13 NO ADVERSE CHANGE. There will have occurred no material adverse
change in the financial condition of BOL from December 31, 1993 to the Effective
Date.
SECTION 9 - CONDITIONS TO OBLIGATIONS OF BOL
The obligation of BOL to consummate the Merger is subject, to the extent
not waived, to the following conditions:
9.1 REPRESENTATIONS AND WARRANTIES. Except for changes contemplated by
this Agreement, the representations and warranties of Jefferson Bankshares and
Jefferson National Bank contained in Sections 4 and 5 of this Agreement shall be
true and correct in all material respects as of the date of this Agreement and,
unless limited by its terms to the date of this Agreement, as of the Effective
Date, with the same force and effect as if made on the Effective Date, and
Jefferson Bankshares and Jefferson National Bank each shall have delivered to
BOL a certificate to that effect signed by its Chairman or President.
9.2 BOOK VALUE OF JEFFERSON BANKSHARES COMMON STOCK. BOL shall have
received a certificate from Jefferson Bankshares signed by its Chairman or
President certifying that the book value per share of Jefferson Bankshares
Common Stock immediately prior to the Effective Date is not less than ninety
percent (90%) of the book value per share of Jefferson Bankshares Common Stock
at December 31, 1993.
9.3 PERFORMANCE OF THIS AGREEMENT. Jefferson Bankshares and Jefferson
National Bank each shall have performed all obligations and complied with all
conditions required of it by this Agreement and shall have delivered to BOL a
certificate to that effect signed by its Chairman or President.
9.4 CORPORATE AUTHORIZATION. All corporate action required to be taken by
Jefferson Bankshares and Jefferson National Bank in connection with the Merger
shall have been taken, all documents incident thereto shall be reasonably
satisfactory in substance and form to BOL, and BOL shall have received such
originals or copies of such documents as it may reasonably request.
9.5 CONSENTS AND APPROVALS. All consents, authorizations, orders, waivers,
exemptions or approvals of governmental or regulatory authorities and of
individuals or business entities which Jefferson Bankshares or Jefferson
National is required to obtain in order to be able to consummate the Merger
shall have been obtained and all waiting periods specified by law with respect
thereto shall have passed.
9.6 INJUNCTION, LITIGATION, ETC. No order of any court or governmental
agency shall be in effect which restrains or prohibits the consummation of the
Merger, and there shall not have been threatened, nor shall there be pending,
any action or proceeding by or before any such court or governmental agency
seeking to prohibit or delay or challenging the validity of the Merger.
9.7 LEGISLATION. No statute, rule or regulation shall be in effect which
prohibits or is reasonably likely to prohibit, restrict or delay the
consummation of the Merger.
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9.8 TAX RULING OR OPINION. BOL shall have received advance revenue rulings
from the Internal Revenue Service and the Virginia State Tax Commissioner or, in
lieu thereof, an opinion of McGuire, Woods, Battle & Boothe, counsel to
Jefferson Bankshares and Jefferson National Bank, dated as of the Effective
Date, in form and substance reasonably satisfactory to counsel for BOL and
substantially to the effect that, (i) the Merger will constitute a
"reorganization" as that term is defined in Section 368(a) of the Internal
Revenue Code, (ii) no taxable gain or loss will be recognized by the parties
upon consummation of the Merger, (iii) no taxable gain or loss will be
recognized by BOL shareholders on the exchange of shares of BOL Common Stock for
shares of Jefferson Bankshares Common Stock, except to the extent that they
receive cash in lieu of fractional shares, (iv) the basis of such Jefferson
Bankshares Common Stock will be the same as the basis of BOL Common Stock
surrendered in exchange therefor, and (v) the holding period of such Jefferson
Bankshares Common Stock will include the holding period of BOL Common Stock
surrendered in exchange therefor, if such BOL Common Stock is a capital asset in
the hands of the shareholder at the Effective Date.
9.9 OPINION OF COUNSEL FOR JEFFERSON BANKSHARES AND JEFFERSON NATIONAL
BANK. BOL shall have received an opinion from McGuire, Woods, Battle & Boothe,
Counsel for Jefferson Bankshares and Jefferson National Bank, in substantially
in the form attached hereto as Exhibit C.
9.10 FAIRNESS OPINION. BOL shall have received an opinion from McKinnon &
Company, dated as of the date the Proxy Statement is first mailed to the holders
of BOL Common Stock, to the effect that the consideration to be exchanged for
each share of BOL Common Stock is fair to BOL's shareholders from a financial
point of view.
9.11 NO ADVERSE CHANGE. There will have occurred no adverse material
change in the financial condition of Jefferson Bankshares and its subsidiaries
taken as a whole from December 31, 1993 to the Effective Date.
SECTION 10 - TERMINATION, AMENDMENT AND WAIVER.
10.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Date, whether before or after approval by the shareholders of BOL:
(i) by the Boards of Directors or Executive Committees of both BOL and
Jefferson Bankshares;
(ii) by BOL or Jefferson Bankshares if there has been a material breach
by the other of a representation, warranty or agreement contained herein or
if any condition to the consummation of the Merger which must be met by the
other becomes impossible to fulfill;
(iii) by BOL or Jefferson Bankshares if any action or proceeding before
any court or other governmental body or agency has been instituted or
threatened to restrain or prohibit the Merger and such party in good faith
deems it inadvisable to proceed with the Merger;
(iv) by BOL or Jefferson Bankshares if the holders of more than 66% of
the outstanding shares of BOL Common Stock shall have failed to vote for
the Merger at the BOL Meeting; or
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(v) by BOL or Jefferson Bankshares if the Closing has not occurred by
11:59 on December 31, 1994.
10.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided Section 10.1, this Agreement shall become wholly void and
of no further force and effect and there be no further liability or obligation
on the part of any party hereto except to pay such expenses as required of it
and to comply with the provisions of Section 6.5, but such termination shall not
a waiver by any party of any claim it may have for damages caused by reason of a
material breach of representation or warranty or agreement made by another party
hereto in this Agreement.
10.3 AMENDMENT. This Agreement and the Exhibits and Schedules hereto may
be amended any time prior to the Effective Date, provided that any such
amendment is approved in writing by of the parties hereto. All representations
and warranties of BOL, Jefferson Bankshares, and Jefferson National Bank which
are true and correct as modified and approved shall be deemed true and correct
the purposes of Sections 8.1 and 9.1.
10.4 EXTENSION, WAIVER. At any time prior to the Effective Date any party
to this which is entitled to the benefits thereof may (i) extend the time for
the performance of any of obligations of another party hereto, (ii) waive a
breach of a representation or warranty of the other hereto, whether contained
herein or in any exhibit, schedule or document delivered pursuant hereto, or
waive compliance of any other party hereto with any of the agreements or
conditions contained Any such extension or waiver shall be valid only if set
forth in a written instrument signed by the giving the extension or waiver.
SECTION 11 - OTHER AGREEMENTS
11.1 JEFFERSON NATIONAL BANK NORTHERN REGION BOARD. As of the Effective
Date, Jefferson National Bank will expand its Northern Region Board of Directors
and will appoint two current non-employee directors of BOL to that board. For
the foreseeable future following such expansion, Jefferson National Bank will
allocate two positions on its Northern Region Board to qualified individuals
from Loudoun County. The remaining non-employee members of BOL's board of
directors and all of the non-employee members of BOL's advisory board will be
appointed to a local advisory board for Loudoun County.
SECTION 12 - GENERAL PROVISIONS
12.1 NOTICES. All notices required to be given hereunder shall be in
writing and shall be deemed to have been given if (i) delivered personally, (ii)
transmitted by facsimile (transmission confirmed) or mailed by registered or
certified mail (return receipt requested and postage prepaid) to the following
persons at the addresses and telefax numbers specified below, or to such other
persons, addresses or telefax numbers as a party entitled to notice shall give,
in the manner hereinabove described, to the others entitled to notice:
If to BOL to:
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30 Catoctin Circle
P.O. Box 2627
Leesburg, Virginia 22075
Fax: (703) 771-7380
Attn: Kenneth L. Crovo
President and Chief Executive Officer
with a copy to:
Verner, Liipfert, Bernhard, McPherson and Hand
8280 Greensboro Drive
McLean, Virginia 22102
Fax: (703) 749-6027 or 749-6028
Attn: William F. Roeder, Jr., Esq.
If to Jefferson Bankshares or Jefferson National Bank:
123 East Main Street
P. O. Box 711
Charlottesville, Virginia 22902
Fax: (804) 972-1486
Attn: O. Kenton McCartney
President and Chief Executive Officer
with a copy to:
McGuire, Woods, Battle & Boothe
418 East Jefferson Street
P. O. Box 1288
Charlottesville,Virginia 22902
Fax: (804) 980-2222
Attn: Robert E. Stroud, Esq.
If given personally or transmitted by telefax, a notice shall be deemed to
have been given when it is received. If given by mail, it shall be deemed to
have been given on the third business day following the day on which it was
posted.
12.2 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in this Agreement shall be deemed conditions to the
Merger and shall not survive the Merger.
12.3 NO INDIVIDUAL LIABILITY. Notwithstanding the liability of any
party to this Agreement, no officer, director, employee or other agent of any
party will be individually liable for any breach of any representation or
warranty or agreement unless such person has engaged in fraudulent or willful
misconduct.
12.4 INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
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12.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.6 MISCELLANEOUS. This Agreement (i) constitutes the entire agreement
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof; (ii) is not
intended to and shall not confer upon any other person or business entity, other
than the parties hereto, any rights or remedies with respect to the subject
matter hereof; (iii) shall not be assigned by operation of law or otherwise; and
(iv) shall be governed by the laws of the Commonwealth of Virginia without
regard to its laws or regulations relating to conflicts of laws, except to the
extent that the laws of the United States shall apply to the Merger.
WITNESS the signatures and seals of each of the parties to this Agreement,
each set by its Chairman of the Board, President or a Vice President and
attested to by its Secretary or an Assistant Secretary, pursuant to a resolution
of its Board of Directors, acting by a majority.
* * * *
[SIGNATURES HAVE BEEN OMITTED]
[SCHEDULES AND EXHIBITS HAVE BEEN OMITTED]
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APPENDIX B
OPINION OF FINANCIAL ADVISOR
June 14, 1994
Board of Directors
Bank of Loudoun
30 Catoctin Circle
Leesburg, VA 22075
Ladies and Gentlemen:
You have asked us to render our opinion relating to the fairness, from a
financial point of view, to the shareholders of Bank of Loudoun ("BOL") of the
terms of the conversion ratio (the "Conversion Ratio") of shares of the Common
Stock of BOL ("BOL Common Stock") into shares of the Common Stock of Jefferson
Bankshares, Inc. ("Jefferson Bankshares Common Stock") as provided in the
Agreement and Plan of Merger among Jefferson Bankshares, Inc. ("Jefferson
Bankshares"), Jefferson National Bank ("JNB"), and BOL dated as of April 4, 1994
(the "Merger Agreement"). The Merger Agreement provides that each share of BOL
Common Stock which is issued and outstanding immediately prior to the Effective
Date (as defined in the Merger Agreement) may be converted into and exchanged
for one share of Jefferson Bankshares Common Stock.
In developing our opinion, we have, among other things, reviewed and
analyzed: (1) the Merger Agreement; (2) the Form S-4 Registration Statement to
be filed with the Commission in connection with the Merger; (3) BOL's financial
statements for the three years ended December 31, 1993, as audited and examined
by BOL's independent certified public accounting firm; (4) BOL's unaudited
financial statements for the three months ended March 31, 1994 and 1993 and
other internal information relating to BOL prepared by BOL's management; (5)
information regarding the trading market for the common stocks of BOL and
Jefferson Bankshares and the price ranges within which the respective stocks
have traded; (6) the relationship of prices paid to relevant financial data such
as net worth, loans, deposits and earnings in certain bank and bank holding
company mergers and acquisitions in Virginia in recent years; and (7) Jefferson
Bankshares' annual reports to shareholders and audited financial statements for
the three years ended December 31, 1993, Jefferson Bankshares' unaudited
financial statements for the three months ended March 31, 1994, and other
unaudited, internal information relating to Jefferson Bankshares. We have
discussed with members of management of BOL and Jefferson Bankshares the
background to the Merger, the reasons and basis for the Merger and the business
and future prospects of BOL and Jefferson Bankshares individually and as a
combined entity. Finally, we have conducted such other studies, analyses and
investigations, particularly of the banking industry, and considered such other
information as we deemed appropriate.
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Board of Directors
June 14, 1994
Page 2
In conducting our review and arriving at our opinion, we have relied upon
and assumed accuracy and completeness of the information furnished to it by or
on behalf of BOL and Bankshares. We have not attempted independently to verify
such information, nor have we made any independent appraisal of the assets of
BOL or Jefferson Bankshares. We have taken into account assessment of general
economic, financial market and industry conditions as they exist and can
evaluated at the date hereof, well as our experience in business valuation in
general.
On the basis of our analysis and review and in reliance on the accuracy and
completeness of the information furnished to us and subject to the conditions
noted above, it is our opinion that, as of the date hereof, the terms of the
Conversion Ratio are fair, from a financial point of view, to the holders of BOL
Common Stock.
Very truly yours,
MCKINNON & COMPANY, INC.
/s/ William J. McKinnon, Jr.
President
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APPENDIX C
RIGHTS OF DISSENTING SHAREHOLDERS
12 U.S.C. (Section mark) 215a
DISSENTING SHAREHOLDERS
(b) If a merger shall be voted for at the called meetings by the necessary
majorities of the of each association or State bank participating in the plan
of merger, and thereafter the shall be approved by the Comptroller, any
shareholder of any association or State bank to be merged into the receiving
association who has voted against such merger at the meeting of the association
or bank of which he is a stockholder, or has given notice in writing at or prior
to such meeting to the presiding officer that he dissents from the plan of
merger, shall be entitled to receive the value of the shares so held by him
when such merger shall be approved by the Comptroller upon written request made
to the receiving association at any time before thirty days after the date of
consummation of the merger, by the surrender of his stock certificates.
VALUATION OF SHARES
(c) The value of the shares of any dissenting shareholder shall be
ascertained, as of the effective date of the merger, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one selected by the directors of the receiving association;
and (3) one selected by the two so selected. The valuation agreed upon by any
two of the three appraisers shall govern. If the value so fixed shall not be
satisfactory to any dissenting shareholder who has requested payment, that
shareholder may, within five days after being notified of the appraised value of
his shares, appeal to the Comptroller, who shall cause a reappraisal to be made
which shall be final and binding as to the value of the shares of the appellant.
APPLICATION TO SHAREHOLDERS OF MERGING ASSOCIATIONS;
APPRAISAL BY COMPTROLLER; EXPENSES OF RECEIVING
ASSOCIATION; SALE AND RESALE OF SHARES; STATE APPRAISAL
AND MERGER LAW
(d) If, within ninety days from the date of consummation of the merger,
for any reason one or more of the appraisers is not selected as herein
provided, or the appraisers fail to determine the value of such shares, the
Comptroller shall upon written request of any interested party cause an
appraisal to be made which shall be final and binding on all parties.
The expenses of the Comptroller in making the reappraisal or the
appraisal, as the case may be, shall be paid by the receiving association.
The value of the shares ascertained shall be promptly paid to the dissenting
shareholders by the receiving association. The shares of stock of the
receiving association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
receiving association at an advertised public auction, and the receiving
association shall have the right to purchase any of such shares at such public
auction, if it is the highest bidder therefor, for the purpose of reselling
such shares within thirty days thereafter to such person or persons and at such
price not less than par as its board of directors by resolution may determine.
If the shares are sold at public auction at a price greater than the amount
paid to the dissenting shareholders, the excess in such sale price shall be
paid to such dissenting shareholders. The appraisal of such shares of stock in
any State bank shall be determined in the manner prescribed by the law of the
State in such cases, rather than as provided in this section, if such
provision is made in the State law; and no such merger shall be in
contravention of the law of the State under which such bank is incorporated.
The provisions of this subsection shall apply only to shareholders of (and
stock owned by them in) a bank or association being merged into the receiving
association.
C-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
See information contained in the Prospectus under the heading
"Indemnification."
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See Exhibit Index.
No financial statement schedules are required to be filed.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the Prospectus, to deliver, or
cause to be delivered to each person to whom the Prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the Prospectus to provide interim financial information.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred by a director, officer or
controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlottesville, State of
Virginia, on June 22, 1994.
JEFFERSON BANKSHARES, INC.
O. Kenton McCartney
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
DATE SIGNATURES CAPACITY
<C> <S> <C>
June 22, 1994 O. Kenton McCartney President, Chief Executive Officer,
and Director
June 22, 1994 Allen T. Nelson, Jr. Senior Vice President,
Chief Financial Officer, and Chief
Accounting Officer
June 22, 1994 Hovey S. Dabney Chairman of the Board
June 22, 1994 John T. Casteen, III* Director
June 22, 1994 Lawrence S. Eagleburger* Director
June 22, 1994 Hunter Faulconer* Director
June 22, 1994 Fred L. Glaize, III* Director
June 22, 1994 Henry H. Harrell* Director
June 22, 1994 Alex J. Kay, Jr.* Director
June 22, 1994 J. A. Kessler, Jr.* Director
June 22, 1994 W. A. Rinehart, III* Director
June 22, 1994 Gilbert M. Rosenthal* Director
June 22, 1994 Alson H. Smith, Jr.* Director
June 22, 1994 Lee C. Tait* Director
June 22, 1994 H. A. Williamson, Jr.* Director
</TABLE>
*William M. Watson, Jr., Attorney-in-fact
II-2
<PAGE>
INDEX TO EXHIBITS
(REFERENCES ARE TO ITEM 601, REGULATION S-K)
<TABLE>
<CAPTION>
ITEM
NUMBER DESCRIPTION
<S> <C>
1 Not Applicable
2 Agreement and Plan of Merger among BOL and Jefferson (incorporated by reference
to Appendix A to the Proxy Statement included in Part I hereof)
3 Not Applicable
4(a) Articles of Incorporation of Jefferson Bankshares (incorporated by reference to Exhibit
3 to Jefferson Bankshares' Annual Report on Form 10-K for the year ended
December 31, 1984)
4(b) Articles of Amendment of Jefferson Bankshares dated May 7, 1987 (incorporated by
reference to Exhibit 19 to Jefferson Bankshares' Quarterly Report on Form 10-Q
for the quarter ended June 30, 1987)
4(c) Articles of Amendment to Articles of Incorporation dated May 7, 1993 (incorporated
by reference to Exhibit 4.2 to Jefferson Bankshares' Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993)
4(d) Term Loan Agreement dated as of February 1, 1984, between Jefferson Bankshares
and Wachovia Bank and Trust Company, N.A. (incorporated by reference to Exhibit
19 to Jefferson Bankshares' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1984)
4(e) Amendments dated as of September 8, 1988, and September 21, 1989, to the Term
Loan Agreement between Jefferson Bankshares and Wachovia Bank and Trust
Company, N.A. (incorporated by reference to Jefferson Bankshares' Quarterly
Report on Form 10-Q for the quarter ended March 31, 1991)
4(f) Amendment dated as of December 20, 1990 to the Term Loan Agreement between
Jefferson Bankshares and Wachovia Bank and Trust Company, N.A. (incorporated
by reference to Jefferson Bankshares' Annual Report on Form 10-K for the year
ended December 31, 1990)
5 Opinion of McGuire, Woods, Battle & Boothe
6 Not Applicable
7 Not Applicable
8 Not Applicable
9 Not Applicable
10(a) Senior Officers Supplemental Pension Plan (incorporated by reference to
Jefferson Bankshares' Annual Report on Form 10-K for the year ended
December 31, 1982)
10(b) Amended and Restated Employment Agreement dated as of August 26, 1987 between
Jefferson Bankshares and Hovey S. Dabney (incorporated by reference to Exhibit
19 to Jefferson Bankshares' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1987)
10(c) Amendment dated as of September 26, 1989 to the Amended and Restated
Employment Agreement between Jefferson Bankshares and Hovey S. Dabney
(incorporated by reference to Exhibit 19 to Jefferson Bankshares' Quarterly Report
on Form 10-Q for the quarter ended September 30, 1989)
<PAGE>
10(d) Amendment dated as of September 26, 1990 to the Amended and Restated
Employment Agreement between Jefferson Bankshares and Hovey S. Dabney
(incorporated by reference to Exhibit 19 to Jefferson Bankshares' Quarterly Report
on Form 10-Q for the quarter ended September 30, 1990)
10(e) Deferred Compensation Agreement dated as of December 18, 1979 between Jefferson
Bankshares and Hovey S. Dabney (incorporated by reference to Exhibit 10 to
Jefferson Bankshares' Annual Report on Form 10-K for the year ended December
31, 1984)
10(f) Amendment dated as of September 26, 1989 to the Deferred Compensation Agreement
between Jefferson Bankshares and Hovey S. Dabney (incorporated by reference to
Exhibit 19 to Jefferson Bankshares' Quarterly Report on Form 10-Q for the quarter
ended September 30, 1989)
10(g) Incentive Stock Plan (incorporated by reference to Exhibit 19 to Jefferson Bankshares'
Quarterly Report on Form 10-Q for the quarter ended June 30, 1985)
10(h) Amendment dated as of April 28, 1992 to the Incentive Stock Plan (incorporated by
reference to Exhibit 10(f) to Form S-4 of Jefferson Bankshares, File No. 33-47929)
10(i) Amended and Restated Deferred Compensation Plan for Directors (incorporated by
reference to Exhibit B to Jefferson Bankshares' Annual Report on Form 10-K for
the year ended December 31, 1985)
10(j) Split Dollar Life Insurance Plan (incorporated by reference to Exhibit 10 to Jefferson
Bankshares' Annual Report on Form 10-K for the year ended December 31, 1984)
10(k) Executive Severance Agreement dated October 25, 1993, between Jefferson
Bankshares and O. Kenton McCartney (incorporated by reference to Exhibit 10(k) to
Jefferson Bankshares' Annual Report on Form 10-K for the year ended December
31, 1993)
10(l) Executive Severance Agreement dated October 25, 1993, between Jefferson
Bankshares and Robert H. Campbell, Jr. (incorporated by reference to Exhibit 10(l) to
Jefferson Bankshares' Annual Report on Form 10-K for the year ended December
31, 1993)
10(m) Amended and Restated Split Dollar Life Insurance Agreement dated October 29, 1993
between Jefferson Bankshares and Hovey S. Dabney (incorporated by reference to
Exhibit 10(m) to Jefferson Bankshares' Annual Report on Form 10-K for the year ended
December 31, 1993)
10(n) Amended and Restated Split Dollar Life Insurance Agreement dated October 29, 1993
between Jefferson Bankshares and Robert H. Campbell, Jr. (incorporated by
reference to Exhibit 10(n) to Jefferson Bankshares' Annual Report on Form 10-K for
the year ended December 31, 1993)
10(o) Amended and Restated Split Dollar Life Insurance Agreement dated October 29, 1993
between Jefferson Bankshares and O. Kenton McCartney (incorporated by reference
to Exhibit 10(o) to Jefferson Bankshares' Annual Report on Form 10-K for the year
ended December 31, 1993)
10(p) Amendment dated as of May 19, 1994, to the Amended and Restated Split
Dollar Life Insurance Agreement dated October 29, 1993 between Jefferson
Bankshares and O. Kenton McCartney (previously filed)
11 Statement regarding computation of per share earnings (omitted because computation
can clearly be determined from material included in or incorporated by reference
in this Registration Statement)
12 Not Applicable
13(a) Jefferson Bankshares' 1993 Annual Report to Shareholders (incorporated
by reference to Exhibit 13 to Jefferson Bankshares' Annual Report on Form
10-K for the year ended December 31, 1993)
13(b) Designated portions of Jefferson Bankshares' Quarterly Report to Shareholders
for the quarter ended March 31, 1994 containing financial information equivalent
to that required to be presented in Part I of Form 10-Q (previously filed)
14 Not Applicable
15 Not Applicable
22 Not Applicable
<PAGE>
<C> <S>
24(a)* Consent of KPMG Peat Marwick (previously filed)
24(b) Consent of Grant Thornton (previously filed)
24(c) Consent of McKinnon & Company, Inc.
25 Powers of Attorney (previously filed)
26 Not Applicable
27 Not Applicable
28(a) Notice of Special Meeting of Shareholders of BOL
28(b) Proxy Card for use in connection with Special Meeting of
Shareholders of BOL
28(c) Option Agreement dated April 4, 1994, between Jefferson
Bankshares and BOL (previously filed)
29 Not Applicable
</TABLE>
*The consent of McGuire, Woods, Battle & Boothe is included in the
opinion filed as Exhibit 5 hereto.
<PAGE>
MCGUIRE, WOODS, BATTLE & BOOTHE
P. O. Box 1288
418 East Jefferson Street
Charlottesville, Virginia 22902
June 22, 1994
Jefferson Bankshares, Inc.
123 East Main Street
P. O. Box 711
Charlottesville, Virginia 22902
Ladies and Gentlemen:
We are acting as your counsel in connection with the
Registration Statement on Form S-4 (the "Registration Statement")
you have filed with the Securities and Exchange Commission with
respect to 540,700 shares (the "Shares") of your Common Stock,
$2.50 par value, which you intend to issue in connection with the
merger of Bank of Loudoun with and into Jefferson National Bank,
a national banking association, as described in the
Registration Statement.
We are of the opinion that:
1. Jefferson Bankshares, Inc. is a corporation duly
organized and validly existing under the laws of the Commonwealth
of Virginia.
2. The Shares are duly authorized and, when issued, will
be fully paid and nonassessable.
We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as an exhibit to the
Registration Statement and to the statement made in reference to
our firm under the caption "Legal Opinion" in the Proxy
Statement-Prospectus which is made a part of the Registration
Statement.
Very truly yours,
MCGUIRE, WOODS, BATTLE & BOOTHE
Exhibit 24(c)
CONSENT OF INVESTMENT ADVISOR
The Board of Directors
Jefferson Bankshares, Inc.:
We consent to the use of our fairness opinion incorporated
herein by reference and to the reference to our firm under the
headings "The Proposed Merger - Background and Reasons for the
Merger" and "Opinion of Financial Advisor" in the prospectus.
MCKINNON & COMPANY, INC.
Norfolk, Virginia
June 20, 1994
Exhibit 28(a)
BANK OF LOUDOUN
30 Catoctin Circle
Leesburg, Virginia 22075
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 28, 1994
To The Shareholders of
Bank of Loudoun:
A Special Meeting of Shareholders of Bank of Loudoun (the
"Bank") will be held at the Carrodoc Hall at the Ramada Inn, 15
East Market Street, Route 7, Leesburg, Virginia on July 28, 1994
at 7:00 p.m., local time, for the following purposes:
(1) To consider and vote upon the proposal to approve and
adopt the Agreement and Plan of Merger among the Bank and
Jefferson National Bank and Jefferson Bankshares, Inc. (the
"Merger Agreement"), pursuant to which the Bank will be merged
with and into Jefferson National Bank, the wholly owned national
bank subsidiary of Jefferson Bankshares, Inc. Shares of Bank
common stock will be converted into the right to receive shares
of Jefferson Bankshares, Inc. common stock in accordance with the
terms of the Merger Agreement.
(2) To consider and vote upon any other matters that may
lawfully come before the Special Meeting.
Only stockholders of record at the close of business on June
14, 1994, will be entitled to receive notice of and to vote at
the Special Meeting and any adjournment thereof.
PLEASE FILL IN, DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHICH DOES NOT
REQUIRE ANY POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
RECEIVE MORE THAN ONE PROXY BECAUSE YOU OWN SHARES REGISTERED IN
DIFFERENT NAMES OR ADDRESSES, EACH PROXY SHOULD BE COMPLETED AND
RETURNED.
By Order of the Board of Directors
June 23, 1994 John E. Skilton, Secretary
Exhibit 28(b)
REVOCABLE PROXY
BANK OF LOUDOUN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BANK OF LOUDOUN
FOR USE AT A SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JULY 28, 1994 AND AT
ANY ADJOURNMENT THEREOF.
The undersigned, being a shareholder of Bank of Loudoun (the "Bank")
hereby appoints Kenneth L. Crovo and John E. Skilton, or either of them, as
proxy, with full powers of substitution, to cast all votes which the
undersigned may be entitled to cast, if then personally present, at the Special
Meeting of Shareholders of the Bank to be held at Carrodoc Hall at the Ramada
Inn, 15 East Market Street, Route 7, Leesburg, Virginia on July 28, 1994 at
7:00 p.m., and at any adjournment of such meeting, as indicated below on the
following matters:
(1) Approval and adoption of the Agreement and Plan of Merger
pursuant to which the Bank will be merged with and into Jefferson
National Bank, a wholly-owned national bank subsidiary of Jefferson
Bankshares, Inc.
FOR AGAINST
(2) In their discretion, upon any other business that may properly
come before the Special Meeting.
THIS PROXY WILL BE VOTED "FOR" APPROVAL AND ADOPTION OF THE AGREEMENT
AND PLAN OF MERGER, UNLESS A CONTRARY DIRECTION IS GIVEN. PLEASE DATE AND SIGN
THIS PROXY BELOW AND RETURN IT IN THE ENCLOSED ENVELOPE.
This proxy is revocable and the undersigned may revoke it at any time
prior to the Special Meeting by giving written notice of such revocation to the
Secretary of the Bank. Should the undersigned be present and want to vote in
person at the Special Meeting, or at any adjournment thereof, the undersigned
may revoke this proxy by voting in person at the meeting.
The undersigned hereby acknowledges receipt of a Notice of Special
Meeting of the Shareholders of the Bank called for July 28, 1994 and a Proxy
Statement-Prospectus for the Special Meeting dated June 23, 1994, prior to the
signing of this proxy.
Date:
Signature
Signature
IMPORTANT: Please sign exactly as your
name appears on this Proxy. If
shares are registered jointly,
each joint owner must sign this
Proxy. If signing in a
representative capacity, please
give title.
IF YOU RECEIVE MORE THAN ONE PROXY
FORM, PLEASE SIGN AND RETURN ALL
FORMS IN THE ACCOMPANYING
ENVELOPE.
