Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-60346
[LOGO]
PROXY STATEMENT [LOGO]
FOR THE SPECIAL MEETING PROSPECTUS
OF STOCKHOLDERS OF FIRST VIRGINIA BANKS, INC.
JAMES RIVER BANKSHARES, INC.
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
The boards of directors of James River Bankshares, Inc., a financial
holding company headquartered in Suffolk, Virginia, and First Virginia Banks,
Inc., a bank holding company headquartered in Falls Church, Virginia, have
agreed to the acquisition of James River by First Virginia by means of the
merger of James River with and into First Virginia.
If the merger is completed, you will receive for each of your shares of
James River common stock either (1) .51 of a share of First Virginia common
stock and the related preferred stock purchase rights or (2) at your
election, but subject to limitations, $24.00 in cash. We refer to the .51
multiple, as it may be adjusted due to a change in First Virginia's
capitalization, as the "exchange ratio." The limitation on your ability to
receive cash for your James River shares is the result of a limit on the
total number shares of James River common stock for which First Virginia will
pay cash in the merger. For a discussion of this limitation, see "SUMMARY -
What You Will Receive in the Merger" on page 1. For a description of the
procedures you must follow to make a cash election, see "THE MERGER -
Procedures for Making a Cash Election" on page 21.
First Virginia common stock is traded on the New York Stock Exchange
under the symbol "FVB." James River common stock is traded on the Nasdaq
National Market under the symbol "JRBK." For information on recent market
prices of First Virginia common stock and James River common stock, see
"SUMMARY - Comparative Market Price of Common Stock" on page 3.
A special meeting of James River stockholders will be held on June 27,
2001 at 10:00 a.m. local time at the Steven Kent Conference Center, located
at 12205 South Crater Road, Petersburg, Virginia 23805 (at Exit 45 on
Interstate 95, at the intersection of U.S. 301). At the special meeting, you
will be asked to approve the agreement and plan of reorganization, which we
refer to as the "merger agreement," by and between First Virginia and James
River, the related plan of merger and the transactions contemplated thereby,
including the merger. The merger cannot be completed unless the holders of
more than two-thirds of the shares of James River common stock outstanding
and entitled to vote, approve it. Your board of directors unanimously
recommends that you vote FOR the merger.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 15 OF
THIS PROXY STATEMENT-PROSPECTUS.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THE SHARES OF FIRST VIRGINIA COMMON STOCK TO BE ISSUED IN THE
MERGER OR DETERMINED IF THIS PROXY STATEMENT PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this proxy statement-prospectus is May 18, 2001. It is
first being mailed on May 25, 2001.
PLEASE NOTE
As used in this proxy statement-prospectus, the terms "James River" and
"First Virginia" refer to James River Bankshares, Inc. and First Virginia
Banks, Inc., respectively, and, where the context requires, to James River
and First Virginia and their respective subsidiaries.
No one has been authorized to give any information or make any
representation about the merger or James River or First Virginia that differs
from, or adds to, the information in this proxy statement-prospectus, the
documents that are referred to herein or in First Virginia's or James River's
documents filed with the Securities and Exchange Commission. Therefore, if
anyone does give you different or additional information, you should not rely
on it.
This proxy statement-prospectus has been prepared as of May 18, 2001.
There may be changes in the affairs of First Virginia or James River since
that date which are not reflected in this document.
Information in this proxy statement-prospectus about First Virginia
Banks, Inc. has been supplied by First Virginia and information about James
River Bankshares, Inc. has been supplied by James River.
HOW TO OBTAIN ADDITIONAL INFORMATION
This proxy statement-prospectus incorporates important business and
financial information about First Virginia and James River that is not
included in or delivered with this document. This information is described
under "WHERE YOU CAN FIND MORE INFORMATION" on page 68. You can obtain free
copies of this information from First Virginia or James River by writing or
calling:
Corporate Secretary's Office Donald W. Fulton, Jr.
FIRST VIRGINIA BANKS, INC. Corporate Secretary
One First Virginia Plaza JAMES RIVER BANKSHARES INC.
6400 Arlington Boulevard 1514 Holland Road
Falls Church, Virginia 22042-2336 Suffolk, Virginia 23434
Telephone: (800) 995-9416 Telephone: (757) 934-8100
In order to obtain timely delivery of the documents, you must request
the information by June 22, 2001.
JAMES RIVER BANKSHARES, INC.
1514 Holland Road
Suffolk, Virginia 23434
Notice of Special Meeting of Stockholders
to be held on June 27, 2001.
James River Bankshares, Inc. will hold a special meeting of stockholders
at the Steven Kent Conference Center, located at 12205 South Crater Road,
Petersburg, Virginia 23805 (at Exit 45 on Interstate 95, at the intersection
of U.S. 301), at 10:00 a.m. local time on June 27, 2001, to vote on:
(1) Merger. The agreement and plan of reorganization, dated as of
March 3, 2001, between James River Bankshares, Inc. and First
Virginia Banks, Inc., the related plan of merger and the
transactions contemplated thereby. These transactions include
the merger of James River with and into First Virginia.
(2) Other Business. Any other matters that properly come before
the special meeting, or any adjournments or postponements of
the special meeting.
Record holders of James River common stock at the close of business on
May 17, 2001, will receive notice of and may vote at the special meeting,
including any adjournments or postponements. If your shares are not
registered in your own name, you will need additional information from your
record holder in order to vote personally at the meeting. The agreement and
plan of reorganization and the related plan of merger require approval by the
holders of more than two-thirds of the shares of James River common stock
outstanding and entitled to vote.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the
special meeting, please take the time to vote by completing and mailing the
enclosed proxy card. If you sign, date and mail your proxy card without
indicating how you want to vote, your proxy will be voted in favor of the
merger. If you do not return your proxy card, or if you do not attend and
vote in favor of the merger at the special meeting, the effect will be a vote
against the merger. You may revoke your proxy by delivering a written notice
of revocation to the Corporate Secretary of James River before a vote is
taken at the special meeting. Attendance at the special meeting will not in
and of itself revoke a proxy.
This proxy statement-prospectus provides you with detailed information
about the proposed merger. You can also get information about First Virginia
and James River from documents filed with the Securities and Exchange
Commission. We encourage you to read this entire document carefully. Your
board of directors supports this merger of James River with and into First
Virginia and unanimously recommends that you vote FOR the merger.
BY ORDER OF THE BOARD OF DIRECTORS
Donald W. Fulton, Jr.
Corporate Secretary
May 25, 2001
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What should I do now?
A: Send in your proxy card. After reviewing this document, indicate on
your proxy card how you want to vote, and sign, date and mail it in the
enclosed envelope as soon as possible to ensure that your shares will be
represented at the special meeting.
If you sign, date and send in your proxy and do not indicate how you
want to vote, your proxy will be voted in favor of the merger agreement,
the plan of merger, and the merger. If you do not sign and send in your
proxy card, or if you do not attend and cast your vote in person at the
special meeting, it will have the same effect as a vote against the
merger.
Send in your election form if you want to receive cash for your shares.
If you wish to receive cash instead of First Virginia common stock for
any or all of your shares of James River common stock, follow the
instructions for making a cash election that we describe on page 21 of
this document. Please note, however, that if you own more than 100
shares of James River common stock or if you own 100 shares or less but
do not elect to receive cash for all of your shares, you may not receive
cash for all the shares for which you make a cash election, even if you
make a proper cash election, because the total amount of James River
shares for which First Virginia will pay cash is limited.
Q: Can I change or revoke my cash election once I have mailed my signed
cash election form?
A: Yes. You can change or revoke your cash election in writing at any time
prior to the time a vote is taken at the special meeting.
Q: What are the consequences if I fail to properly complete and return the
cash election form?
A: If you fail to make a proper or timely election to receive cash, you
will receive First Virginia common stock in exchange for all of your
shares of James River common stock in the merger.
Q: Should I send in my stock certificates now?
A: It depends on whether you wish to receive cash or First Virginia common
stock in exchange for your shares of James River common stock. If you
wish to make an election to receive cash in exchange for some or all of
your James River shares, you must send in the stock certificates
representing the shares subject to that election (or customary
affidavits and satisfactory indemnification agreements regarding the
loss or the guaranteed delivery of such certificates) with the enclosed
cash election form before the time a vote is taken at the special
meeting. Hold on to all of your remaining certificates and send them in
with the transmittal materials you will receive from the exchange agent
after we complete the merger.
Q: If my shares are held in "street" name by my broker, will my broker vote
my shares for me?
A: Your broker will vote your shares of James River common stock only if
you provide your broker with instructions on how to vote. You should
instruct your broker how to vote your shares by following the directions
your broker provides. If you do not provide instructions to your
broker, your shares will not be voted which will have the same effect as
a vote against the merger.
Q: Can I revoke my proxy and change my mind?
A: Yes. You may revoke your proxy up to the time a vote is taken at the
special meeting by delivering to the Corporate Secretary a written
notice of revocation as explained under "SPECIAL MEETING OF JAMES RIVER
STOCKHOLDERS - Record Date, Voting Rights, Required Vote and
Revocability of Proxies" on page 17 of this proxy statement-prospectus.
Q: Can I vote my shares in person?
A: Yes. You may attend the special meeting and vote your shares in person
rather than signing and mailing your proxy card.
Q: Whom can I call with questions?
A: If you want additional copies of this document, or if you want to ask
any questions about the merger, you should contact:
Donald W. Fulton, Jr.
Corporate Secretary
JAMES RIVER BANKSHARES, INC.
1514 Holland Road
Suffolk, Virginia 23434
(757) 934-8100
TABLE OF CONTENTS
Page
SUMMARY.............................................................. 1
The Companies................................................... 1
The Merger...................................................... 1
What You Will Receive in the Merger............................. 1
Effect of the Merger on James River Options..................... 2
No Dissenters' Rights in the Merger............................. 2
Your Expected Tax Treatment as a Result of the Merger........... 2
Comparative Market Prices of Common Stock....................... 3
Our Reasons for the Merger...................................... 4
Fairness Opinion of James River's Financial Advisor............. 4
Special Meeting of Stockholders................................. 4
Stockholder Vote Required....................................... 4
Voting Rights at the Special Meeting............................ 4
Voting Procedures for the Special Meeting....................... 4
Recommendation to Stockholders.................................. 5
Share Ownership of Management and Certain Stockholders.......... 5
Interests of Certain Persons in the
Merger That May Be Different from Yours....................... 5
Effective Time.................................................. 5
Regulatory Approval and Other Conditions........................ 6
Waiver, Amendment, and Termination.............................. 6
Accounting Treatment............................................ 6
Certain Differences in Stockholders' Rights..................... 7
Stock Option Agreement.......................................... 7
Historical and Pro Forma Comparative Per Share Data............. 8
Selected Consolidated Financial Data............................ 10
A WARNING ABOUT FORWARD-LOOKING STATEMENTS........................... 14
RISK FACTORS......................................................... 15
General......................................................... 15
Risks Relating to the Merger.................................... 15
SPECIAL MEETING OF JAMES RIVER STOCKHOLDERS.......................... 16
Purpose......................................................... 16
Record Date, Voting Rights, Required Vote,
and Revocability of Proxies................................... 17
Solicitation of Proxies......................................... 18
No Dissenters' Rights........................................... 19
Recommendation.................................................. 19
THE MERGER........................................................... 19
General......................................................... 19
Cash Election Feature........................................... 20
Procedures for Making a Cash Election........................... 21
Procedures for Exchanging Shares of James River Common Stock
for First Virginia Common Stock............................... 22
Effect of the Merger on James River Options..................... 23
First Virginia Repurchase Program............................... 23
Certain Federal Income Tax Consequences......................... 24
Background of and Reasons for the Merger........................ 26
Opinion of James River's Financial Advisor...................... 31
Effective Time of the Merger.................................... 40
Conditions to Consummation of the Merger........................ 40
Regulatory Approval............................................. 41
Waiver, Amendment, and Termination.............................. 42
Conduct of Business Pending the Merger.......................... 43
Management and Operations After the Merger...................... 44
Interests of Certain Persons in the Merger...................... 45
Accounting Treatment............................................ 46
Expenses and Fees............................................... 47
Resales of First Virginia Common Stock.......................... 47
Stock Option Agreement.......................................... 48
EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS....................... 48
Certain Provisions of First Virginia's Articles of
Incorporation and First Virginia's Stockholder Rights Plan.... 48
Affiliated Transactions......................................... 50
Control Share Acquisition....................................... 51
Stockholders' Rights of Appraisal............................... 51
Authorized Capital Stock........................................ 52
Special Meetings of Stockholders................................ 52
Directors....................................................... 52
Dividends and Other Distributions............................... 53
Stockholder Nominations and Stockholder Proposals............... 53
Discharge of Duties; Indemnification............................ 55
Director and Officer Exculpation................................ 56
Mergers, Share Exchanges and Sales of Assets.................... 56
Liquidation Rights.............................................. 57
COMPARATIVE MARKET PRICES AND DIVIDENDS.............................. 58
BUSINESS OF JAMES RIVER.............................................. 59
General......................................................... 59
Recent Developments............................................. 59
BUSINESS OF FIRST VIRGINIA........................................... 60
General......................................................... 60
Recent Developments............................................. 60
CERTAIN REGULATORY CONSIDERATIONS.................................... 61
DESCRIPTION OF FIRST VIRGINIA CAPITAL STOCK.......................... 65
OTHER MATTERS........................................................ 66
STOCKHOLDER PROPOSALS................................................ 67
EXPERTS.............................................................. 67
OPINIONS............................................................. 67
WHERE YOU CAN FIND MORE INFORMATION.................................. 68
APPENDICES:
Appendix A - Agreement and Plan of Reorganization, dated as of March 3,
2001, by and between James River Bankshares, Inc. and First
Virginia Banks, Inc.
Appendix B - Plan of Merger, dated as of March 3, 2001, by and between
James River Bankshares, Inc. and First Virginia Banks, Inc.
Appendix C - Opinion of Keefe, Bruyette & Woods, Inc.
SUMMARY
This summary highlights selected information from this proxy
statement-prospectus and may not contain all of the information that is
important to you. You should carefully read this entire document and the
other documents we refer to in this document in order to understand fully the
merger and to obtain a more complete description of the legal terms of the
merger. For more information about First Virginia and James River, see
"WHERE YOU CAN FIND MORE INFORMATION" on page 68. We have included page
references in this summary to direct you to other places in this proxy
statement-prospectus where you can find a more complete description of the
topics we have summarized.
The Companies
(See page 59 for James River, page 60 for First Virginia)
JAMES RIVER BANKSHARES, INC.
1514 Holland Road
Suffolk, Virginia 23434
(757) 934-8100
James River is a financial holding company headquartered in Suffolk,
Virginia. James River operates primarily through its four subsidiary banks,
James River Bank, James River Bank/Colonial, First Colonial Bank, and State
Bank. James River's bank subsidiaries have a total of 27 banking facilities
in the James River basin and Piedmont area of Virginia.
On March 31, 2001, James River had, on a consolidated basis, assets of
approximately $531.1 million, loans of approximately $367.3 million, deposits
of approximately $443.6 million, and stockholders' equity of approximately
$57.2 million.
FIRST VIRGINIA BANKS, INC.
One First Virginia Plaza
6400 Arlington Boulevard
Falls Church, Virginia 22042-2336
(703) 241-4486
First Virginia is a bank holding company headquartered in Falls Church,
Virginia. First Virginia currently operates nine commercial banks with 294
banking offices in Virginia, 56 in Maryland and 25 in East Tennessee.
On March 31, 2001, First Virginia had, on a consolidated basis, total
assets of approximately $9.65 billion, loans of approximately $6.17 billion,
deposits of approximately $7.91 billion, and stockholders' equity of
approximately $1.02 billion.
The Merger (See page 19)
Pursuant to the merger agreement and related plan of merger, First
Virginia will acquire James River by means of the merger of James River with
and into First Virginia.
What You Will Receive in the Merger (See page 19)
If we complete the merger, you will receive for each of your shares of
James River common stock either (1) .51 of a share of First Virginia common
stock or (2) at your election, but subject to limitations, $24.00 in cash.
The value of the shares of First Virginia common stock that will be
issued in the merger will depend upon the market price of First Virginia
common stock, which is certain to fluctuate before and after we complete the
merger. On March 2, 2001, the last trading day before we entered into the
merger agreement, the closing price of First Virginia common stock was $46.10
and on May 17, 2001, the last practicable date before the mailing of this
proxy statement-prospectus, the closing price of First Virginia common stock
was $44.95.
If we had closed the merger on May 17, 2001, the value of the First
Virginia common stock that would have been issued on that day in exchange for
one share of James River common stock would have been $22.92, based on the May
17, 2001 First Virginia common stock closing price of $44.95 and the .51
exchange ratio. The value of the cash consideration that First Virginia will
pay in the merger will have a fixed value of $24.00 per share.
First Virginia will not issue any fractions of shares of common stock.
Rather, First Virginia will pay cash (without interest) for any fractional
share interest any James River stockholder would otherwise receive in the
merger. The cash payment will be in an amount equal to the fraction
multiplied by the average closing price of First Virginia common stock on the
New York Stock Exchange for the ten-day trading period ending on the day the
merger is completed.
You will have the option to elect to receive cash in the merger instead
of First Virginia common stock for some or all of your shares of James River
common stock. However, First Virginia will only exchange for cash up to 40%
of the shares of James River common stock that are outstanding immediately
before we complete the merger. If First Virginia receives cash elections as
to more than this percentage, the cash will be apportioned as follows:
> stockholders who have elected to receive cash for all of
their James River shares and who hold 100 or fewer James
River shares will receive cash for all of their shares; and
> First Virginia will then deliver cash consideration to the
remaining electing stockholders on a proportionate basis.
See "THE MERGER - Cash Election Feature" on page 20.
Effect of the Merger on James River Options (See page 23)
James River has granted certain options to acquire James River common
stock under existing James River stock plans. If the merger is completed,
each option granted under James River's stock plans that is outstanding,
whether or not exercisable, will be converted into an option to purchase
First Virginia common stock. The number of First Virginia shares that may be
purchased under and the exercise price of each option, will be adjusted based
on the exchange ratio.
No Dissenters' Rights in the Merger (See page 19)
As a James River stockholder, you will not have any statutory
dissenters' rights in connection with the merger.
Your Expected Tax Treatment as a Result of the Merger (See page 24)
We intend for the merger to qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended, for federal
income tax purposes. Accordingly, we expect that you will not recognize any
gain or loss for federal income tax purposes, if you exchange your shares of
James River common stock solely for shares of First Virginia common stock
pursuant to the merger (except that you may realize gain or loss with respect
to cash, if any, received instead of a fractional share of First Virginia
common stock). To the extent you receive cash in exchange for your shares of
James River common stock, a portion of that cash will be subject to gain or
loss for federal income tax purposes.
Tax matters are very complicated and the tax consequences of the merger
to you will depend on the facts of your specific situation. You should
consult your own tax advisor to determine the effect of the merger under
federal, state, local, and foreign tax laws.
Comparative Market Prices of Common Stock (See page 58)
Shares of First Virginia common stock are traded on the New York Stock
Exchange under the symbol "FVB." Shares of James River common stock are
traded on the Nasdaq National Market under the symbol "JRBK." The table
shows you the closing sales prices for First Virginia and James River common
stock on March 2, 2001, the last trading day before we announced the
execution of the merger agreement, and on May 17, 2001, the latest
practicable date before the mailing of this proxy statement-prospectus. The
table also shows you the "Equivalent Price Per James River Share" or the
value of the First Virginia common stock James River stockholders will
receive in the merger for one share of James River common stock.
Equivalent Price
First Virginia James River Per James River
Common Stock Common Stock Share(1)
-------------- ------------ ----------------
March 2, 2001 $46.10 $14.88 $23.51
May 17, 2001 $44.95 $23.30 $22.92
(1) The equivalent price per share of James River common stock at each
specified date represents the closing sale price of a share of
First Virginia common stock on such date multiplied by an exchange
ratio of .51. See "COMPARATIVE MARKET PRICES AND DIVIDENDS" on
page 58.
James River stockholders should obtain current stock price quotations
for First Virginia common stock and James River common stock. If you elect
to receive cash for some or all of your shares of James River common stock,
you will receive $24.00 for each of your shares that is exchanged for cash in
the merger. See "THE MERGER - General" on page 19.
Our Reasons for the Merger (See page 26)
First Virginia and James River believe that the merger will join James
River's strengths as a community bank serving southeastern and central
Virginia with First Virginia's position as a leading bank throughout
Virginia, Maryland and East Tennessee. In addition, we anticipate that the
combined resources and capital of First Virginia and James River will improve
our ability to compete in the evolving and competitive financial services
industry.
Fairness Opinion of James River's Financial Advisor (See page 31)
In deciding to approve the merger, the James River board of directors
considered an opinion from its financial advisor, Keefe, Bruyette & Woods,
Inc., that the exchange ratio is fair to James River's stockholders from a
financial point of view. This opinion, dated March 2, 2001, is attached to
this proxy statement-prospectus as Appendix C. We encourage you to read this
opinion.
Special Meeting of Stockholders (See page 16)
The special meeting will be held at the Steven Kent Conference Center,
located at 12205 South Crater Road, Petersburg, Virginia 23805 (at Exit 45
on Interstate 95, at the intersection of U.S. 301), at 10:00 a.m., local
time, on June 27, 2001. At the special meeting, James River stockholders
will be asked:
(1) to approve the merger agreement, the related plan of merger
and the transactions contemplated thereby, including the
merger of James River with and into First Virginia; and
(2) to act on any other matters that may be put to a vote at the
special meeting.
As of the date of this proxy statement-prospectus, James River's board
of directors does not know of any other matters that will be presented at the
special meeting.
Stockholder Vote Required (See page 17)
In order for the special meeting to be held, a quorum must be present.
A quorum is established when a majority of the shares of James River common
stock outstanding and entitled to vote on a matter are represented at the
special meeting either in person or by proxy.
The merger agreement, the related plan of merger and the merger must be
approved by stockholders who own more than two-thirds of the shares of James
River common stock outstanding and entitled to vote.
Voting Rights at the Special Meeting (See page 17)
If you owned shares of James River common stock as of the close of
business on May 17, 2001, the record date, you are entitled to vote at the
special meeting. On the record date, 4,565,719 shares of James River common
stock were outstanding and entitled to vote at the special meeting. You will
be entitled to one vote for each share of James River common stock that was
validly issued and outstanding and that you owned on the record date. You
may vote either by attending the special meeting and voting your shares or by
completing the enclosed proxy card and mailing it to us in the enclosed
envelope.
Voting Procedures for the Special Meeting (See page 18)
We are seeking your proxy to use at the special meeting. We have
prepared this proxy statement-prospectus to assist you in deciding how to
vote and whether or not to grant your proxy to us. Please indicate on your
proxy card how you want to vote. Then sign, date and mail it to us as soon
as possible so that your shares will be represented at the special meeting.
If you sign, date and mail your proxy card without indicating how you wish to
vote, your proxy will be counted as a vote for the merger agreement, the
related plan of merger and the merger. If you fail to return your proxy card
and fail to vote at the special meeting, the effect will be a vote against
the merger agreement, the related plan of merger and the merger. If you sign
a proxy, you may revoke it at any time before it is exercised at the special
meeting by giving written notice of revocation to the Corporate Secretary of
James River before a vote is taken at the special meeting. You cannot vote
shares of James River common stock held in "street name"; only your broker
can. If you do not provide your broker with instructions on how to vote your
shares, your broker will not be permitted to vote them, and your shares will
be treated as votes against the merger agreement, the related plan of merger
and the merger.
Recommendation to Stockholders (See page 19)
James River's board of directors has approved the merger agreement, the
related plan of merger and the merger. The James River board of directors
believes that the proposed merger is fair to James River stockholders and in
the best interests of James River stockholders. The James River board of
directors recommends that you vote FOR approval of the merger agreement, the
related plan of merger and the merger.
Share Ownership of Management and Certain Stockholders (See page 17)
On the record date, James River's directors and executive officers and
entities they control owned, or had voting or investment power over,
695,069 shares, or approximately 15.2% of the outstanding shares of James
River common stock. This number does not include stock that the James River
directors and executive officers may acquire through exercising stock
options.
Each of the directors of James River has entered into an agreement with
First Virginia in which he or she has agreed to vote the shares of James
River common stock over which the director has voting authority (other than
in a fiduciary capacity) in favor of the merger. On the record date, the
James River directors owned 613,612 shares, or approximately 13.4% of the
outstanding shares of James River common stock.
On the record date, none of the directors or executive officers of First
Virginia or entities they control owned, or had voting or investment power
over, any shares of James River common stock and First Virginia held no
shares of James River common stock other than in a fiduciary capacity for
others, or as a result of debts previously contracted.
Interests of Certain Persons in the Merger That May Be Different from Yours
(See page 45)
Certain officers of James River have employment, change in control or
retirement agreements, rights under stock options and other benefit plans and
other arrangements that may provide them with interests in and benefits from
the merger that are different from yours. The James River board of directors
was aware of these interests and considered them in approving and
recommending the merger agreement, the related plan of merger and the
transactions contemplated thereby, including the merger.
Effective Time (See page 40)
The merger will become final at the time specified in the Articles of
Merger reflecting the merger to be filed with the State Corporation
Commission of the Commonwealth of Virginia. If James River stockholders
approve the merger at the special meeting, and First Virginia obtains all
required regulatory approvals, we currently anticipate that the merger will
be completed early in the third quarter of 2001. The merger agreement
provides that unless First Virginia and James River agree otherwise, the
merger will be completed no later than five business days after the date of
the special meeting. James River and First Virginia cannot assure you that
we can obtain the necessary stockholder and regulatory approvals or that the
other conditions to consummation of the merger can or will be satisfied.
Regulatory Approval and Other Conditions (See pages 40 and 41)
First Virginia is required to notify and obtain approvals from certain
government regulatory agencies before the merger may be completed, including
the Federal Reserve Board, the Bureau of Financial Institutions of the
Virginia State Corporation Commission and other federal and state banking
regulators. We expect that First Virginia will obtain all required
regulatory approvals, but we cannot assure you that these regulatory
approvals will be obtained.
In addition to the required regulatory approvals, the merger will be
completed only if certain conditions, including, but not limited to the
following, are met or, if waivable, waived:
(1) James River stockholders approve the merger agreement, the
related plan of merger and the merger at the special meeting;
(2) James River receives an opinion of counsel that the merger will
qualify as a tax-free reorganization; and
(3) First Virginia's and James River's representations and warranties
in the merger agreement are accurate in all material respects on
the date we complete the merger.
In addition to these conditions, the merger agreement, attached to this
proxy statement-prospectus as Appendix A, describes other conditions that
must be met before the merger may be completed.
James River and First Virginia cannot assure you that the conditions to
consummation of the merger can or will be satisfied.
Waiver, Amendment, and Termination (See page 42)
First Virginia and James River may agree to terminate the merger
agreement and elect not to complete the merger at any time before the merger
is completed.
Each of the parties also can terminate the merger agreement in certain
other circumstances, including if the merger is not completed by December 3,
2001.
In addition, the parties may also terminate the merger agreement if
other circumstances occur which are described in the merger agreement,
attached to this proxy statement-prospectus as Appendix A.
The merger agreement may be amended by the written agreement of James
River and First Virginia. The parties may amend the merger agreement without
stockholder approval, even if James River stockholders have already approved
the merger. However, the James River stockholders must approve any
amendments that would change the exchange ratio or the $24.00 per share cash
price, or otherwise change the amount or kind of consideration being paid in
the merger.
Accounting Treatment (See page 46)
First Virginia intends to account for the merger as a purchase
transaction for accounting and financial reporting purposes.
The purchase method of accounting involves adding James River's assets
and liabilities, estimated at their fair value at the effective time of the
merger to those of First Virginia. Therefore, the financial statements of
First Virginia issued after the merger will reflect these values from James
River and will not be restated retroactively to reflect the historical
financial position or results of operations of James River.
Certain Differences in Stockholders' Rights (See page 48)
When the merger is completed you will automatically become a First
Virginia stockholder. The rights of First Virginia stockholders differ from
the rights of James River stockholders in certain significant ways. These
differences have to do with provisions in First Virginia's articles of
incorporation and bylaws. Certain of these provisions are intended to make a
takeover of First Virginia more difficult if the First Virginia board of
directors does not approve it.
Stock Option Agreement (See page 48)
James River and First Virginia entered into a stock option agreement
under which James River granted First Virginia an option to purchase up to
906,680 shares of James River common stock under certain circumstances if the
merger is not consummated and a third party attempts to take control of James
River.
Historical and Pro Forma Comparative Per Share Data
The following table shows certain comparative per share data relating to
net income, cash dividends, and book value. The equivalent pro forma
information is based on an exchange ratio of .51. The acquisition of James
River is expected to be accounted for using the purchase method of
accounting.
We present the pro forma and equivalent pro forma data for your
information only. It does not necessarily indicate the results of operations
or combined financial position that would have resulted had First Virginia
completed the merger at the times indicated, and it does not necessarily
indicate what future results of operations or combined financial position
will be.
You should read the information shown below in conjunction with the
historical consolidated financial statements of First Virginia and James
River and the notes provided with them (incorporated by reference herein) and
related financial information appearing elsewhere in this proxy
statement-prospectus. See "- Selected Consolidated Financial Data" on page
10, "BUSINESS OF JAMES RIVER" on page 59, "BUSINESS OF FIRST VIRGINIA" on
page 60 and "WHERE YOU CAN FIND MORE INFORMATION" on page 68.
FIRST VIRGINIA AND JAMES RIVER
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
For the Year Ended
December 31, 2000
------------------
Net income per share
First Virginia - Historical
Basic................................ $ 3.02
Diluted.............................. 3.01
James River - Historical
Basic................................ 1.25
Diluted.............................. 1.25
Pro forma (First Virginia and James River) (1)(2)
Basic................................ 2.96
Diluted.............................. 2.94
James River equivalent pro forma (1)(2)
Basic................................ 1.51
Diluted.............................. 1.50
Cash dividends paid per share
First Virginia............................ 1.46
James River............................... 0.54
James River equivalent pro forma (3)...... 0.74
As of
December 31, 2000
-----------------
Book value per share
First Virginia - Historical............... $21.50
James River - Historical.................. 12.12
Pro forma (First Virginia and James River) (2) 21.81
James River equivalent pro forma (2)...... 11.12
- -----------------------------------------------------------------------------
(1) The pro forma information reflects the results of the consolidated
operations of First Virginia and James River after giving effect to the
merger on a purchase basis. Deposit intangibles are estimated to be 3% and
are expected to be amortized over 10 years, and the excess of the purchase
price over book value less deposit intangibles would be allocated to goodwill
and amortized over 25 years. Assuming a 36% reduction in James River's
pre-tax operating expenses and the effect of the proposed purchase accounting
rules, which would eliminate goodwill amortization, pro forma basic EPS would
be $3.07 and pro forma diluted EPS would be $3.05
(2) The pro forma data assumes that the holders of 40% of the outstanding
shares of James River common stock elect to receive cash consideration in the
merger resulting in the issuance of 1,394,203 shares of First Virginia common
stock. The holders of up to 40% of the outstanding shares of James River
common stock may receive cash at $24 per share of James River common stock in
lieu of First Virginia shares. The pro forma data reflects a loss of
interest income on approximately $43.74 million in cash to be used in
purchasing shares of James River common stock in connection with the merger.
(3) First Virginia has assumed that on a pro forma combined basis its pro
forma cash dividends per share would be equivalent to First Virginia's
historical cash dividends per share.
Selected Consolidated Financial Data
The following tables present for First Virginia and for James River,
selected consolidated financial data as of and for the five-year period ended
December 31, 2000. The information is based on the consolidated financial
statements contained in reports First Virginia and James River have filed
with the SEC, including their December 31, 2000 Annual Reports on Form 10-K.
All of these documents are incorporated into this proxy statement-prospectus
by reference. See "WHERE YOU CAN FIND MORE INFORMATION" on page 68.
You should read the following tables in conjunction with the
consolidated financial statements of First Virginia and James River described
above and with the notes to them.
Historical results are not necessarily indicative of results to be
expected for any future period.
FIRST VIRGINIA SELECTED CONSOLIDATED FINANCIAL DATA
As of and for the
Years Ended December 31,
------------------------------------------------------
1996 1997 1998 1999 2000
------------------------------------------------------
(Dollars in thousands, except per share data)
Balance Sheet Data:
Cash................. $ 378,171 $ 386,832 $ 377,374 $ 441,825 $ 322,966
Money market
investments......... 323,620 243,162 265,557 110,598 190,443
Loans held for sale.. 12,771 18,953 14,737 5,558 366
Investment securities 1,820,949 1,946,944 2,323,052 2,034,788 2,164,108
Loans, net of
allowance........... 5,302,026 5,869,914 6,022,903 6,315,281 6,296,164
Other earning assets. 19,672 21,444 22,427 23,125 18,351
Other assets......... 378,847 524,388 538,646 520,638 524,071
---------- ---------- ---------- ---------- ----------
Total Assets......... $8,236,056 $9,011,637 $9,564,696 $9,451,813 $9,516,469
========== ========== ========== ========== ==========
Deposits............. $7,042,650 $7,619,842 $8,055,078 $7,863,948 $7,825,816
Short-term borrowings 234,488 251,687 385,996 420,297 539,469
Long-term debt....... 3,876 2,826 3,217 2,205 1,116
Other liabilities.... 83,765 126,126 130,077 134,876 157,362
Shareholders' equity. 871,277 1,011,156 990,328 1,030,487 992,706
---------- ---------- ---------- ---------- ----------
Total liabilities and
shareholders' equity $8,236,056 $9,011,637 $9,564,696 $9,451,813 $9,516,469
========== ========== ========== ========== ==========
Income Statement Data:
Interest income...... $ 587,216 $ 631,119 $ 663,631 $ 640,622 $ 643,806
Interest expense..... 212,298 222,927 234,332 206,914 219,311
---------- ---------- ---------- ---------- ----------
Net interest income.. 374,918 408,192 429,299 433,708 424,495
Provision for
losses on loans..... 17,734 17,177 20,800 14,190 9,428
Noninterest income... 98,450 103,552 116,775 136,604 118,030
Noninterest expense.. 279,310 303,243 325,678 327,294 322,145
---------- ---------- ---------- ---------- ----------
Income before provision
for income taxes.... 176,324 191,324 199,596 228,828 210,952
Provision for
income taxes........ 59,983 66,479 69,434 77,968 68,921
---------- ---------- ---------- ---------- ----------
Net income........... $ 116,341 $ 124,845 $ 130,162 $ 150,860 $ 142,031
========== ========== ========== ========== ==========
Dividends declared... $ 47,905 $ 53,751 $ 61,244 $ 67,745 $ 69,233
FIRST VIRGINIA SELECTED CONSOLIDATED FINANCIAL DATA (continued)
As of and for the
Years Ended December 31,
------------------------------------------------------
1996 1997 1998 1999 2000
------------------------------------------------------
(Dollars in thousands, except per share data)
Per share of common stock:
Net income
Basic............... $ 2.34 $ 2.47 $ 2.54 $ 3.02 $ 3.02
Diluted............. 2.32 2.45 2.53 3.00 3.01
Dividends declared... 0.96 1.05 1.20 1.36 1.48
Book value........... 17.91 19.50 19.76 20.95 21.50
Market price.........
Year end............ 31.92 51.69 47.00 43.00 48.00
High................ 32.67 53.38 59.44 52.63 48.94
Low................. 25.50 30.83 39.69 40.50 29.00
Ratios:
Earnings:
Return on average assets 1.43% 1.44% 1.40% 1.59% 1.51%
Return on average equity 13.38 13.10 12.81 14.64 14.36
Net interest margin 5.06 5.20 5.13 5.08 4.96
Risk-based capital:
Tier 1 13.57 12.94 12.14 12.67 12.20
Total capital 14.66 13.99 13.20 13.70 13.22
Capital strength:
Tier 1 leverage 9.69 9.53 8.73 9.22 8.99
Ratio of average equity
to average assets 10.68 11.01 10.95 10.86 10.49
Dividend payout ratio 41.24 42.59 47.24 45.03 49.01
Credit quality:
Nonperforming assets as
a % of total loans and
foreclosed real estate .48 .44 .36 .31 .34
Net loan losses to
average loans .25 .31 .32 .16 .14
Allowance for loan losses
to year-end loans 1.17 1.15 1.15 1.10 1.10
Reserve for loan loss
to nonperforming loans 307 322 411 429 419
JAMES RIVER SELECTED CONSOLIDATED FINANCIAL DATA
As of and for the
Years Ended December 31,
------------------------------------------------------
1996 1997 1998 1999 2000
------------------------------------------------------
(Dollars in thousands, except per share data)
Income Statement Data:
Interest income...... $ 31,722 $ 34,150 $ 35,326 $ 36,149 $ 38,636
Interest expense..... 15,505 16,143 16,688 15,727 16,354
---------- ---------- ---------- ---------- ----------
Net interest income.. 16,217 18,007 18,638 20,422 22,282
Provision for
loan losses......... 521 469 537 670 673
---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses......... 15,696 17,538 18,101 19,752 21,609
Non-interest income.. 2,023 2,252 3,188 2,833 3,667
Non-interest expense. 13,575 13,697 14,843 15,874 16,965
---------- ---------- ---------- ---------- ----------
Income before
income taxes........ 4,144 6,093 6,446 6,711 8,311
Income taxes......... 1,141 1,728 1,728 1,900 2,336
---------- ---------- ---------- ---------- ----------
Net income from continuing
operations.......... 3,003 4,365 4,718 4,811 5,975
Loss from discontinued
operations -- -- (63) (507) (220)
---------- ---------- ---------- ---------- ----------
Net income........... $ 3,003 $ 4,365 $ 4,655 $ 4,304 $ 5,755
========== ========== ========== ========== ==========
Per Share Data:
Net income
Basic from continuing
operations.......... $ 0.66 $ 0.97 $ 1.03 $ 1.05 $ 1.30
Basic from discontinued
operations.......... -- -- (0.01) (0.11) (0.05)
Basic earnings per
common share........ 0.66 0.97 1.02 0.94 1.25
Diluted from continuing
operations.......... 0.66 0.95 1.01 1.05 1.30
Diluted from discontinued
operations.......... -- -- (0.01) (0.11) (0.05)
Diluted earnings per
common share........ 0.66 0.95 1.00 0.94 1.25
Cash dividends....... 0.35 0.37 0.42 0.48 0.54
Book value........... 9.85 10.57 11.21 11.05 12.12
Tangible book value.. 9.30 10.02 10.70 10.53 11.41
Balance Sheet Data:
Total assets......... $ 443,537 $ 454,812 $ 488,873 $ 487,364 $ 516,125
Loans, net........... 274,196 293,429 312,008 328,856 360,014
Securities........... 124,803 105,818 110,787 115,747 112,718
Deposits............. 396,756 404,277 433,899 418,020 437,468
Shareholders' equity. 44,576 47,743 51,179 50,998 55,227
Performance Ratios:
Return on average assets 0.71% 0.97% 0.99% 0.88% 1.16%
Return on average
shareholders' equity 7.02 9.51 9.33 8.42 10.94
Efficiency ratio 71.57 65.42 66.33 69.91 64.91
Net interest margin 4.29 4.48 4.41 4.61 4.94
JAMES RIVER SELECTED CONSOLIDATED FINANCIAL DATA (continued)
As of and for the
Years Ended December 31,
------------------------------------------------------
1996 1997 1998 1999 2000
------------------------------------------------------
(Dollars in thousands, except per share data)
Credit Quality Ratios:
Allowance for loan
losses to nonperforming
loans 835.92% 437.90% 1095.64% 1071.14% 412.70%
Allowance for loan
losses to non-performing
assets 138.81 117.39 210.49 215.77 210.70
Allowance for loan
losses to year-end loans,
net of unearned income 1.36 1.32 1.35 1.44 1.42
Net charged-off loans
to average loans, net
of unearned income 0.12 0.11 0.06 0.10 0.07
Capital and Liquidity Ratios:
Leverage 9.92% 9.94% 9.96% 10.31% 10.24%
Risk based:
Tier 1 capital 16.39 15.29 15.87 15.73 14.29
Total capital 17.64 16.54 17.12 16.98 15.54
Average loans to
average deposits 69.91 73.30 74.00 76.91 82.79
Average shares outstanding (1)
Basic 4,520,012 4,519,179 4,547,436 4,588,608 4,593,016
Diluted 4,581,035 4,577,192 4,633,133 4,594,643 4,609,137
- -----------------------------------------------------------------------------
(1) Restated to reflect three-for-two stock split in the form of a stock
dividend in November 1997.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This proxy statement-prospectus contains statements about First Virginia
and James River following the merger that are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements can be identified by our use of words like "expect," "may,"
"could," "intend," "project," "estimate" or "anticipate." These
forward-looking statements reflect our current views, but they are based on
assumptions and are subject to risks, uncertainties and other factors. These
factors include the following:
(1) we may not fully realize the expected cost savings from the merger;
(2) deposit attrition, customer loss, or revenue loss following the merger
may be greater than we expect;
(3) competitive pressure in the banking industry may increase significantly;
(4) costs or difficulties related to the integration of the businesses of
First Virginia and James River may be greater than we expect;
(5) changes in the interest rate environment may reduce profit margins;
(6) general economic conditions, either nationally or regionally, may be
less favorable than we expect, resulting in, among other things, credit
quality deterioration;
(7) changes may occur in the regulatory environment;
(8) changes may occur in business conditions and inflation; and
(9) changes may occur in the securities markets.
Information on other factors that could affect the financial results of
First Virginia after the merger is included in the SEC filings incorporated
into this proxy statement-prospectus by reference.
RISK FACTORS
General
If the merger is consummated, unless you receive cash for all of your
shares of James River common stock, you will receive shares of First Virginia
common stock in exchange for your shares of James River common stock. You
should be aware of particular risks and uncertainties that are applicable to
an investment in First Virginia common stock. Specifically, there are risks
and uncertainties that bear on First Virginia's future financial results and
that may cause First Virginia's future earnings and financial condition to be
less than First Virginia's expectations.
Risks Relating to the Merger
First Virginia may not be able to successfully assimilate James River's
operations into First Virginia's operations.
The merger involves the assimilation of two companies that have
previously operated independently of each other. Successful assimilation of
James River's operations will depend primarily on First Virginia's ability to
consolidate operations, systems and procedures and to eliminate redundancies
and costs. We may not be able to assimilate our operations without
encountering difficulties including, without limitation:
> the loss of key employees and customers;
> possible inconsistencies in standards, control procedures and
policies; and
> unexpected problems with costs, operations, personnel, technology
or credit.
Further, although we anticipate cost savings as a result of the merger
to be meaningful, we may be unable to fully realize any of the potential cost
savings expected. Finally, any cost savings which are realized may be offset
by losses in revenues or other changes to earnings.
You will not know the market value of the First Virginia common stock
you will receive in the merger until we complete the merger.
The precise value of the First Virginia common stock to be paid as
consideration to James River's stockholders will not be known at the time of
the special meeting. The merger agreement provides that .51 of a share of
First Virginia common stock will be issued in the merger in exchange for each
share of James River's common stock. The value of First Virginia's common
stock will fluctuate prior to the effective time of the merger and may be
either higher or lower than on the date of the merger agreement or the date
of the special meeting and may be either higher or lower than the $24.00 per
share cash consideration. See "THE MERGER - General" on page 19.
The value of James River common stock may vary in the future.
If the merger is not completed, the value of James River common stock
could increase or decrease in the future. Such value could be either higher
or lower than the merger consideration being offered by First Virginia in the
merger.
James River's stockholders will not control First Virginia's future
operations and no James River director will serve on the First
Virginia board of directors.
James River's stockholders collectively own 100% of James River and, in
the aggregate, have the absolute power to approve or reject any matters
requiring the approval of stockholders under Virginia law and James River's
articles of incorporation. After the merger, James River's stockholders in
the aggregate will hold approximately 4.8% of the outstanding shares of First
Virginia common stock, assuming no James River stockholder elects to receive
cash for his shares of James River common stock. Even if all of the former
James River stockholders voted in concert on all matters presented to First
Virginia's stockholders from time to time, this number of shares of First
Virginia common stock likely will not be able to dictate whether these
proposals are ultimately approved or rejected.
SPECIAL MEETING OF JAMES RIVER STOCKHOLDERS
Purpose
This proxy statement-prospectus is being furnished to you in connection
with the proxy solicitation by James River's board of directors. The James
River board of directors will use the proxies at the special meeting of
stockholders of James River and at any adjournments.
The special meeting of James River's stockholders will be held at 12205
South Crater Road, Petersburg, Virginia 23805 (at Exit 45 on Interstate 95,
at the intersection of U.S. 301), at 10:00 a.m., local time, on June 27,
2001.
At the special meeting, you will be asked to vote upon a proposal to
approve the merger agreement, attached to this proxy statement-prospectus as
Appendix A, the related plan of merger, attached to this proxy
statement-prospectus as Appendix B, and the transactions contemplated
thereby, including the merger. Pursuant to the merger agreement and the plan
of merger, First Virginia will acquire James River by means of the merger of
James River with and into First Virginia. First Virginia will be the
surviving corporation in the merger. The outstanding shares of James River
common stock will be converted into the right to receive either (1) shares of
First Virginia common stock, including associated preferred stock purchase
rights and cash to be paid instead of any fractional shares or (2) at your
election, but subject to limitations, cash.
You are requested to promptly sign, date, and return the accompanying
proxy card to James River in the enclosed postage-paid, addressed envelope.
If you do not return your properly executed card, or if you do not attend and
cast your vote at the special meeting, the effect will be a vote against the
merger.
Record Date, Voting Rights, Required Vote, and Revocability of Proxies
James River's board of directors fixed the close of business on May 17,
2001, as the record date for determining those James River stockholders who
are entitled to notice of and to vote at the special meeting. Only holders
of James River common stock of record on the books of James River at the
close of business on May 17, 2001 have the right to receive notice of and to
vote at the special meeting. On the record date, there were 4,565,719
shares of James River common stock issued and outstanding held by
approximately 1,945 holders of record.
At the special meeting, James River stockholders will have one vote for
each share of James River common stock owned on the record date. The holders
of a majority of the shares of James River common stock outstanding and
entitled to vote at the special meeting must be present in order for a quorum
to exist at the special meeting.
To determine if a quorum is present, James River intends to count the
following:
> shares of James River common stock present at the special meeting
either in person or by proxy;
> shares of James River common stock present in person at the
special meeting but not voting; and
> shares of James River common stock for which it has received
proxies but with respect to which holders of shares have
abstained on any matter.
Approval of the merger requires the affirmative vote of more than two-thirds
of the votes entitled to vote at the special meeting.
Only a broker can vote shares of James River common stock held in street
name for customers who are beneficial owners of such shares. Brokers who
hold shares in street name for customers who are the beneficial owners of
such shares may not give a proxy to vote those shares to approve the merger
without specific instructions from their customers. Each broker will provide
instructions on how to vote to each of its customers. Any abstention,
non-voting share or "broker non-vote" will have the same effect as a vote
AGAINST the approval of the merger. Therefore, it is imperative that you
provide your broker with voting instructions. If your shares are held in a
street name and you plan to attend the special meeting and vote in person,
you must contact your broker for instructions on how to vote in person.
Properly executed proxies that James River receives before the vote at
the special meeting that are not revoked will be voted in accordance with the
instructions indicated on the proxies. IF NO INSTRUCTIONS ARE INDICATED,
SUCH PROXIES WILL BE VOTED FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT,
THE PLAN OF MERGER AND THE MERGER AND THE PROXY HOLDER MAY VOTE THE PROXY IN
ITS DISCRETION AS TO ANY OTHER MATTER WHICH MAY COME PROPERLY BEFORE THE
SPECIAL MEETING, AS DIRECTED BY THE JAMES RIVER'S BOARD OF DIRECTORS. IF
NECESSARY, THE PROXY HOLDERS MAY VOTE IN FAVOR OF A PROPOSAL TO ADJOURN THE
SPECIAL MEETING IN ORDER TO PERMIT FURTHER SOLICITATION OF PROXIES IF THERE
ARE NOT SUFFICIENT VOTES TO APPROVE THE PROPOSAL AT THE TIME OF THE SPECIAL
MEETING. HOWEVER, NO PROXY HOLDER WILL VOTE ANY PROXIES VOTED AGAINST
APPROVAL OF THE MERGER IN FAVOR OF A PROPOSAL TO ADJOURN THE SPECIAL MEETING
TO SOLICIT ADDITIONAL PROXIES.
A James River stockholder who has given a proxy solicited by James
River's board of directors may revoke it at any time prior to the time a vote
is taken at the special meeting by giving written notice of revocation to the
Corporate Secretary of James River. All written notices of revocation and
other communications with respect to revocation of proxies should be sent to:
James River Bankshares, Inc., 1514 Holland Road, Suffolk, Virginia 23434,
Attention: Donald W. Fulton, Jr., Corporate Secretary.
On the record date, James River's directors and executive officers,
including affiliated entities, owned, or had voting or investment power over,
695,069 shares or approximately 15.2% of the outstanding shares of James
River common stock. These shares represent approximately 22.8% of the shares
required to approve the merger.
Each of the directors of James River has entered into an agreement with
First Virginia in which he or she has agreed to vote the shares of James
River common stock over which the director has voting authority (other than
in a fiduciary capacity) in favor of the merger. On the record date, the
James River directors owned 613,612 shares, or approximately 13.4% of the
outstanding shares of James River common stock.
On the record date, none of the directors or executive officers of
First Virginia or entities they control, owned, or had voting or investment
power over, any shares of James River common stock. First Virginia held
no shares of James River common stock other than in a fiduciary capacity
for others, or as a result of debts previously contracted, and James River
held no shares of James River common stock other than in a fiduciary
capacity for others with respect to which it has sole or shared voting
power.
Solicitation of Proxies
Directors, officers and employees of James River may solicit proxies by
mail, in person, or by telephone or telegraph. They will receive no
additional compensation for such services. James River may, however, hire a
professional proxy solicitor who will receive a fee for its services. James
River may also make arrangements with brokerage firms and other custodians,
nominees, and fiduciaries, if any, for the forwarding of solicitation
materials to the beneficial owners of James River common stock held of record
by such persons. James River will reimburse any such brokers, custodians,
nominees, and fiduciaries for the reasonable out-of-pocket expenses incurred
by them for such services. James River will pay its own expenses in
connection with the merger. See "THE MERGER - Expenses and Fees" on page 47.
No Dissenters' Rights
As a James River stockholder, you will not have any statutory
dissenters' rights in connection with the merger.
Recommendation
James River's board of directors has unanimously approved the merger
agreement, the related plan of merger and the merger and believes that the
proposal to approve the merger agreement, the related plan of merger and the
merger, is in the best interests of James River and its stockholders. James
River's board of directors recommends that you vote FOR approval of the
merger agreement, the related plan of merger and the merger.
THE MERGER
The following information describes material aspects of the merger.
This description does not provide a complete description of all the terms and
conditions of the merger agreement and the related plan of merger. It is
qualified in its entirety by the Appendices hereto, including the text of the
merger agreement and the related plan of merger, which are attached as
Appendices A and B, respectively, to this proxy statement-prospectus. The
merger agreement and the related plan of merger are incorporated into this
proxy statement-prospectus by reference. You are urged to read the
Appendices in their entirety.
General
The merger agreement provides for the acquisition of James River by
First Virginia pursuant to the merger of James River with and into First
Virginia.
If we complete the merger, you will receive for each of your shares of
James River common stock either (1) .51 of a share of First Virginia common
stock and associated preferred stock purchase rights or (2) at your election,
but subject to limitations, $24.00 in cash.
The value of the shares of First Virginia common that will be issued in
the merger will depend upon the market price of First Virginia common stock,
which is certain to fluctuate before and after we complete the merger. The
chart below demonstrates various possible market prices of First Virginia
common stock and the corresponding value to be received in exchange for one
share of James River common stock based on the .51 exchange ratio.
Possible Market Price Value Per Share
of First Virginia of James River
Common Stock Common Stock
---------------------- ----------------
$50.00 ..................... $25.50
49.00 ..................... 24.99
48.00 ..................... 24.48
47.00 ..................... 23.97
46.00 ..................... 23.46
45.00 ..................... 22.95
44.00 ..................... 22.44
43.00 ..................... 21.93
42.00 ..................... 21.42
41.00 ..................... 20.91
40.00 ..................... 20.40
39.00 ..................... 19.89
38.00 ..................... 19.38
On March 2, 2001, the last trading day before we entered into the
merger agreement, the closing price of First Virginia common stock was $46.10
and on May 17, 2001, the last practicable date before the mailing of this proxy
statement-prospectus, the closing price of First Virginia common stock was
$44.95. The value of the cash consideration that First Virginia will pay in
the merger will have a fixed value of $24.00 per share. For more information
on recent market prices of First Virginia common stock and James River common
stock see "COMPARATIVE MARKET PRICES AND DIVIDENDS" on page 58.
First Virginia will not issue any fractions of shares of common stock.
Rather, First Virginia will pay cash (without interest) for any fractional
share interest any James River stockholder would otherwise receive in the
merger. The cash payment will be in an amount equal to the fraction
multiplied by the average closing price of First Virginia common stock on the
New York Stock Exchange for the ten-day trading period ending on the day the
merger is completed.
Cash Election Feature
If you wish to receive cash in exchange for some or all of your shares
of James River common stock, you must make an election to receive this
consideration. If you do not make this election, you will receive .51 of a
share of First Virginia common stock for each of your shares of James River
common stock.
To make a cash election for some or all of your James River shares, you
must follow the procedures described in "- Procedures for Making a Cash
Election" below.
First Virginia will only exchange for cash up to 40% of the shares of
James River common stock that are outstanding immediately before we complete
the merger. If First Virginia receives cash elections for more than this
percentage of shares, the cash will be apportioned as follows:
> stockholders who have elected to receive cash for all of their
James River shares and who hold 100 or fewer James River shares
will receive cash for all of their shares;
> after the stockholders described in the preceding bullet point are
paid their cash consideration, First Virginia will determine the
number of remaining James River shares that may be exchanged for
cash;
> First Virginia will then calculate a ratio equal to the number of
remaining James River shares that may be exchanged for cash divided
by the total number of remaining shares for which James River
stockholders made a cash election; and
> First Virginia will then exchange for cash consideration that
number of each electing stockholder's remaining shares subject to a
cash election equal to the number of shares as to which the
stockholder made an election multiplied by the ratio referred to in
the preceding bullet point.
Procedures for Making a Cash Election
An election form, which includes customary transmittal materials, is
being delivered with this proxy statement-prospectus to each holder of record
of James River common stock as of the record date for the special meeting.
The election form specifies that delivery will be effected, and risk of loss
and title to the certificates representing shares of James River common stock
will pass, only upon proper delivery of those certificates to the exchange
agent.
Each election form permits a holder (or the beneficial owner through
appropriate and customary documentation and instructions) of shares of James
River common stock to elect to receive cash with respect to all or a portion
of such holder's shares of James River common stock.
Any shares of James River common stock with respect to which the holder
has not made a valid cash election before a vote is taken at the special
meeting will be converted into shares of First Virginia common stock upon
completion of the merger.
First Virginia will make available one or more election forms as may be
reasonably requested by all persons who become holders (or beneficial owners)
of James River common stock between the record date for the special meeting
and the close of business on the business day prior to the special meeting.
A cash election will be properly made only if the exchange agent, or its
representative, actually receives a properly completed election form by the
time a vote is taken at the special meeting. You must submit with your
election form the James River common stock certificate(s) (or customary
affidavits and satisfactory indemnification agreements regarding the loss or
destruction of such certificates or the guaranteed delivery of such
certificates) that represent the shares of James River common stock with
respect to which you are electing to receive cash, together with the duly
executed transmittal materials included in the election form. You may revoke
or change your election form at or prior to the time a vote is taken at the
special meeting. In the event an election form is revoked prior to the time
a vote is taken at the special meeting, the shares of James River common
stock represented by such election form will be treated like other shares of
James River common stock with respect to which no cash election is made.
Subject to the terms of the merger agreement and of the election form, the
exchange agent will have reasonable discretion to determine whether any
election, revocation or change has been properly or timely made and to
disregard immaterial defects in the election forms, and any good faith
decisions of the exchange agent regarding such matters will be binding and
conclusive. Neither First Virginia nor the exchange agent will be under any
obligation to notify any person of any defect in an election form.
IF YOU WISH TO RECEIVE CASH FOR ANY OR ALL OF YOUR SHARES OF JAMES RIVER
COMMON STOCK, THE EXCHANGE AGENT OR ITS REPRESENTATIVE MUST RECEIVE YOUR
ELECTION FORM AND YOUR STOCK CERTIFICATE(S) (OR CUSTOMARY AFFIDAVITS AND
SATISFACTORY INDEMNIFICATION AGREEMENTS REGARDING THE LOSS OR DESTRUCTION OF
SUCH CERTIFICATES OR THE GUARANTEED DELIVERY OF SUCH CERTIFICATES) WITH THE
APPROPRIATE TRANSMITTAL MATERIALS PRIOR TO THE TIME A VOTE IS TAKEN AT THE
SPECIAL MEETING. A REPRESENTATIVE OF THE EXCHANGE AGENT WILL BE PRESENT AT
THE SPECIAL MEETING TO RECEIVE YOUR ELECTION FORM.
Procedures for Exchanging Shares of James River Common Stock for First
Virginia Common Stock
As promptly as practicable after the completion of the merger, First
Virginia will cause an exchange agent selected by First Virginia to mail to
the former stockholders of James River who have not elected to receive cash
in exchange for all of their James River shares, a letter of transmittal,
together with instructions for the exchange of certificates representing
shares of James River common stock for certificates representing shares of
First Virginia common stock.
Unless you have previously submitted or are submitting your stock
certificates with a cash election form, you should not send in your James
River certificates until you receive the letter of transmittal and
instructions that the exchange agent will send after the completion of the
merger. Upon surrender to the exchange agent of certificates for James River
common stock to be exchanged for First Virginia common stock, together with a
properly completed letter of transmittal, there will be issued and mailed to
each holder of James River common stock surrendering those items, a
certificate or certificates representing the number of shares of First
Virginia common stock to which that holder is entitled, if any, and a check
for the amount to be paid instead of any fractional share of First Virginia
common stock, without interest. The transmittal materials shall specify that
risk of loss and title to the stock certificates representing shares of James
River common stock will only pass upon proper delivery of such certificates
to the exchange agent. After the merger is completed, to the extent
permitted by law and except to the extent James River stockholders will
receive cash for their shares of James River common stock, James River
stockholders of record as of the time we complete the merger will be entitled
to vote at any meeting of First Virginia stockholders the number of whole
shares of First Virginia common stock into which their James River common
stock has been converted, regardless of whether such have surrendered their
James River common stock certificates. No dividend or other distribution
payable after the completion of the merger with respect to First Virginia
common stock, however, will be paid to the holder of any unsurrendered James
River certificate until the holder properly surrenders such certificate.
Upon surrender, all undelivered dividends and other distributions and, if
applicable, a check for the amount to be paid instead of any fractional share
interest will be delivered to such, in each case without interest.
After we complete the merger, you will be unable to transfer your shares
of James River common stock. If certificates representing shares of James
River common stock are presented for transfer after the completion of the
merger, they will be canceled and exchanged for shares of First Virginia
common stock and a check for the amount due instead of any fractional share
of First Virginia common stock deliverable in respect of those shares.
Effect of the Merger on James River Options
When the merger becomes effective, each option granted under James
River's stock plans that is outstanding will be converted into an option to
purchase First Virginia common stock.
First Virginia will assume each option you own in accordance with the
terms of James River's stock plans and stock option or other agreement that
evidences the option, except that:
> First Virginia and its Management Compensation and Benefits
Committee will be substituted for James River and the committee of
James River's board of directors administering the James River
plans;
> each option assumed by First Virginia may be exercised only for
shares of First Virginia common stock;
> the number of shares of First Virginia common stock subject to the
option will be equal to the number of shares of James River common
stock subject to the option immediately before we complete the
merger multiplied by the exchange ratio (with adjustments) and
rounding down to the nearest whole share; and
> the per share exercise price under each option will be adjusted by
dividing it by the exchange ratio and rounding up to the nearest
cent.
For information with respect to stock options held by James River's
management, see "____ Interests of Certain Persons in the Merger" on page 45.
First Virginia Repurchase Program
First Virginia has a program in place pursuant to which it makes ongoing
purchases of its common stock. These purchases are made in accordance with
all applicable laws and regulations. In accordance with the SEC's Regulation
M, First Virginia will be precluded from making any purchases of shares of
its common stock from the day we mail this proxy statement-prospectus until
the date of the special meeting.
Certain Federal Income Tax Consequences
First Virginia and James River have not and do not intend to seek a
ruling from the Internal Revenue Service as to the federal income tax
consequences of the merger. The opinion of counsel, Kaufman & Canoles, as to
certain of the expected federal income tax consequences of the merger is an
exhibit to the registration statement which contains this proxy
statement-prospectus and supports the following discussion of the anticipated
federal income tax consequences of the merger to stockholders of James River.
The opinion is based in part upon certain factual assumptions and upon
certain factual representations made by First Virginia and James River, which
representations tax counsel has relied upon and assumed to be true, correct
and complete. If such representations are inaccurate, the opinion could be
adversely affected. Opinions of tax counsel are not binding on the Internal
Revenue Service or the courts, either of which could take a contrary
position. This discussion is based on current law. Future legislative,
judicial or administrative interpretations, which may be retroactive, could
alter or modify the statements set forth herein. This discussion does not
address, among other matters:
(1) state, local, or foreign tax consequences of the merger;
(2) the tax consequences to James River stockholders who are subject to
special rules under the Internal Revenue Code, such as foreign
persons, tax-exempt organizations, insurance companies, financial
institutions, dealers in stocks and securities, and persons who
hold their stock in a hedging transaction or as part of a straddle
or conversion transaction;
(3) the tax consequences affecting shares of James River common stock
acquired upon the exercise of stock options, stock purchase plan
rights, or otherwise as compensation;
(4) the tax consequences to holders of options to acquire shares of
James River common stock; and
(5) the tax consequences to First Virginia and James River of any
income and deferred gain recognized pursuant to Treasury
Regulations issued under Section 1502 of the Internal Revenue Code.
Assuming that the merger is consummated in accordance with the merger
agreement, it is anticipated that the following federal income tax
consequences will occur:
(1) The merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
(2) No gain or loss will be recognized by James River or First Virginia
upon the transfer of James River's assets to First Virginia
pursuant to the merger and the assumption by First Virginia of the
liabilities of James River pursuant to the merger;
(3) No gain or loss will be recognized by the James River stockholders
who exchange all of their shares of James River common stock for
First Virginia common stock pursuant to the merger, except that a
gain or loss will be recognized on the receipt of any cash in lieu
of a fractional share;
(4) The tax basis of First Virginia common stock to be received by the
James River stockholders who exchange all of their shares of James
River common stock solely for First Virginia common stock
(including a fractional share interest in First Virginia common
stock deemed received and redeemed) in the merger, will be the same
as the tax basis of the James River common stock surrendered in
exchange therefor (reduced by any amount allocable to a fractional
share interest for which cash is received);
(5) The holding period of the First Virginia common stock to be
received by James River stockholders, who exchange all of their
James River common stock solely for First Virginia common stock
(including a fractional share interest in First Virginia common
stock deemed received and redeemed) in the merger, will include the
holding period of the James River common stock surrendered in
exchange therefor, provided that such James River shares were held
as a capital asset by the James River stockholders on the date of
the exchange;
(6) With respect to James River common stock exchanged for cash
pursuant to a cash election, if the James River stockholder owns no
First Virginia common stock immediately after the merger, either
directly or through the application of constructive ownership rules
of the Internal Revenue Code, the James River stockholder will
recognize gain or loss in the amount equal to the difference
between the amount of such cash and the adjusted basis of the James
River stock surrendered; and
(7) With respect to James River common stock exchanged for cash
pursuant to a cash election effective with respect to only part of
a stockholder's James River common stock holdings, the stockholder
will recognize income. The treatment of such income will depend on
the facts and circumstances of each case. The James River
stockholder making such a partial cash election should consult with
his or her tax advisor.
Tax consequences of the merger may vary depending upon the particular
circumstances of each James River stockholder. Accordingly, you are urged to
consult with your own tax advisors as to the specific tax consequences to you
because of the merger, including the applicability and effect of state,
local, and foreign tax laws.
Background of and Reasons for the Merger
Background of the Merger. Since James River's formation in 1995,
significant changes have occurred in the financial services industry, both
nationally and in the Commonwealth of Virginia. Increased competition from
banking and nonbanking competitors, including brokerage firms, credit unions,
insurance companies, mutual funds and other lending institutions, together
with the increased importance of new technology in the delivery of banking
services and products, present increased challenges for community banks.
In the summer of 2000, the James River board of directors considered
those trends, as well as specific factors impacting James River's stockholder
value. James River's common stock was thinly traded, which reduced
stockholders' liquidity and magnified the potentially negative impact of an
attempted sale of a large block. In addition, like many community bank
stocks, James River's common stock experienced a significant price decline in
1999 and, while it improved in 2000, it was still trading significantly below
the levels at which it traded prior to 1999. The James River board of
directors recognized that as multi-state and regional banks and financial
institutions merge, the number of potential purchasers of James River would
continue to shrink. Finally, the James River board of directors was
concerned that a proposed change in the financial accounting standards that
would prohibit "pooling of interests" treatment in accounting for mergers
could adversely affect the value of future merger transactions. As a result
of these factors, the James River board of directors decided to discuss
strategic options with an investment banker.
Representatives of Keefe, Bruyette & Woods, Inc. or KBW, which
specializes in investment banking for the banking and financial services
industries, made a presentation to the James River board of directors at a
special meeting on November 3, 2000. The presentation included an analysis
of James River's strengths and weaknesses, the banking market in general, and
the opportunities available to James River as a purchaser of community banks,
as a partner in a "merger of equals," and as a seller to a larger financial
institution. Following the presentation and numerous questions of KBW, the
directors and management discussed the information presented. The James
River board of directors concluded that it was in the best interest of James
River's constituencies to explore selling opportunities, provided the
purchaser was an attractive financial institution and a target price could be
achieved.
James River's board of directors consulted a second investment banking
firm that specializes in the banking and financial services industries, which
made a similar presentation to the executive committee on December 4, 2000.
Harold U. Blythe, President and Chief Executive Officer of James River,
requested engagement proposals from both firms. Ultimately, KBW negotiated a
contract with James River that Mr. Blythe signed on December 13, 2000. KBW
promptly conducted due diligence, prepared a confidential memorandum and
developed a list of potential purchasers geographically located from
Pennsylvania through Alabama. After review, management authorized KBW to
solicit the listed firms. Representatives of KBW contacted the potential
purchasers, obtained confidentiality agreements and distributed copies of the
confidential memorandum.
Three potential purchasers requested meetings with James River's
management. The first was First Virginia. On January 26, 2001, Mr. Blythe
and Donald Fulton, Jr., James River's Chief Financial Officer, met with Barry
Fitzpatrick, the Chairman and President of First Virginia, and Richard
Bowman, the Chief Financial Officer of First Virginia, at First Virginia's
offices. The executives discussed in general terms the business and
operating philosophies of the two companies, the structural and general
personnel issues relating to a potential merger transaction, and other
merger-related matters, but did not discuss pricing of the transaction.
Following the meeting, two additional First Virginia executives joined the
group for lunch.
On January 31, 2001, the James River executive committee met informally
with the Executive Vice President and Chief Financial Officer of another
regional financial institution, which we will refer to as the "second
potential purchaser," and on February 1, 2001, Messrs. Blythe and Fulton had
dinner with representatives of a third potential purchaser. In each of these
meetings, the discussion was general and did not involve pricing.
KBW established February 5, 2001, as the deadline for expressions of
interest and First Virginia and the second potential purchaser each submitted
proposals. First Virginia indicated a range of exchange ratios valued
between $20 to $24 per share of James River common stock.
At a special meeting of the James River board of directors on February
7, 2001, representatives of KBW presented an analysis of the market for bank
acquisitions in the Mid-Atlantic region, including an analysis of two
recently announced sales of regional bank holding companies. KBW presented
First Virginia's and the second potential purchaser's expressions of
interest, analyzed the proposed consideration and other terms in comparison
to both the market and James River's opportunities if it remained
independent. The board of directors asked extensive questions of KBW
regarding the proposed terms, the likely benefits and risks associated with
each potential purchaser, the manner in which each potential purchaser would
likely integrate James River into its organization, and the market for each
potential purchaser's stock. In addition, KBW discussed the alternatives
available to James River if it remained independent and continued to develop
its franchise and the resulting impact on stockholder value. After this
lengthy discussion, the James River board of directors authorized KBW to go
back to both parties and ask each of them to consider increasing the proposed
consideration, which KBW did.
On February 14, 2001, First Virginia clarified its offer and proposed an
all-stock transaction with an exchange ratio of .50 shares of First Virginia
common stock for each share of James River common stock. On the evening of
February 14, 2001, First Virginia amended its offer and proposed an exchange
ratio of .51 shares of First Virginia common stock for each share of James
River common stock, which had a value of $24.03 based on the closing price of
First Virginia's stock on February 13, 2001, of $47.11 per share.
On the evening of February 15, 2001, James River's board of directors
held a special meeting at the offices of KBW to consider the potential
purchasers' responses. KBW presented detailed information comparing the two
potential purchasers, including each of their financial condition,
operations, stock performance, dividend history, business strategy and likely
future opportunities. The board of directors actively asked questions of
KBW's representatives. Following the discussion, the James River board of
directors considered all of the opportunities presented to them,
specifically, to continue negotiating with one or both potential purchasers,
or to elect to remain independent and discontinue discussions. After
discussing these choices, the board of directors determined that it was in
the best interest of James River's stockholders and other constituencies that
it continue negotiations with First Virginia. KBW, along with James River's
attorneys and executives, were directed to pursue negotiations.
From February 15, 2001 through March 2, 2001, negotiations were held on
a proposed definitive agreement and stock option agreement. During this
period, First Virginia made it clear that the stock option agreement was
required as a condition to First Virginia's willingness to enter into a
definitive merger agreement. First Virginia also indicated that it was
preparing a support agreement to be signed by each of James River's
directors, also a condition to the merger. In order to provide a measure of
price protection to James River's stockholders, First Virginia offered James
River stockholders the alternative to receive $24.00 in cash per share of
James River common stock subject to the condition that not more than 40% of
James River's outstanding shares elect cash consideration. On March 1, 2001,
Messrs. Fulton and Spencer participated in a conference call with KBW and Mr.
Bowman to conduct due diligence of First Virginia.
On March 2, 2001, the James River board of directors met at 10:00 a.m.
at the Airfield Conference Center in Wakefield, Virginia. Representatives of
KBW and Kaufman & Canoles, James River's legal counsel, attended the meeting.
A representative of Kaufman & Canoles presented in detail each section of
each merger document. With regard to the stock option agreement, the
representative explained that First Virginia required the option as a
condition to entering into the merger agreement. Throughout the
presentation, representatives of Kaufman & Canoles and KBW responded to
numerous questions and comments from James River's board of directors.
Following this discussion, Mr. Blythe explained that the board of directors
would not be asked to vote on the agreements at that meeting, but would be
asked to review the agreements and be prepared to vote the next time the
board of directors convened.
Representatives of KBW made a presentation to the James River board of
directors on the proposed transaction, the current bank merger and
acquisition environment, and the results of various financial analyses KBW
had prepared in connection with the proposed transaction. KBW then delivered
its opinion that the .51 exchange or $24.00 cash (for up to 40% of the James
River shares) was fair to the James River stockholders from a financial point
of view. KBW representatives answered questions raised by the directors
regarding the presentation.
On Saturday, March 3, 2001, at 2:00 p.m., the James River board of
directors convened for a special meeting at the executive offices of James
River in Suffolk, Virginia. A representative from Kaufman & Canoles attended
the meeting to answer questions. Following a thorough discussion, the James
River board of directors determined that the merger was in the best interest
of James River and its stockholders, and approved the proposed definitive
agreement and stock option agreement. Following the board of director's
approval, each director executed a support agreement and Messrs. Blythe and
Fulton executed the stock option agreement and merger agreement on behalf of
James River.
Reasons for the Merger.
James River. In approving the merger agreement and the transactions
contemplated by the merger agreement, including the merger, the James River
board of directors considered a number of factors, including the following:
> The relationship of the consideration to be received in the merger
to recent and historical market prices of James River common stock.
The $24.00 cash consideration value represented a 61.3% premium
over the $14.88 closing price of the shares of James River common
stock on March 2, 2001. The James River board of directors also
considered the form of consideration to be paid to holders of
shares of James River common stock in the merger, taking into
account the choice of consideration to be received, as well as the
fact that those stockholders who do not elect the cash
consideration will become holders of First Virginia common stock
and participate in the future prospects of the combined businesses
of First Virginia and James River.
> Presentations from and the opinion delivered by KBW dated March 2,
2001, that, based upon and subject to the considerations and
assumptions as stated in the opinion, the consideration to be
received by holders of shares of James River common stock pursuant
to the merger agreement is fair, from a financial point of view, to
such holders. The analyses performed by KBW are described under "-
Opinion of James River's Financial Advisor" on page 31. A copy of
KBW's opinion is attached to this proxy statement-prospectus as
Appendix C and is incorporated in this document by reference. YOU
ARE URGED TO READ THIS OPINION IN ITS ENTIRETY. The James River
board of directors was aware that KBW would become entitled to
certain fees described under "- Opinion of James River's Financial
Advisor" upon consummation of the merger.
> The current and historical financial condition and results of
operations of James River, as well as the prospects and strategic
objectives of James River, including the risks involved in
achieving those prospects and objectives, and the current and
expected conditions in the financial services industry in which
James River's business operates.
> The current and historical financial condition and results of
operations of First Virginia, as well as the prospects and
strategic objectives of First Virginia, including the risks
involved in achieving those prospects and objectives, and the
current and expected conditions in the industry in which First
Virginia's businesses operate.
> The fact that the combination of the businesses of James River with
those of First Virginia is expected to lead to potential cost
savings and other synergies.
> The fact that the merger would not be subject to a financing
condition and that First Virginia has the financial capacity to
consummate the merger.
> The presentations of James River's management, KBW and the James
River board of directors' review with respect to trends in the
industry in which James River's business operates and the strategic
alternatives available to it, including James River remaining an
independent company, the possibility of acquisitions or mergers
with other companies in this industry and other transactions, as
well as the risks and uncertainties associated with the strategic
alternatives available to James River.
> The anticipated timing of consummation of the transactions
contemplated by the merger agreement.
> The obligations of First Virginia and James River to consummate the
merger being subject to customary conditions. The James River
board of directors also considered the likelihood of obtaining
required regulatory approvals without undue conditions or delay.
> The fact that for stockholders who only receive stock
consideration, the merger would be treated as a tax-free exchange
of James River common stock for First Virginia common stock for
federal income tax purposes.
First Virginia. In approving the merger agreement and the transactions
contemplated by the merger agreement, including the merger, the First
Virginia board of directors considered a number of factors including the
following:
> Information concerning the business, operations, earnings, and
financial condition of James River.
> Various financial aspects of the merger as reported by First
Virginia's management, including (1) an evaluation of pricing
aspects of the merger including pricing characteristics of other
merger transactions involving financial services companies and (2)
the anticipated accounting treatment of the merger as a purchase.
> Various nonfinancial aspects of the merger, including the treatment
of the merger as a tax-free exchange of James River common stock
for First Virginia common stock for federal income tax purposes and
the likelihood of the merger being approved by applicable
regulatory authorities without undue conditions or delay.
> That the combination of James River and First Virginia would
augment the market share of existing First Virginia subsidiary
banks and would extend the corporation's market to areas adjacent
to First Virginia's existing geographic locations in Virginia, and
would give First Virginia the first, second or third largest
deposit market shares in seven of the 15 counties or cities in
which James River has branches.
> The similarities between James River's asset quality, capital level
and operating philosophy and First Virginia's.
> The ability of First Virginia to achieve after-tax cost savings of
approximately $3.975 million through the elimination of overlapping
branch office locations and duplicate administrative and back
office processing expenses.
> The ability of First Virginia to expand and enhance upon the
services available to James River's customers, especially in the
area of electronic and computer banking services.
> First Virginia's expectation that the merger with James River would
be accretive to earnings per share and will enhance First
Virginia's capital, assets and market penetration.
Opinion of James River's Financial Advisor
James River engaged Keefe, Bruyette & Woods, Inc. to act as its
exclusive financial advisor in connection with the merger. KBW agreed to
assist James River in analyzing and effecting a transaction with First
Virginia. James River selected KBW because KBW is a nationally recognized
investment-banking firm with substantial experience in transactions similar
to the merger and is familiar with James River and its business. As part of
its investment banking business, KBW is continually engaged in the valuation
of financial businesses and their securities in connection with mergers and
acquisitions.
On March 2, 2001, the James River board of directors held a meeting to
evaluate the proposed merger with First Virginia. At this meeting, KBW
reviewed the financial aspects of the proposed merger and rendered an oral
opinion (subsequently confirmed in writing) that, as of that date, the
consideration to be paid in the merger was fair to James River and its
stockholders from a financial point of view.
The full text of KBW's written opinion dated March 2, 2001 is attached
as Appendix C to this proxy statement-prospectus and is incorporated into
this proxy statement-prospectus by reference. James River's stockholders are
urged to read the opinion in its entirety for a description of the procedures
followed, assumptions made, matters considered, and qualifications and
limitations on the review undertaken by KBW.
KBW's OPINION IS DIRECTED TO THE JAMES RIVER BOARD OF DIRECTORS AND
ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE MERGER
CONSIDERATION TO THE JAMES RIVER STOCKHOLDERS. IT DOES NOT ADDRESS THE
UNDERLYING BUSINESS DECISION TO PROCEED WITH THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY JAMES RIVER STOCKHOLDER AS TO HOW THE
STOCKHOLDER SHOULD VOTE AT THE JAMES RIVER SPECIAL MEETING ON THE MERGER OR
ANY RELATED MATTER.
In rendering its opinion, KBW:
> reviewed, among other things,
- the merger agreement,
- annual reports to stockholders and Annual Reports on Form 10-K
of First Virginia,
- annual reports to stockholders and Annual Reports on Form 10-K
of James River,
- Quarterly Reports on Form 10-Q of First Virginia,
- Quarterly Reports on Form 10-Q of James River;
> held discussions with members of senior management of James River
and First Virginia regarding past and current business operations,
regulatory relationships, financial condition, and future prospects
of James River and First Virginia.
> reviewed the market prices, valuation multiples, publicly reported
financial conditions and results of operations for James River and
First Virginia and compared them with those of certain publicly
traded companies that KBW deemed to be relevant;
> compared the proposed financial terms of the merger with the
financial terms of certain other transactions that KBW deemed to be
relevant; and
> performed other studies and analyses that KBW considered appropriate.
In conducting its review and arriving at its opinion, KBW relied upon
and assumed the accuracy and completeness of all of the financial and other
information provided to or otherwise made available to KBW or that was
discussed with, or reviewed by or for KBW, or that was publicly available.
KBW did not attempt or assume any responsibility to verify such information
independently. KBW relied upon the management of James River as to the
reasonableness and achievability of the financial and operating forecasts and
projections (and assumptions and bases therefor) provided to KBW. KBW
assumed, without independent verification, that the aggregate allowances for
loan and lease losses for First Virginia and James River are adequate to
cover those losses. KBW did not make or obtain any evaluations or appraisals
of any assets or liabilities of First Virginia or James River, and KBW did
not examine any books and records or review individual credit files.
The projections furnished to KBW and used by it in certain of its
analyses were prepared by James River's senior management. James River does
not publicly disclose internal management projections of the type provided to
KBW in connection with its review of the merger. As a result, such
projections were not prepared with a view towards public disclosure. The
projections were based on numerous variables and assumptions which are
inherently uncertain, including factors related to general economic and
competitive conditions. Accordingly, actual results could vary significantly
from those set forth in the projections.
For purposes of rendering its opinion, KBW assumed that, in all respects
material to its analyses:
> the merger will be completed substantially in accordance with the
terms set forth in the merger agreement;
> the representations and warranties of each party in the merger
agreement and in all related documents and instruments referred to
in the merger agreement are true and correct;
> each party to the merger agreement and all related documents will
perform all of the covenants and agreements required to be
performed by such party under such documents;
> all conditions to the completion of the merger will be satisfied
without any waivers; and
> in the course of obtaining the necessary regulatory, contractual,
or other consents or approvals for the merger, no restrictions,
including any divestiture requirements, termination or other
payments or amendments or modifications, will be imposed that will
have a material adverse effect on the future results of operations
or financial condition of the combined entity or the contemplated
benefits of the merger, including the cost savings, revenue
enhancements and related expenses expected to result from the
merger.
KBW further assumed that the merger will be accounted for as a purchase
transaction under generally accepted accounting principles, and that the
merger will qualify as a tax-free reorganization for U.S. federal income tax
purposes. KBW's opinion is not an expression of an opinion as to the prices
at which shares of James River common stock or shares of First Virginia
common stock will trade following the announcement of the merger or the
actual value of the shares of common stock of the combined company when
issued pursuant to the merger, or the prices at which the shares of common
stock of the combined company will trade following the completion of the
merger.
In performing its analyses, KBW made numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of KBW,
James River and First Virginia. Any estimates contained in the analyses
performed by KBW are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
these analyses. Additionally, estimates of the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
such businesses or securities might actually be sold. Accordingly, these
analyses and estimates are inherently subject to substantial uncertainty. In
addition, the KBW opinion was among several factors taken into consideration
by the James River board of directors in making its determination to approve
the merger agreement and the merger. Consequently, the analyses described
below should not be viewed as determinative of the decision of the James
River board of directors or management of James River with respect to the
fairness of the exchange ratio.
The following is a summary of the material analyses presented by KBW to
the James River board of directors on March 2, 2001 in connection with its
March 2, 2001 oral opinion. The summary is not a complete description of the
analyses underlying the KBW opinion or the presentation made by KBW to the
James River board of directors, but summarizes the material analyses
performed and presented in connection with such opinion. The preparation of
a fairness opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular
circumstances. Therefore, a fairness opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, KBW did
not attribute any particular weight to any analysis or factor that it
considered, but rather made qualitative judgments as to the significance and
relevance of each analysis and factor. The financial analyses summarized
below include information presented in tabular format. Accordingly, KBW
believes that its analyses and the summary of its analyses must be considered
as a whole and that selecting portions of its analyses and factors or
focusing on the information presented below in tabular format, without
considering all analyses and factors or the full narrative description of the
financial analyses, including the methodologies and assumptions underlying
the analyses, could create a misleading or incomplete view of the process
underlying its analyses and opinion. The tables alone do not constitute a
complete description of the financial analyses.
Transaction Summary. KBW calculated the merger consideration to be paid
as a multiple of James River's book value per share and last twelve months'
earnings per share and as a "Core Deposit Premium." Core Deposit Premium
equals the difference between the aggregate merger consideration and James
River's tangible equity divided by total domestic, non-brokered deposits less
time deposit accounts greater than $100,000. The merger consideration was
based on an exchange ratio of 0.51 First Virginia common stock for 60% of the
diluted shares of James River common stock and $24.00 in cash for the
remaining 40% of the diluted shares of James River common stock. Based on
these assumptions, this analysis indicated that James River stockholders
would receive shares of First Virginia common stock and cash worth $23.58 for
each share of James River common stock held, and that this amount would
represent a multiple of 1.95 times book value per share, 18.1 times last
twelve months' earnings per share, and a core deposit premium of 14.8%. KBW
has adjusted throughout its analyses the financial data to exclude any
non-recurring income and expenses and any extraordinary items.
KBW also analyzed the per share transaction value as a premium to the
closing price of James River common stock prior to the announcement of the
merger. The analyses performed indicated the per share transaction value as
a premium to the closing price of James River common stock on March 1, 2001
was 62.6%.
Selected Transaction Analysis. KBW reviewed certain financial data
related to a set of comparable regional bank transactions with announced
value greater than $50 million since January 31, 2000 (13 transactions).
KBW compared multiples of price to various factors for the First
Virginia/James River merger to the same multiples for the comparable group's
mergers at the time those mergers were announced. The results were as
follows:
Comparable Transactions:
First Virginia /
Average Minimum Maximum James River Merger
------- ------- ------- ------------------
Premium to Market Price 30.2% 9.8% 67.0% 62.6%
Price / Book Value 214.7 122.0 296.5 194.6
Core Deposit Premium 16.6 8.8 27.3 14.8
Price / Latest Twelve Months' EPS 16.4x 13.2x 23.4x 18.1x
KBW also analyzed the financial data for the period ended December 31,
2000, for James River and the twelve months reporting period prior to the
announcement of each transaction for each acquiree in the Selected
Transactions Analysis. The results were as follows:
Comparable Acquirees:
Average Minimum Maximum James River
------- ------- ------- -----------
Equity / Assets 9.12% 4.79% 16.61% 10.70%
NPA's + 90 days / Assets 0.53 0.25 0.79 0.55
Return on Average Assets 1.19 0.68 1.64 1.20
Return on Average Equity 13.24 8.53 18.20 11.35
Net Interest Margin 4.24 2.91 5.14 4.94
Efficiency Ratio 57.85 47.99 66.28 63.52
No company or transaction used as a comparison in the above analysis
is identical to First Virginia, James River or the merger. Accordingly, an
analysis of these results is not mathematical. Rather, it involves complex
considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could
affect the value of the companies to which they are being compared.
Discounted Dividends Analysis. Using a discounted dividends analysis,
KBW estimated the present value of the future stream of dividends that James
River could produce over the next five years, under various circumstances,
assuming the company performed in accordance with the earnings forecasts of
management and an assumed level of expense savings was achieved. KBW then
estimated the terminal values for James River stock at the end of the period
by applying multiples ranging from 13.0x to 15.0x projected earnings in year
five. The dividend streams and terminal values were then discounted to
present values using different discount rates (ranging from 14.0% to 18.0%)
chosen to reflect different assumptions regarding the required rates of
return to holders or prospective buyers of James River common stock. This
discounted dividend analysis indicated reference ranges of between $20.95 and
$27.72 per share of James River common stock. These values compare to the
consideration offered by First Virginia to James River in the merger of
$23.58 per share of James River common stock based on the market value of
First Virginia common stock on March 1, 2001.
Relative Price/Earnings Ratio. KBW also analyzed the quarter-end price
of First Virginia common stock relative to the split-adjusted KBW earnings
estimate for the coming twelve months from March 31, 1996 to March 1, 2001.
KBW then compared the First Virginia forward price earnings ratio to that of
the Keefe Bank Index over the five-year period. In all but three quarters,
the First Virginia forward price-earnings multiple traded at a premium to the
Keefe Bank Index price-earnings multiple. On average, First Virginia's
forward price-earnings multiple was 2.3 greater than the Keefe Bank Index's.
At March 1, 2001, First Virginia's forward price-earnings multiple was 14.5x
versus 14.0x for the Keefe Bank Index.
Selected Peer Group Analysis. KBW compared the financial performance
and market performance of First Virginia to those of a group of comparable
holding companies. The comparisons were based on:
> various financial measures:
- earnings performance,
- operating efficiency,
- capital, and
- asset quality; and
> various measures of market performance including:
- price to book value,
- price to earnings, and
- dividend yields.
To perform this analysis, KBW used the financial information as of and for
the quarter ended December 31, 2000 and market price information as of March
1, 2001. The 11 companies in the peer group were US regional banks with total
assets ranging from $3.0 billion to $20.0 billion.
KBW's analysis showed the following concerning First Virginia's
financial performance:
Selected Peer Group:
Average Minimum Maximum First Virginia
------- ------- ------- --------------
Return on Average Equity 14.77% 7.03% 20.18% 14.09%
Return on Average Assets 1.24 0.66 2.11 1.48
Net Interest Margin 4.07 3.07 5.26 4.96
Efficiency Ratio 58 45 72 59
Leverage Ratio 8.34 6.63 12.15 8.99
Equity / Assets 8.54 5.73 13.13 10.43
Loans / Deposits 96 79 116 81
NPAs / Assets 0.33 0.10 0.44 0.23
Loan Loss Reserve / NPAs 260 170 884 322
Loan Loss Reserve / Total Loans 1.31 1.08 2.07 1.10
KBW's analysis showed the following concerning First Virginia's market
performance:
Selected Peer Group:
Average Minimum Maximum First Virginia
------- ------- ------- --------------
Price / Book Value per Share 201% 122% 415% 213%
Price / 2001 GAAP Estimated EPS 13.1x 11.0x 17.1x 14.5x
Price / 2001 Cash Estimated EPS 12.2 10.0 17.0 13.1
Price / 2002 GAAP Estimated EPS 12.0 10.0 15.0 13.6
Price / 2002 Cash Estimated EPS 11.3 9.3 14.9 12.3
Dividend Yield 3.3% 1.1% 5.9% 3.3%
KBW also compared the financial performance and market performance of
James River to those of a group of comparable holding companies. The
comparisons were based on:
> various financial measures:
- earnings performance,
- operating efficiency,
- capital, and
- asset quality; and
> various measures of market performance including:
- price to book value,
- price to earnings, and
- dividend yields.
To perform this analysis, KBW used the financial information as of and for
the quarter ended December 31, 2000 and market price information as of March
1, 2001. The 12 companies in the peer group were banks located in Virginia
with total assets ranging from $300 million to $1 billion.
KBW's analysis showed the following concerning James River's financial
performance:
Selected Peer Group:
Average Minimum Maximum James River
------- ------- ------- -----------
Return on Average Equity 13.80% 10.44% 16.86% 11.35%
Return on Average Assets 1.28 0.62 1.76 1.20
Net Interest Margin 4.45 3.26 5.27 4.94
Efficiency Ratio 59 48 71 64
Leverage Ratio 9.70 6.02 12.00 10.25
Equity / Assets 9.24 4.86 11.70 10.70
Loans / Deposits 82 62 93 83
NPAs / Assets 0.27 0.06 0.58 0.48
Loan Loss Reserve / NPAs 342 188 1,214 211
Loan Loss Reserve / Total Loans 1.25 0.88 1.54 1.42
KBW's analysis showed the following concerning James River's market
performance:
Selected Peer Group:
Average Minimum Maximum James River
------- ------- ------- -----------
Price / Book Value per Share 148% 114% 218% 120%
Price / LTM GAAP EPS 10.8x 9.6x 13.1x 11.2x
Price / LTM Cash EPS 10.6 9.2 13.1 10.7
Dividend Yield 3.2% 0.0% 4.3% 3.9%
Contribution Analysis. KBW analyzed the relative contribution of each
of James River and First Virginia to the pro forma balance sheet and income
statement items of the combined entity, including assets, loans, deposits,
latest twelve months' earnings, and estimated 2001 net income. KBW relied on
First Call projections for First Virginia's and management estimates for
James River's 2001 net income. KBW compared the relative contribution of
balance sheet and income statement items with the estimated pro forma
ownership for James River based on an exchange ratio of 0.51 for 100% of the
diluted shares of James River common stock. The results of KBW's analysis
are set forth in the following table:
Category First Virginia James River
---------------------------- ---------------- -------------
Total Assets................. 94.9% 5.1%
Gross Loans.................. 94.6 5.4
Total Deposits............... 94.7 5.3
Latest Twelve Months' Earnings 95.9 4.1
2001 Estimated Net Income.... 95.7 4.3
Estimated Pro Forma Ownership 95.1 4.9
Financial Impact Analysis. KBW performed pro forma merger analysis that
combined projected income statement and balance sheet information.
Assumptions regarding the accounting treatment, acquisition adjustments and
cost savings were used to calculate the financial impact that the merger
would have on certain projected financial results of pro forma company. This
analysis indicated that the merger is expected to be dilutive to First
Virginia's estimated GAAP earnings per share and accretive to First
Virginia's estimated cash earnings per share in 2001. For 2002, the merger
is expected to be accretive to First Virginia's estimated GAAP and cash
earnings per share. The analysis also indicated that the merger is expected
to be accretive to First Virginia's book value per share and dilutive to
tangible book value per share. This analysis was based on First Call's 2001
and 2002 published earnings estimates and on First Virginia management's
estimates of the Expected Savings. For all of the above analyses, the actual
results achieved by pro forma company following the merger will vary from the
projected results, and the variations may be material.
Other Analyses. KBW reviewed the relative financial and market
performance of First Virginia and James River to a variety of relevant
industry peer groups and indices. KBW also reviewed earnings estimates,
balance sheet composition, historical stock performance, stock liquidity and
research coverage for First Virginia.
The James River board of directors has retained KBW as an independent
contractor to act as financial adviser to James River regarding the merger.
As part of its investment banking business, KBW is continually engaged in the
valuation of banking businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. As specialists in
the securities of banking companies, KBW has experience in, and knowledge of,
the valuation of banking enterprises. In the ordinary course of its business
as a broker-dealer, KBW may, from time to time, purchase securities from, and
sell securities to, James River and First Virginia. As a market maker in
securities KBW may from time to time have a long or short position in, and
buy or sell, debt or equity securities of James River and First Virginia for
KBW's own account and for the accounts of its customers.
James River and KBW have entered into an agreement relating to the
services to be provided by KBW in connection with the merger. James River
agreed to pay KBW at the time of closing a cash fee equal to 0.80% of the
market value of the aggregate consideration offered in exchange for the
outstanding shares of common stock of James River in the transaction.
Pursuant to the KBW engagement agreement, James River also agreed to
reimburse KBW for reasonable out-of-pocket expenses and disbursements
incurred in connection with its retention and to indemnify against certain
liabilities, including liabilities under the federal securities laws.
Effective Time of the Merger
Subject to the conditions to the obligations of the parties to effect
the merger, the merger will become effective and will be complete on the date
and at the time specified in the articles of merger reflecting the merger to
be filed with the State Corporation Commission of the Commonwealth of
Virginia. We anticipate that we will complete the merger early in the third
quarter of 2001; however, delays could occur. The merger agreement provides
that unless First Virginia and James River agree otherwise, the merger will
be completed no later than five business days after the date of the special
meeting.
We cannot assure you that the necessary stockholder and regulatory
approvals of the merger will be obtained or that other conditions to
consummation of the merger can or will be satisfied. Either James River's or
First Virginia's board of directors may terminate the merger agreement if we
do not complete the merger by December 3, 2001, unless it is not completed
because of the breach of the merger agreement by the party seeking
termination. See "- Conditions to Consummation of the Merger" below and "-
Waiver, Amendment, and Termination" on page 42.
Conditions to Consummation of the Merger
First Virginia and James River are required to complete the merger only
after the satisfaction of various conditions. These conditions include:
> the holders of more than two-thirds of the shares of James River
common stock outstanding and entitled to vote must approve the
merger;
> First Virginia must receive (1) the approval of the Federal
Reserve, and all applicable waiting periods associated with such
approval must expire, and (2) the approval of the Bureau of
Financial Institutions of the Virginia State Corporation
Commission, in each case, without any intervention or threatened
action or conditions or restrictions or requirements that would
materially impact the economic or business benefits of the
transactions contemplated by the merger agreement as to render the
completion of the merger inadvisable;
> the representations and warranties of James River and First
Virginia as set forth in the merger agreement must be true in all
material respects as of the date we complete the merger;
> James River and First Virginia must perform all obligations and
comply with all covenants set forth in the merger agreement, in all
material respects;
> the absence of any action or proceeding, whether instituted or
threatened, against First Virginia, James River or the transactions
contemplated by the merger agreement, and any investigations or
inquiries which may lead to such an action or proceeding;
> The registration statement registering the shares of First Virginia
common stock must be effective under the Securities Act of 1933, as
amended;.
> James River and First Virginia must each receive customary legal
opinions from the other's counsel and James River must receive an
opinion of its counsel as to certain tax matters; and
> certain other conditions must be satisfied, including the receipt
of various certificates from the officers of James River and First
Virginia.
We cannot assure you as to when or if all of the conditions to the
merger can or will be satisfied or waived by the party permitted to do so.
If the merger is not effected on or before December 3, 2001, the board of
directors of either James River or First Virginia may generally terminate the
merger agreement and abandon the merger. See "- Waiver, Amendment, and
Termination" on page 42.
Regulatory Approval
The merger is subject to the prior approval of the Federal Reserve. In
evaluating the merger, the Federal Reserve must consider, among other
factors, the financial and managerial resources and future prospects of the
institutions and the convenience and needs of the communities to be served.
The relevant statutes prohibit the Federal Reserve from approving the merger
if:
> it would result in a monopoly or be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize
the business of banking in any part of the United States; or
> its effect in any section of the country could be to substantially
lessen competition or to tend to create a monopoly, or if it would
result in a restraint of trade in any other manner.
But, if the Federal Reserve should find that any anticompetitive effects
are outweighed clearly by the public interest and the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served, it may approve the merger. The merger may not be consummated until
the 30th day (which the Federal Reserve may reduce to 15 days) following the
date of the Federal Reserve approval, during which time the United States
Department of Justice would be afforded the opportunity to challenge the
transaction on antitrust grounds. The commencement of any antitrust action
would stay the effectiveness of the approval of the agencies, unless a court
of competent jurisdiction should specifically order otherwise.
The merger is also subject to the prior approval of the Virginia Bureau
of Financial Institutions. By statute, the Virginia Bureau must determine:
> whether the merger would be detrimental to the safety and soundness
of First Virginia, James River and their subsidiary banks;
> whether the First Virginia officers and directors are qualified to
operate James River's Virginia bank subsidiaries;
> whether the merger would be prejudicial to the interests of the
depositors, creditors, beneficiaries of fiduciary accounts, or
stockholders of First Virginia and James River; and
> whether the merger is in the public interest.
Waiver, Amendment, and Termination
To the extent permitted by law, First Virginia and James River may
agree, subject to the approval of their respective boards of directors, in
writing to amend the merger agreement, whether before or after approval of
the merger by the James River stockholders; provided, however, that after
such stockholder approval, no amendments may be made which would change the
exchange ratio or the $24.00 per share cash price, or otherwise change the
amount or kind of consideration being paid in the merger without further
stockholder approval. In addition, before or at the time the merger becomes
effective, either James River or First Virginia, or both, may waive any
default in the performance of any term of the merger agreement by the other
party or may waive or extend the time for the compliance or fulfillment by
the other party of any and all of its obligations under the merger agreement.
In addition, either First Virginia or James River may waive any of the
conditions precedent to its obligations under the merger agreement, unless a
violation of any law or governmental regulation would result. To be
effective, a waiver must be in writing and signed by an authorized officer of
James River or First Virginia, as the case may be.
At any time before the merger becomes effective, the boards of directors
of First Virginia and James River may agree to terminate the merger
agreement. In addition, either James River's board of directors or First
Virginia's board of directors may terminate the merger agreement in the
following circumstances:
> in the event of a material breach by the other party of any
material representation or warranty contained in the merger
agreement which cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party of such
breach (provided that the terminating party is not then in material
breach of any material representation, warranty, covenant or other
agreement contained in the merger agreement);
> in the event of a material breach by the other party of any
material covenant or agreement contained in the merger agreement
which cannot be or has not been cured within 30 days after the
giving of written notice to the breaching party of such breach
(provided that the terminating party is not then in material breach
of any material representation, warranty, covenant or other
agreement contained in the merger agreement);
> if the Federal Reserve or the Virginia Bureau of Financial
Institutions denies approval of the merger, and the time limit for
all appeals or requests for reconsideration has run (provided that
the terminating party is not then in material breach of any
material representation, warranty, covenant or other agreement
contained in the merger agreement);
> if the stockholders of James River fail to approve the merger at
the special meeting (provided that the terminating party is not
then in material breach of any material representation, warranty,
covenant or other agreement contained in the merger agreement);
> if the merger is not consummated by December 3, 2001, provided that
the failure to consummate is not caused by any breach of the merger
agreement by the party electing to terminate; or
> if any of the conditions precedent to the obligations of a party to
consummate the merger cannot be satisfied or fulfilled by December
3, 2001 (provided that the terminating party is not then in breach
of any material representation, warranty, covenant or other
agreement contained in the merger agreement).
If the merger is terminated, the merger agreement and the related plan
of merger will both become void and have no effect, except that certain
provisions of the merger agreement, including those relating to the
obligations to share certain expenses and maintain the confidentiality of
certain information obtained, will survive. Termination of the merger
agreement and the related plan of merger will not relieve any breaching party
from liability for any breach of the merger agreement. The stock option
agreement is governed by its own terms as to its termination. See "-
Expenses and Fees" on page 47 and "- Stock Option Agreement" on page 48.
Conduct of Business Pending the Merger
The merger agreement obligates James River and its subsidiaries to
conduct their operations only in the ordinary and usual course of business,
consistent with current practices, and to use their best efforts to maintain
and preserve their business organization, employees and advantageous business
relationships and retain the services of their executive officers. The
merger agreement also prohibits James River and its subsidiaries from taking
certain actions before we complete the merger. These prohibitions are listed
in Section 4.2 of the merger agreement which is attached as Appendix A to
this proxy statement-prospectus. The merger agreement authorizes James River
to declare and pay regular quarterly dividends on the James River common
stock at a rate of $.14 per share with usual payment dates; provided that
James River must coordinate its dividend record and payment dates with First
Virginia so that no James River stockholder receives a dividend from both
First Virginia and James River in the quarter in which we complete the
merger. The James River board of directors has declared a dividend of $0.14
per share payable on June 14, 2001 to stockholders of record on June 1, 2001.
James River has also agreed not to and not to allow its subsidiaries or
any of their respective executive officers, directors, or agents to:
> directly or indirectly, encourage, solicit, or initiate discussions
or negotiations with any third party concerning any merger, sale of
substantial assets, tender offer, sale of stock, or similar
transaction, involving James River or any of its subsidiaries, an
"acquisition proposal";
> directly or indirectly, provide to any person, in connection with
any acquisition proposal, any information not customarily provided
to the public which concerns James River or its subsidiaries;
> give any person access to the properties, books, or records or
James River or its subsidiaries, in connection with a any
acquisition proposal;
> enter into any agreement with a third party in connection with an
acquisition proposal; or
> otherwise assist any third party in making an acquisition proposal.
In addition, James River must promptly communicate with First Virginia the
terms of any acquisition proposal it receives, including the identity of the
offeror.
However, the merger agreement also provides that James River may
consider an acquisition proposal, if a majority of the James River board of
directors has determined in good faith, on the advice of counsel, that the
board has a fiduciary duty to consider the proposal. If James River does
consider such a proposal, it must provide written notice to First Virginia of
its intention to do so within certain time periods contained in the merger
agreement.
Management and Operations After the Merger
The merger will not change the present management team or board of
directors of First Virginia. Information concerning the management of First
Virginia is included in the documents incorporated into this proxy
statement-prospectus by reference. First Virginia will be the surviving
corporation resulting from the merger and will continue to be governed by the
laws of the Commonwealth of Virginia and operate in accordance with its
articles of incorporation and bylaws See "WHERE YOU CAN FIND MORE
INFORMATION." For additional information regarding the interests of certain
persons in the merger, see "- Interests of Certain Persons in the Merger"
below.
Interests of Certain Persons in the Merger
Certain members of James River's management have interest in the merger
that are in addition to their interest as James River stockholders and option
holders.
Directorships of Subsidiary Banks. The merger agreement provides that
each member of the board of directors of James River will become a member of
the board of directors of a First Virginia subsidiary bank serving the area
where such director resides and will be eligible to continue serving on that
board of directors through December 2002, at which time First Virginia will
determine whether he should continue to serve as a director. Each
nonemployee member of the board of directors of James River who serves as a
director at one of First Virginia's subsidiary banks will continue receiving
director fees at the same rate per meeting plus monthly retainer that the
director received as a director of James River through the December board
meeting in 2002. Following that meeting, such director (if retained) will
then be paid the fees paid to other directors of that First Virginia
subsidiary bank. Any James River director whose age exceeds the retirement
age as of the date of the merger agreement or reaches the retirement age
prior to December 2002, will continue to be eligible to serve as a director
of one of First Virginia's subsidiary bank's board until December 2002, at
which time such director will be subject to the retirement policy of that
bank for directors.
Following completion of the merger, those directors of James River
subsidiary banks who are not directors of James River and who signed an
agreement in which they agreed to vote the shares of James River common stock
over which they had voting authority (other than in a fiduciary capacity) in
favor of the merger, will become advisory board members for the First
Virginia subsidiary bank that serves the area where they reside. For their
services as an advisory board member, through December 2001, nonemployee
directors will be paid directors' fees at the First Virginia advisory board
director rate and a monthly retainer in the amount they currently receive as
directors of one of James River's subsidiary banks. Following the December
2001 meeting, eligible James River directors who are reelected will then
receive only the fees paid to other advisory directors of that First Virginia
subsidiary bank. Those directors of James River's subsidiary banks whose age
exceeds the retirement age for a bank director as of the date of the merger
agreement or who reach the retirement age prior to December 2001, will
continue to be eligible to serve on the advisory board (provided they have
agreed to vote their shares in favor of the merger as discussed above), until
December 2001, at which time they will be subject to the retirement policy of
that bank for directors. The First Virginia subsidiary banks may discontinue
the advisory boards after December 2002.
Change of Control Agreements. Several of the executives of James River
have employment agreements and deferred compensation plans that have change
of control provisions which will become effective at the time the James River
stockholders approve the merger agreement. Mr. Harold U. Blythe, President
and Chief Executive Officer, Robert E. Spencer, Jr., Senior Vice President,
and Donald W. Fulton, Jr., Senior Vice President and Chief Financial Officer,
all have change of control provisions in their employment agreements which
provide that upon a change of control, if they are not given reasonably
equivalent acceptable duties and responsibilities, they may resign and
receive 2.99 times their annual base compensation. Under their deferred
compensation plans, if their employment is terminated without cause within a
six-month period immediately preceding a change of control or the executive
terminates for any reason within two years following the change of control,
they would receive, in lieu of a lump sum, the full value of their
retirement, death or disability benefits over a specified installment period
beginning on the date of their retirement, death or disability, as
applicable.
Stock Options. Each of Messrs. Blythe, Spencer and Fulton owns options
to purchase James River common stock which were issued under James River's
1996 Employee Stock Option Plan. Under their stock option agreements, all of
Messrs. Blythe's, Spencer's and Fulton's stock options become immediately
exercisable upon a change of control and will become immediately exercisable
at the time the James River stockholders approve the merger agreement. If
the merger is completed, those options will be converted, based on the
exchange ratio, into options to purchase shares of First Virginia common
stock. For information about the conversion of options to purchase James
River common stock into options to purchase First Virginia common stock, see
"- Effect of the Merger on James River Options" on page 23.
The following table shows you how many options to purchase James River
common stock each of Messrs. Blythe, Spencer and Fulton owned on the date of
this proxy statement-prospectus.
James River Stock Weighted Exercise
Options Held Price per Option
----------------- ------------------
Harold U. Blythe 35,330 $13.49
Robert E. Spencer, Jr. 23,500 13.46
Donald W. Fulton, Jr. 23,500 21.02
Accounting Treatment
It is anticipated that the merger will be accounted for as a "purchase,"
as that term is used pursuant to generally accepted accounting principles,
for accounting and financial reporting purposes. Under the purchase method
of accounting, the assets and liabilities of James River as of the effective
time of the merger will be recorded at their estimated respective fair values
and added to those of First Virginia. Financial statements of First Virginia
issued after the effective time of the merger will reflect such values and
will not be restated retroactively to reflect the historical financial
position or results of operations of James River.
Expenses and Fees
First Virginia and James River will each pay its own expenses in
connection with the merger, including fees and expenses of its own financial
or other consultants, investment bankers, accountants, and counsel.
Resales of First Virginia Common Stock
First Virginia common stock to be issued to James River stockholders in
the merger will be registered under the Securities Act of 1933, as amended.
All shares of First Virginia common stock received by James River
stockholders in the merger will be freely transferable after the merger by
those James River stockholders who are not considered to be "affiliates" of
James River or First Virginia. "Affiliates" generally are defined as persons
or entities who control, are controlled by, or are under common control with
James River or First Virginia (generally, executive officers, directors, and
10% or greater stockholders).
Rule 145, promulgated under the Securities Act of 1933, as amended,
restricts the sale of First Virginia common stock received in the merger by
affiliates of James River and certain of their family members and related
entities. Under the rule, during the first calendar year after the merger
becomes effective, affiliates of James River or First Virginia may resell
publicly the First Virginia common stock they receive in the merger but only
within certain limitations as to the amount of First Virginia common stock
they can sell in any three-month period and as to the manner of sale. After
the one-year period, affiliates of James River who are not affiliates of
First Virginia may resell their shares without restriction. First Virginia
must continue to satisfy its reporting requirements under the Securities
Exchange Act of 1934, as amended, in order for affiliates to resell, under
Rule 145, shares of First Virginia common stock received in the merger.
Affiliates also would be permitted to resell First Virginia common stock
received in the merger pursuant to an effective registration statement under
the Securities Act of 1933, as amended, or an available exemption from the
Securities Act of 1933, as amended, registration requirements. This proxy
statement-prospectus does not cover any resales of First Virginia common
stock received by persons who may be deemed to be affiliates of James River
or First Virginia.
James River has agreed to use its reasonable efforts to cause each
person who may be deemed to be an affiliate of James River to execute and
deliver to First Virginia prior to the effective time of the merger, an
affiliate agreement intended to ensure compliance with the Securities Act of
1933, as amended. Each James River affiliate must agree not to sell, pledge,
transfer or otherwise dispose of any First Virginia common stock received in
the merger except in compliance with the Securities Act of 1933, as amended,
and the rules and regulations under the Securities Act of 1933, as amended.
The stock certificates representing First Virginia common stock issued to
affiliates in the merger may bear a legend summarizing these restrictions on
transfer. See "- Conditions to Consummation of the Merger" on page 40.
Stock Option Agreement
As an inducement and a condition to First Virginia entering into the
merger agreement, James River and First Virginia entered into a stock option
agreement, under which James River granted First Virginia an option to
purchase up to 906,680 shares (representing 19.9% of the shares issued and
outstanding before giving effect to the exercise of such option) of James
River common stock at a cash price per share equal to $17.00, under the
circumstances described below, subject to possible adjustment in certain
circumstances. Under the stock option agreement, First Virginia's total
profit resulting from the exercise of the options may not exceed $4 million.
The purpose of the option agreement is to increase the likelihood that
the merger will be completed by making it more difficult and more expensive
for a third party to gain control of James River. Accordingly, the options
are exercisable only on the occurrence of certain events that generally
involve the acquisition or attempted acquisition of James River, a
significant portion of its then outstanding common stock or all or at least
20% of its consolidated assets.
Although the shares issuable upon exercise of the option would represent
approximately 16.6% of the James River common stock outstanding after
exercise, First Virginia may not acquire more than 5% of James River's common
stock, pursuant to the exercise of the option or otherwise, without prior
approval of the Federal Reserve. Unless and until it exercises its option,
First Virginia disclaims beneficial ownership of James River's common stock
subject to the option.
EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS
When we complete the merger, unless you receive cash in exchange for all
of your shares of James River common stock, you will become a stockholder of
First Virginia. The following is a summary of material differences between
the rights of holders of First Virginia common stock and holders of James
River common stock. Both companies are organized under the laws of the
Commonwealth of Virginia and are subject to the Virginia Stock Corporation
Act or VSCA.
The following summary is not a complete statement of the provisions
affecting, and difference between, the rights of holders of First Virginia
common stock and holders of James River common stock. The identification of
specific provisions or differences is not meant to indicate that other
equally or more significant differences do not exist. This summary is
qualified in its entirety by reference to the VSCA and the governing
corporate instruments of First Virginia and James River, to which the
stockholders of James River are referred.
Certain Provisions of First Virginia's Articles of Incorporation and First
Virginia's Stockholder Rights Plan
First Virginia's articles of incorporation contain certain provisions
which are of a type sometimes characterized, and under certain circumstances
could operate, as anti-takeover provisions. These measures include staggered
terms for directors and 80% vote requirements for stockholder approval of
certain actions as described below. These provisions may have the effect of
strengthening the position of incumbent management by making it more
difficult to change the composition of the board of directors. In addition,
with respect to a merger or other business combination, the 80% stockholder
approval requirement may make it more difficult for stockholders who might
wish to participate in a tender offer to do so.
First Virginia's articles of incorporation (1) classify the board into
three classes, as nearly equal in number as possible, each of which will
serve for three years, with one class being elected each year; (2) increase
to 80% the stockholder vote required to approve certain mergers, sales of
assets, liquidations and other significant transactions involving First
Virginia and any beneficial holder of five percent or more of First
Virginia's voting stock unless the transaction is either (a) approved by at
least a majority of the Continuing Directors (as that term is defined in the
articles of incorporation), or (b) certain minimum price and procedural
requirements are met; (3) increase to 80% the stockholder vote required to
remove directors, and (4) prevent the circumvention of the foregoing
provisions by increasing to 80% the stockholder vote required to repeal or
amend the foregoing provisions of the articles of incorporation.
First Virginia's bylaws include a provision which requires that, in
order to adopt, amend or repeal the bylaws, an affirmative vote of a majority
of First Virginia's board of directors or an affirmative vote of the
stockholders holding 80% of the voting power of First Virginia common stock
would be necessary. Under the VSCA, unless other provision is made in the
articles of incorporation or bylaws, a majority of the directors or a
majority of the stockholders present and entitled to vote may adopt, amend or
repeal the bylaws. First Virginia's bylaws also provide that special
meetings of stockholders may be called at the written request of the holders
of 80% of the voting stock of First Virginia, or a majority of the Continuing
Directors.
On July 27, 1988 the board of directors of First Virginia adopted a
Stockholder Rights Plan and declared a distribution of one right for each
outstanding share of First Virginia common stock. The plan was amended and
extended on August 27, 1997. The Stockholder Rights Plan is designed to
protect stockholders against unsolicited attempts to acquire control of First
Virginia whether through accumulation of shares in the open market or tender
offers that do not offer what the board believes to be an adequate price to
all stockholders.
The Stockholder Rights Plan provides for the distribution of one
preferred share purchase right as a dividend for each outstanding share of
First Virginia common stock. Initially, the rights are represented by and
trade in tandem with the common stock certificates and the rights are not
exercisable. Each right, when triggered, will entitle stockholders to buy
$900.00 worth of capital stock of First Virginia for $450.00. The First
Virginia board of directors determines the exercise price of the rights.
Purchased stock may be in the form of preferred stock of First Virginia or,
at the election of First Virginia's board of directors, First Virginia common
stock or a combination of preferred stock and First Virginia common stock.
The rights may be exercised only if a person or group acquires 20% or more of
all outstanding shares of First Virginia common stock or announces a tender
offer that would result in the ownership of 20% or more of all outstanding
shares of First Virginia common stock. At such time, the rights will begin to
trade independently from the First Virginia common stock. At no time do the
rights have any voting power.
Under certain circumstances involving the acquisition of 20% or more of
all outstanding shares of First Virginia common stock, all rights holders
except the acquiror may purchase, at the exercise price, capital stock of
First Virginia at a discounted price. If First Virginia merges with an
acquiror that has acquired 20% or more of the outstanding shares of First
Virginia common stock without board approval of such stock acquisition, all
rights holders except the acquiror may purchase the shares of First Virginia
common stock held by the acquiror at a similar discount.
The rights will expire on August 8, 2008. First Virginia common stock
certificates (including those issued to James River stockholders pursuant to
the merger) contain or will contain a legend evidencing the existence of the
rights applicable to those shares.
Each share of First Virginia common stock issued to a James River
stockholder in exchange for James River common stock pursuant to the merger
will be subject to the Stockholder Rights Plan and will carry with it a right
as described above.
The rights have certain antitakeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire First
Virginia (other than pursuant to a "permitted offer" as that term is defined
in the Stockholder Rights Plan or with First Virginia's prior approval)
without conditioning the offer on the rights being redeemed or substantially
all the rights being acquired. However, the rights should not interfere with
any merger or other business combination approved by First Virginia (other
than with an Acquiring Person as that term is defined under the Stockholder
Rights Plan) because the rights are redeemable under those circumstances at a
nominal cost.
Affiliated Transactions
The VSCA contains provisions governing "affiliated transactions." These
include various transactions such as mergers, share exchanges, sales, leases
or other dispositions of material assets, issuances of securities,
dissolutions and similar transactions with an "interested stockholder." An
interested stockholder is generally the beneficial owner of more than 10% of
any class of a corporation's outstanding voting shares. During the three
years following the day a stockholder becomes an interested stockholder, any
affiliated transaction with the interested stockholder must be approved by a
majority of the "disinterested directors" (those directors who were directors
before the interested stockholder became an interested stockholder or who
were recommended for election by a majority of the disinterested directors)
and by the affirmative vote by the holders of two-thirds of the corporation's
voting shares other than shares beneficially owned by the interested
stockholder. The foregoing requirements do not apply to affiliated
transactions if, among other things, a majority of the disinterested
directors approved the interested stockholder's acquisition of voting shares
making such a person an interested stockholder before such acquisition.
Beginning three years after the stockholder becomes an interested
stockholder, the corporation may engage in an affiliated transaction with the
interested stockholder if:
> the transaction is approved by the holders of two-thirds of the
corporation's voting shares, other than shares beneficially owned
by the interested stockholder;
> the affiliated transaction has been approved by a majority of the
disinterested directors; or
> subject to certain additional requirements, in the affiliated
transaction the holders of each class or series of voting shares
will receive consideration meeting specified fair price and other
requirements designed to insure that all stockholders receive fair
and equivalent consideration, regardless of when they tendered
their shares.
Control Share Acquisition
Under the VSCA's Control Share Acquisitions law, voting rights of shares
of a stock of a Virginia corporation acquired by an acquiring person or other
entity at ownership levels of 20%, 33-1/3%, and 50% of the outstanding shares
may, under certain circumstances, be denied. The voting rights may be denied
unless conferred by special stockholder vote of a majority of the outstanding
shares entitled to vote for directors, other than shares held by the
acquiring person and officers and directors of the corporation, or among
other exceptions, such acquisition of shares is made pursuant to a merger
agreement with the corporation or the corporation's articles of incorporation
or bylaws permit the acquisition of such shares before the acquiring person's
acquisition thereof.
If authorized in the corporation's articles of incorporation or bylaws,
the statute also permits the corporation to redeem the acquired shares at the
average per share price paid for them if the voting rights are not approved
or of the acquiring person does not file a "control share acquisition
statement" with the corporation within 60 days of the last acquisition of
such shares. If voting rights are approved for control shares comprising
more than 50% of the corporation's outstanding stock, objecting stockholders
may have the right to have their shares repurchased by the corporation for
"fair value."
Stockholders' Rights of Appraisal
The VSCA provides that appraisal rights are not available to holders of
common stock of a constituent corporation in a merger when such stock is
either listed on a national securities exchange or a Nasdaq Stock Market or
is held by at least 2000 record stockholders. Despite this exception,
appraisal rights will be available to holders of a common stock of a
constituent corporation in a merger if (1) the articles of incorporation
provide otherwise (neither First Virginia's nor James River's articles of
incorporation authorize such special dissenters' rights); (2) in the case of
a merger or share exchange, stockholders are required by the terms of the
merger to accept anything for the shares other than (a) cash (b) shares of
another corporation that are either listed on a national securities exchange
or held by record by more than 2000 stockholders or (c) a combination of cash
or such shares; or (3) the merger is an "affiliated transaction", as
described under "-Affiliated Transactions" above, and it has not been
approved by a majority of the disinterested directors. Holders of James
River common stock do not have appraisal rights in connection with the merger
with First Virginia because, as of the record date, James River common stock
was listed on the Nasdaq National Market and First Virginia common stock was
listed on the New York Stock Exchange.
Authorized Capital Stock
First Virginia. First Virginia's authorized capital stock consists of
175,000,000 shares of First Virginia common stock, $1.00 par value per share,
and 3,000,000 shares of First Virginia preferred stock, $10.00 par value per
share. First Virginia's articles of incorporation authorize the First
Virginia board of directors to issue shares of First Virginia preferred stock
in one or more series and to fix the designation, powers, preferences, and
rights of the shares of First Virginia preferred stock in each series. As of
March 31, 2001, there were 46.159 million shares of First Virginia common
stock outstanding and 43,414 shares of First Virginia convertible preferred
stock.
James River. James River's authorized capital stock consists of
10,000,000 shares of James River's common stock, par value $5.00 per share,
and 2,000,000 shares of James River preferred stock. As of March 31, 2001
there were 4,559,309 shares of James River common stock outstanding. No
shares of James River preferred stock were issued and outstanding as of that
date.
Special Meetings of Stockholders
First Virginia. Special meetings of the stockholders may be called by
the President or the Secretary only at the written request of a majority of
the directors, provided that, if as of the date of the request for special
meeting there is a "Related Person" as defined under the articles of
incorporation, such a majority must include a majority of the "Continuing
Directors" or by holders of four-fifths of the voting power of all of the
then outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors.
James River. Special meetings of the stockholders may be called at any
time by any three members of the board of directors on their motion or on the
motion of the Chairman of the board of directors, or the President.
Stockholders of James River may not request that a special meeting of
stockholders be called.
Directors
First Virginia. First Virginia's bylaws state that the number of
directors shall be 13. The First Virginia board of directors is divided into
three classes with directors serving staggered three year terms. First
Virginia's articles of incorporation do not include a provision relating to
the removal of directors. Accordingly, the removal of directors is governed
by the VSCA which provides that stockholders may remove directors with or
without cause if the number of votes cast to remove the director constitutes
a majority of the outstanding shares of common stock.
James River. All of James River's directors are elected each year. The
number of directors must be between 7 and 17. The actual number of directors
can be increased or decreased from time to time within this range by the
board of directors. As with First Virginia, James River's directors can be
removed without cause in accordance with the VSCA.
Dividends and Other Distributions
First Virginia. The holders of First Virginia common stock are entitled
to share ratably in dividends when and if declared by the First Virginia
board of directors out of legally available funds. Pursuant to the VSCA, a
Virginia corporation may declare and pay dividends to its stockholders,
unless, after giving the effect to the dividends: (1) the corporation would
not be able to pay its debts as they become due in the usual course of
business; or (2) the corporation's total assets would be less than
liabilities plus the amount that would be needed, if the corporation were to
be dissolved at the time of the dividend payment, to satisfy the preferential
rights upon dissolution of stockholders whose preferential rights are
superior to those receiving the distribution. Neither First Virginia nor
James River are subject to any other express regulatory restrictions on
payments on dividends or other distributions. First Virginia's articles of
incorporation permit the First Virginia board of directors to issue preferred
stock with terms set by the First Virginia board of directors, which terms
may include the right to receive dividends ahead of the holders of First
Virginia common stock. For more information on First Virginia's preferred
stock, see "Description of First Virginia Capital Stock" on page 65. A major
portion of First Virginia's revenues come from dividends distributed by its
subsidiary banks. Those subsidiary banks are subject to certain restrictions
on the amount of dividends they may pay. Additionally, other regulatory
policies and requirements impact the First Virginia subsidiary bank's ability
to pay dividends, including the requirement that they maintain adequate
levels of capital above regulatory minimums. Banking regulatory authorities
may also restrict payments if the payment of dividends would be unsafe or
unsound business practice.
James River. The holders of James River common stock are entitled to
share ratably in dividends when and as declared by the James River board of
directors out of legally available funds. As with First Virginia, one of the
principal sources of income to James River is dividends from its subsidiary
banks. As with First Virginia, preferred stock is authorized in the articles
of incorporation; however, none is outstanding.
Stockholder Nominations and Stockholder Proposals
First Virginia. Under First Virginia's bylaws, in order for a
stockholder to nominate a candidate for director, written notice of the
nomination must be given to First Virginia in advance of the meeting.
Ordinarily, such notice must be given not less than 90 nor more than 120 days
before the meeting. However, if First Virginia gives less than 70 days'
notice or prior public disclosure of the meeting, then the stockholder must
give such notice within 10 days after notice of the meeting is mailed or
other public disclosure of the meeting is made. This notice must include,
among other things:
> the name and record address of, and the class and amount of voting
securities of First Virginia owned by, the stockholder proponent;
> the name, age, address and occupation of, and the class and amount
of voting securities of First Virginia owned by, the nominee; and
> all the information that would be required under the SEC rules in a
proxy statement soliciting proxies for such nominee.
In order for a stockholder to bring other business before an annual
meeting of stockholders, written notice must be given to First Virginia
within the same time limits described above for the nomination of a candidate
for director. The notice must include, among other things:
> the name and record address of, and the class and amount of voting
securities of First Virginia owned by, the stockholder proponent
and any other stockholder known to be supporting such proposal;
> a brief description of the proposed business, the reasons for
conducting such business at the annual meeting; and
> any financial or other interest of the stockholder in such
proposal.
These advance notice requirements are separate from and in addition to the
requirements the stockholder must meet to have a proposal included in First
Virginia's proxy statement. In each case, the notice must be given to the
Secretary of First Virginia at its principal executive offices.
In accordance with the SEC Rule 14a-8 under the Securities and Exchange
Act of 1934, stockholder proposals intended to be included in the proxy
statement and presented at a regularly scheduled annual meeting must be
received by First Virginia at least 120 days before the anniversary of the
date that the previous year's proxy statement was first mailed to
stockholders. As provided in the SEC rules, if the annual meeting date has
been changed by more than 30 days from the date of the prior year's meeting,
or for special meetings, the proposal must be submitted within a reasonable
time before First Virginia begins to print and mail its proxy material.
James River. Under James River's articles of incorporation, written
notice of a stockholder's intent to make a nomination at the meeting of the
stockholders must be filed with the Corporate Secretary of James River not
later than 10 calendar days after the notice to stockholders for that meeting
is sent to stockholders or at least 21 calendar days prior to the date fixed
for holding the meeting at which the nomination is intended to be made,
whichever is later. Such notice of intent to nominate must contain or be
accompanied by the following information which shall be accurate and current
as of the date of such notice, or as of the date no earlier than 60 calendar
days prior to the meeting at which the nomination is intended to be made,
whichever is later:
> the name and residence of the stockholder of the corporation who
intends to make the nomination;
> a representation of the stockholder as a holder of record of common
shares entitled to vote and intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the
notice;
> such information regarding each nominee as would have required to
be included in a proxy statement filed under the applicable
regulations of the SEC had the board of directors nominated or
intended to nominate such nominee which information shall include
such nominee's name and address;
> a description of all arrangements or understandings among the
nominating stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; and
> the consent of each nominee to serve as a director of the
corporation if so elected.
Unlike First Virginia, James River does not have an advance notice
requirement for bringing business before an annual meeting of stockholders.
However, stockholder proposals intended to be included in the proxy statement
must comply with SEC Rule 14a-8.
Discharge of Duties; Indemnification
First Virginia. The VSCA requires that a director of a Virginia
corporation discharge his or her duties as a director, including his or her
duties as a member of a the committee, in accordance with his or her good
faith business judgment of the best interest of the corporation. Under the
VSCA, a Virginia corporation may indemnify a director or officer against
liability if the director or officer conducted himself in good faith and
believed that his official conduct was in the best interest of the
corporation and all other non-official conduct was not opposed to the
corporation's best interest, or in the case of a criminal proceeding, had no
reasonable case to believe his conduct was unlawful. A corporation may not
indemnify a director or officer in connection with a proceeding in which the
director or officer is adjudged liable on the basis that he received an
improper personal benefit. A director or officer also cannot be indemnified
in connection with a proceeding by or in the right of the corporation in
which the director or officer was adjudged liable to the corporation. In
addition, under the VSCA, any corporation may indemnify, including an
indemnity with respect to a proceeding by or in the right of the corporation,
and may provide for advances or reimbursement of expenses, to any director,
officer, employee or agent that is authorized by the articles of
incorporation or any bylaw approved by the stockholders or any resolution
adopted before or after the subject event, by the stockholders except an
indemnity against (1) willful misconduct or (2) a knowing violation of
criminal law. To the fullest extent permitted by the VSCA, First Virginia's
articles of incorporation require indemnification of all directors, advisory
directors and officers of First Virginia, and permit indemnification of
employees and agents of First Virginia and directors, advisory directors,
officers, employees and agents of subsidiaries and affiliates of First
Virginia.
James River. The articles of incorporation of James River provide that
to the full extent permitted by the VSCA and any other applicable law, James
River is required to indemnify a director or officer of James River who is or
was a party to any proceeding by reason of the fact that he is or was such a
director or officer or is or was serving at the request of James River as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise.
Director and Officer Exculpation
First Virginia. The VSCA provides that in any proceeding brought by or
in the right of a corporation or brought by or on behalf of stockholders of
the corporation, the damages assessed against an officer or director arising
out of a single transaction, occurrence or course of conduct may not exceed
the lesser of (1) the monetary amount, including the elimination of
liability, specified in the articles of incorporation or, if approved by the
stockholders, in the bylaws as a limitation on or elimination of the
liability of the officer or director or (2) the greater of (a) $100,000 or
(b) the amount of cash compensation received by the officer or director from
the corporation during the 12 months immediately preceding the act or
omission for which liability was imposed. The liability of an officer or
director is not limited under the VSCA or a corporation's articles of
incorporation and bylaws if the officer or director engaged in willful
misconduct or a knowing violation of the criminal law or of any federal or
state securities law. First Virginia's articles of incorporation eliminate
liability of any director, advisory director or officer of First Virginia in
connection with a proceeding by or in the right of the corporation or by or
on behalf of its stockholders, unless the director, advisory director or
officer engaged in willful misconduct or knowingly violated any criminal or
securities law.
James River. The articles of incorporation of James River provide that
to the full extent that the VSCA permits the limitation or the elimination of
the liability of directors or officers, a director or officer of James River
shall not be liable to James River or its stockholders for monetary damages.
Mergers, Share Exchanges and Sales of Assets
First Virginia. Under the VSCA, more than a two-thirds vote of all
votes entitled to be cast at a meeting is required for approval of a merger.
First Virginia's articles of incorporation provide that a "business
combination" (as defined therein) shall require only the affirmative vote
otherwise required by law if:
> it has been approved by a majority of First Virginia's directors
(including a majority of all "Continuing Directors" as that term is
defined in the articles of incorporation);
> the business combination is solely between First Virginia and a
subsidiary; or
> certain price conditions and procedures are satisfied.
The VSCA provides that, unless a corporation's articles of incorporation
provide for a higher or lower vote, certain significant corporate actions
must be approved by the affirmative vote of the holders of more than
two-thirds of the votes entitled to be cast on the matter. Corporate actions
requiring more than a two-thirds vote include an amendment to a corporation's
articles of incorporation, adoption of plans of merger or exchange, sales of
all or substantially all of the corporation's assets other than in the
ordinary course of business and adoption of plans of dissolution. The VSCA
provides that a corporation's articles may either increase the vote required
to approve these actions or may decrease the required vote to not less than a
majority of the votes entitled to be cast. First Virginia's articles of
incorporation increase the vote required to at least 80% in certain mergers,
sales of assets, liquidations and other significant transactions involving
First Virginia and any beneficial holder of 5% or more of First Virginia's
outstanding capital stock, which are described above in "- Certain Provisions
of First Virginia's Articles of Incorporation and First Virginia's
Stockholder Rights Plan."
James River. James River's articles of incorporation do not require a
vote less than or greater than the vote required by the VSCA to approve a
merger or other significant corporate action.
Liquidation Rights
First Virginia. In the event of the liquidation, dissolution or winding
up of the affairs of First Virginia, subject to the preferential rights of
holders of First Virginia's preferred stock, holders of outstanding shares of
First Virginia common stock are entitled to share, in proportion to their
respective interest, in First Virginia's assets in funds remaining after
payment, or provision for payment, of all debts and other liabilities of
First Virginia.
Because First Virginia is a bank holding company, its rights, the rights
of its creditors and of its stockholders, including the holders of the shares
of any First Virginia preferred stock that may be issued, to participate in
the assets of any subsidiary upon the latter's liquidation or
recapitalization may be subject to the prior claims of the subsidiary's
creditors, except to the extent that First Virginia may itself be a creditor
with recognized claims against the subsidiary.
James River. In the event of liquidation, dissolution or winding up the
affairs of James River, the rights of stockholders of James River's common
stock are similar to those outlined above for First Virginia stockholders.
COMPARATIVE MARKET PRICES AND DIVIDENDS
First Virginia common stock is traded on the New York Stock Exchange
under the symbol "FVB." James River common stock is traded on the Nasdaq
National Market under the symbol "JRBK." The following table sets forth, for
the indicated periods, the high and low sale prices for the First Virginia
and James River common stock as reported by the New York Stock Exchange and
Nasdaq National Market, respectively, and the cash dividends declared per
share of First Virginia and James River common stock for the indicated
periods. The stock prices do not include retail mark-ups, mark-downs or
commissions.
First Virginia James River
--------------------------- -------------------------
Cash Cash
Dividends Dividends
Price Range Paid Price Range Paid
--------------- ---------------
High Low Per Share High Low Per Share
---- ---- --------- ---- ----- ---------
1999
- -------------------
First Quarter $50.50 $45.00 $0.32 $18.75 $16.00 $0.12
Second Quarter 52.63 45.69 0.32 18.00 15.00 0.12
Third Quarter 51.38 42.50 0.34 16.00 13.13 0.12
Fourth Quarter 49.75 40.50 0.34 13.50 10.75 0.12
--------- ---------
Total $1.32 $0.48
========= =========
2000
- -------------------
First Quarter $43.25 $29.00 $0.36 $12.25 $10.13 $0.12
Second Quarter 42.75 34.81 0.36 13.50 10.00 0.14
Third Quarter 44.75 35.00 0.37 15.00 11.00 0.14
Fourth Quarter 48.94 37.00 0.37 15.50 13.25 0.14
--------- ---------
Total $1.46 $0.54
========= =========
2001
- -------------------
First Quarter $49.25 $38.54 $0.38 $23.31 $13.63 $0.14
Second Quarter
(through May 17,
2001) 45.40 41.70 -- 23.50 22.25 --
--------- ---------
Total $0.38 $0.14
========= =========
On May 17, 2001, the closing sale price of First Virginia common stock
as reported on the New York Stock Exchange was $44.95 per share and the
closing sale price of James River common stock as reported on the Nasdaq
National Market was $23.30 per share. On March 2, 2001, the last business
day prior to public announcement of the merger, the last sale price of First
Virginia common stock as reported by the New York Stock Exchange was $46.10
per share and the last sale price of James River common stock as reported on
the Nasdaq National Market was $14.88 per share.
The holders of First Virginia common stock are entitled to receive
dividends when and if declared by First Virginia's board of directors out of
funds legally available therefor. Although First Virginia currently intends
to continue to pay quarterly cash dividends on the First Virginia common
stock, there can be no assurance that First Virginia's dividend policy will
remain unchanged after completion of the merger. The declaration and payment
of dividends thereafter will depend upon business conditions, operating
results, capital and reserve requirements, and the First Virginia board of
directors' consideration of other relevant factors.
The holders of James River common stock are entitled to receive
dividends when and if declared by James River's board of directors out of
funds legally available therefor. James River has paid cash dividends each
quarter since the first quarter of 1997. The declaration and payment of
dividends will depend upon business conditions, operating results, capital
and reserve requirements, and the James River board of directors'
consideration of other relevant factors including a restriction in the merger
agreement that prohibits James River from increasing dividends. The James
River board of directors has declared a dividend of $0.14 per share payable
on June 14, 2001 to stockholders of record on June 1, 2001.
First Virginia and James River are legal entities separate and distinct
from their subsidiaries and their revenues depend in significant part on the
payment of dividends from their respective subsidiary depository
institutions. First Virginia's and James River's subsidiary depository
institutions are subject to certain legal restrictions on the amount of
dividends they are permitted to pay. See "CERTAIN REGULATORY CONSIDERATIONS
- - Payment of Dividends" on page 63.
BUSINESS OF JAMES RIVER
General
James River, a Virginia corporation founded in 1995, is a financial
holding company with its headquarters in Suffolk, Virginia. On March 31,
2001, James River had, on a consolidated basis, assets of approximately
$531.1 million, loans of approximately $367.3 million, deposits of
approximately $443.6 million, and shareholders' equity of approximately $57.2
million.
James River provides a wide range of financial services, primarily to
individuals and to small and medium-sized businesses, through its four
subsidiary banks: James River Bank, James River Bank/Colonial, First
Colonial Bank and State Bank. James' River's bank subsidiaries have a total
of 27 banking facilities in the James River basin and Piedmont region of
Virginia.
James River's principal executive offices are located at 1514 Holland
Road, Suffolk, Virginia 23434, and its telephone number at that address is
(757) 934-8100. Additional information about James River is included in the
documents incorporated into this proxy statement-prospectus by reference.
See "WHERE YOU CAN FIND MORE INFORMATION" on page 68.
Recent Developments
On April 17, 2001, James River released its financial results for the
first quarter of 2001. James River reported net income for the first quarter
of 2001 of $1.374 million, or an increase of 9% over net income of $1.257
million in the first quarter of 2000. James River's fully diluted earnings
per share were $.30 in the first quarter of 2001 and $.27 in the first
quarter of 2000. Excluding the effects of discontinued operations, net
income from continuing operations was $1.375 million, or $.30 per fully
diluted share in the first quarter of 2001 compared with $1.437 million, or
$.31 per fully diluted share in the comparable period in 2000. Discontinued
operations included after tax net losses of Mortgage Company of James River,
Inc., a subsidiary that was closed in 2000.
BUSINESS OF FIRST VIRGINIA
General
First Virginia, a Virginia corporation founded in October 1949, is a
bank holding company headquartered in Falls Church, Virginia. On March 31,
2001, First Virginia had, on a consolidated basis, total assets of
approximately $9.65 billion, loans of approximately $6.17 billion, deposits
of approximately $7.91 billion, and shareholders' equity of approximately
$1.02 billion.
First Virginia currently operates nine commercial banks with 294 banking
offices in Virginia, 57 in Maryland and 25 in East Tennessee. Through its
banking network, First Virginia engages in the general commercial and
consumer banking business and provides a full range of banking services to
individuals, businesses and organizations. First Virginia also operates a
full-service insurance agency.
First Virginia's principal executive offices are located at One First
Virginia Plaza, 6400 Arlington Boulevard, Falls Church, Virginia 22042-2336,
and its phone number at that address is (703) 241-4486. Additional
information about First Virginia is included in the documents incorporated
into this proxy statement-prospectus by reference. See "WHERE YOU CAN FIND
MORE INFORMATION" on page 68.
Recent Developments
On April 9, 2001, First Virginia released its financial results for the
first quarter of 2001. First Virginia reported a 24% increase in 2001 first
quarter earnings per share to $.87 compared to the $.70 earned in the 2000
first quarter. The return on average assets increased to 1.70% compared to
1.45% in the prior year's first quarter, and the return on average
shareholders' equity increased to 16.03% compared to 13.39%. Net income for
the quarter totaled $40.262 million compared to $34.193 million in 2000's
first quarter. Income in the first quarter of 2001 included a nonrecurring
after-tax gain of $4.735 million from the sale of First Virginia's interest
in Star Systems, Inc. to Concord EFS, Inc. Earnings per share, excluding the
nonrecurring income in the 2001 first quarter, equaled $.77 per share, a 10%
increase over the $.70 earned in 2000. Excluding the 2001 gain, return on
average assets increased to 1.50% in the 2001 first quarter compared to 1.45%
in 2000, and return on average shareholders' equity was 14.14% compared to
13.39%.
CERTAIN REGULATORY CONSIDERATIONS
The following discussion sets forth certain of the material elements of
the regulatory framework applicable to banks and bank holding companies and
provides certain specific information related to First Virginia and James
River. Additional information is available in First Virginia's and James
River's most recent Annual Reports on Form 10-K. See "WHERE YOU CAN FIND
MORE INFORMATION" on page 68.
First Virginia is a multibank holding company registered with the Board
of Governors of the Federal Reserve System under the Bank Holding Company
Act. First Virginia is the sole owner of nine state-chartered commercial
banks in Virginia, Maryland and Tennessee. All of First Virginia's
subsidiary banks are members of the Federal Reserve System. James River is a
multibank financial holding company, with four state-chartered commercial
bank subsidiaries. James River has elected financial holding company status,
which gives it broader financial powers, subject to maintaining
well-capitalized and well-managed bank subsidiaries. Both First Virginia and
James River, and their subsidiaries are subject to the supervision,
examination and reporting requirements of the Bank Holding Company Act and
the regulations of the Federal Reserve Board.
The Bank Holding Company Act requires every bank holding company to
obtain the prior approval of the Federal Reserve Board before:
> it may acquire direct or indirect ownership or control of any
voting shares of any bank if, after such acquisition, the bank
holding company will directly or indirectly own or control more
than 5.0% of the voting shares of the bank;
> it or any of its subsidiaries, other than a bank, may acquire all
or substantially all of the assets of any bank; or
> it may merge or consolidate with any other bank holding company.
The Bank Holding Company Act further provides that the Federal Reserve
Board may not approve any transaction that would result in a monopoly or
would be in furtherance of any combination or conspiracy to monopolize or
attempt to monopolize the business of banking in any section of the United
States, or the effect of which may be substantially to lessen competition or
to tend to create a monopoly in any section of the country, or that in any
other manner would be in restraint of trade, unless the anticompetitive
effects of the proposed transaction are clearly outweighed by the public
interest in meeting the convenience and needs of the community to be served.
The Federal Reserve Board is also required to consider the financial and
managerial resources and future prospects of the bank holding companies and
banks concerned and the convenience and needs of the community to be served.
The Bank Holding Company Act prohibits bank holding companies from
engaging in activities other than banking or managing or controlling banks or
other permissible subsidiaries and from acquiring or retaining direct or
indirect control of any company engaged in any activities other than those
activities determined by the Federal Reserve Board to be so closely related
to banking or managing or controlling banks as to be a proper incident
thereto.
Broader powers are available to bank holding companies that elect
financial holding company status. To do so, each of the holding company's
bank subsidiaries must be well-capitalized and well-managed and maintain
Community Reinvestment Act ratings of Satisfactory or better. Although First
Virginia is qualified to elect financial holding company status, it has not
done so. James River has elected such status. As a result, James River has
authority to engage in a range of activities that are financial in nature and
that were not previously permissible for banks and bank holding companies.
Subject to the regulations of the Federal Reserve Board, a financial holding
company may engage directly or through a subsidiary in the statutorily
authorized activities of securities dealing, underwriting, and market making,
insurance underwriting and agency activities, merchant banking, and insurance
company portfolio investments, and in any activity that the Federal Reserve
Board determines by rule or order to be financial in nature or incidental to
such financial activity. Merchant banking activities are subject to certain
limitations and are subject to more stringent capital requirements than other
activities. James River's current range of activities does not require that
First Virginia elect financial holding company status. First Virginia has
the opportunity to do so at any time, provided its subsidiary banks meet the
requirements described above.
The Federal Reserve Board may require a bank or financial holding
company to serve as a source of financial strength to its subsidiary
depository institutions and to commit resources to support such institutions
in circumstances where it might not do so absent such policy. In addition,
the "cross-guarantee" provisions of the Federal Deposit Insurance Act require
insured depository institutions under common control to reimburse the Federal
Deposit Insurance Corporation or FDIC for any loss suffered or reasonably
anticipated by either the Savings Association Insurance Fund, or SAIF, or the
Bank Insurance Fund, or BIF, as a result of the default of a commonly
controlled insured depository institution or for assistance provided by the
FDIC to a commonly controlled insured depository institution in danger of
default. The FDIC's claim for damages is superior to claims of stockholders
of the insured depository institution or its holding company but is
subordinate to claims of depositors, secured creditors and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institutions. First Virginia and James River also are registered
under the bank holding company laws of Virginia and are subject to regulation
and supervision by the Virginia Bureau of Financial Institutions.
As of the date of this proxy statement-prospectus, First Virginia owns
nine bank subsidiaries with operations in Virginia, Maryland and East
Tennessee. James River owns four bank subsidiaries, all operating solely in
Virginia. Each of the First Virginia and James River bank subsidiaries is a
member of the FDIC, and their deposits are insured by the FDIC to the extent
provided by law. Each of First Virginia's bank subsidiaries is subject to
numerous state and federal statutes and regulations that affect its business,
activities, and operations.
First Virginia's bank subsidiaries are subject to supervision and
examination by the Federal Reserve Bank of Richmond and the Federal Reserve
Board and the state regulators of Virginia, Maryland and Tennessee. James
River's bank subsidiaries are subject to supervision and regulation by the
Federal Reserve Bank of Richmond and the Federal Reserve Board and the
Virginia Bureau of Financial Institutions. The federal and state banking
regulators regularly examine the operations of the subsidiary banks and have
authority to approve or disapprove mergers, consolidations, the establishment
of branches, and similar corporate actions. The federal and state banking
regulators also have the power to prevent the continuance or development of
unsafe or unsound banking practices or other violations of law.
Payment of Dividends. First Virginia and James River are legal entities
separate and distinct from their bank subsidiaries. The principal source of
cash flow of First Virginia and James River, including cash flow to pay
dividends to its stockholders, is dividends from their subsidiary banks.
There are statutory and regulatory limitations on the payment of dividends by
their respective bank subsidiaries to First Virginia and James River, as well
as by First Virginia and James River to their respective stockholders.
As to the payment of dividends, First Virginia's and James River's
subsidiary banks are subject to federal and state limits on the amount of
dividends that may be paid to First Virginia without regulatory approval.
For example, approval generally is required for any state-chartered bank that
is a member of the Federal Reserve System to pay any dividend that would
cause the bank's total dividends paid during any calendar year to exceed the
sum of the bank's net income during such calendar year plus the bank's
retained net income for the prior two calendar years. In addition, the
Federal Reserve Board and the FDIC have issued policy statements which
provide that bank holding companies and insured banks should generally pay
dividends only out of current operating earnings.
If, in the opinion of a federal banking regulatory agency, an
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of
the depository institution, could include the payment of dividends), such
agency may require, after notice and hearing, that such institution cease and
desist from such practice. The federal banking agencies have indicated that
paying dividends that deplete an institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under current federal
law, an insured institution may not pay any dividend if payment would cause
it to become undercapitalized or if it already is undercapitalized. See "-
Prompt Corrective Action" on page 65.
The payment of dividends by First Virginia and the subsidiary banks may
also be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines.
Capital Adequacy. First Virginia, James River and their subsidiary
banks are required to comply with the capital adequacy standards established
by the Federal Reserve Board. There are two basic measures of capital
adequacy for bank holding companies that have been promulgated by the Federal
Reserve Board: a risk-based measure and a leverage measure. All applicable
capital standards must be satisfied for a bank holding company to be
considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and
bank holding companies, to account for off-balance-sheet exposure, and to
minimize disincentives for holding liquid assets. Assets and off-balance
sheet items are assigned to broad risk categories, each with appropriate
weights. The resulting capital ratios represent capital as a percentage of
total risk-weighted assets and off-balance sheet items.
The minimum guideline for the ratio of total capital to risk-weighted
assets (including certain off-balance-sheet items, such as standby letters of
credit) is 8.0%. At least half of the total capital must be composed of
common equity, undivided profits, minority interests in the equity accounts
of consolidated subsidiaries, qualifying noncumulative perpetual preferred
stock, and a limited amount of cumulative perpetual preferred stock, less
goodwill and certain other intangible assets or tier 1 capital. The
remainder may consist of certain subordinated debt, other preferred stock,
and a limited amount of loan loss reserves. The minimum guideline for tier 1
capital is 4.0%. At March 31, 2001, First Virginia's consolidated total
capital ratio was 13.58% and its tier 1 capital ratio (the ratio of tier 1
capital to risk-weighted assets) was 12.58%. James River's total capital
ratio was 15.59%, and its tier 1 capital ratio was 14.33%.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum leverage ratio of tier 1 capital to average assets, less goodwill and
certain other intangible assets, of 3.0% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating.
All other bank holding companies generally are required to maintain a
leverage ratio of at least 3.0%, plus an additional cushion of 100 to 200
basis points above the stated minimums. The guidelines also provide that
bank holding companies experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions substantially above the
minimum supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve Board has indicated that it will consider a
tangible tier 1 capital leverage ratio (deducting all intangibles) and other
indicators of capital strength in evaluating proposals for expansion or new
activities. At March 31, 2001, First Virginia's leverage ratio was 9.27% and
James River's leverage ratio was 10.29%.
The subsidiary banks also are subject to risk-based and leverage capital
requirements adopted by the Federal Reserve Board, which are substantially
similar to those that apply to First Virginia and James River. Each of the
First Virginia and James River subsidiary banks was in compliance with
applicable minimum capital requirements as of March 31, 2001. Neither First
Virginia, James River, nor any of the subsidiary banks has been advised by
any federal banking agency of any specific minimum capital ratio requirement
applicable to it.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking of
brokered deposits, and to certain other restrictions on its business. As
described below, substantial additional restrictions can be imposed upon
FDIC-insured depository institutions that fail to meet applicable capital
requirements. See "- Prompt Corrective Action" below.
The Federal Reserve Board also has recently adopted final regulations
requiring regulators to consider interest rate risk (when the interest rate
sensitivity of an institution's assets does not match the sensitivity of its
liabilities or its off-balance-sheet position) in the evaluation of a bank's
capital adequacy. The federal bank regulatory agencies' methodology for
evaluating interest rate risk requires banks with excessive interest rate
risk exposure to hold additional amounts of capital against such exposures.
Prompt Corrective Action. Current federal law establishes a system of
prompt corrective action to resolve the problems of undercapitalized insured
depository institutions. Under this system the federal banking regulators
have established five capital categories ("well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized") and must take certain mandatory supervisory
actions, and are authorized to take other discretionary actions, with respect
to depository institutions in the three undercapitalized categories, the
severity of which will depend upon the capital category in which the
institution is placed. Generally, subject to a narrow exception, current
federal law requires the banking regulator to appoint a receiver or
conservator for an insured depository institution that is critically
undercapitalized. The federal banking agencies have specified by regulation
the relevant capital level for each category. Holding companies are not
subject to classification under the prompt corrective action system and are
affected only to the extent that a subsidiary bank is subject to prompt
corrective action sanctions.
At March 31, 2001, each of the subsidiary banks of First Virginia and
James River had the requisite capital level to qualify as well capitalized.
FDIC Insurance Assessments. The FDIC currently uses a risk-based
assessment system for insured depository institutions that takes into account
the risks attributable to different categories and concentrations of assets
and liabilities. The risk-based assessment system, which went into effect on
January 1, 1994, assigns an institution to one of three capital categories:
(1) well capitalized; (2) adequately capitalized; and (3) undercapitalized.
These three categories are substantially similar to the prompt corrective
action categories described above, with the "undercapitalized" category
including institutions that are undercapitalized, significantly
undercapitalized, and critically undercapitalized for prompt corrective
action purposes.
The FDIC may terminate an institution's insurance of deposits upon a
finding that the institution has engaged in unsafe and unsound practices, is
in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
DESCRIPTION OF FIRST VIRGINIA CAPITAL STOCK
First Virginia is authorized to issue 175,000,000 shares of First
Virginia common stock, par value $1.00 per share, and 3,000,000 shares of
preferred stock of a par value of $10.00 per share. As of March 31, 2001,
there were approximately 46,159,000 shares of First Virginia common stock and
43,414 shares of convertible preferred stock of First Virginia outstanding.
Each share of First Virginia common stock is issued with an associated
preferred share purchase right in accordance with First Virginia's Stockholder
Rights Plan. For a description of the plan see "EFFECT OF THE MERGER ON RIGHTS
OF STOCKHOLDERS - Certain Provisions of First Virginia's Articles of
Incorporation and First Virginia's Stockholder Rights Plan" on page 48.
Holders of the First Virginia common stock are entitled to one vote per
share on all matters presented to them. First Virginia stockholders are not
entitled to cumulative voting in the election of directors. Subject to the
preferential rights of the holders of the First Virginia preferred stock,
each holder of First Virginia common stock is entitled to receive a
proportionate share of such dividends as may be declared by the First
Virginia board of directors out of the funds available therefor, and to share
ratably in the net assets in event of liquidations. All of the shares of
First Virginia common stock and First Virginia preferred stock which are
issued and outstanding are fully paid and nonassessable. No holder of any
share of First Virginia common stock has any preemptive right to purchase any
security which First Virginia may hereafter issue, and the First Virginia
common stock is not subject to any conversion rights, redemption provisions,
or sinking fund provisions. First Virginia is prohibited from redeeming any
of the First Virginia common stock if any First Virginia preferred stock
dividends are in arrears.
First Virginia preferred stock is divided into four series, Series A
through Series D. Series A, B, and D shares are convertible into two and
one-fourth shares of First Virginia common stock, and Series C shares are
convertible into one and eight-tenths shares of First Virginia common stock.
All of the preferred stock may be redeemed at the option of First Virginia
for $10.00 per share. Series A shares carry an annual dividend of 5%,
whereas Series B and C carry an annual dividend of 7% and Series D shares
carry an annual dividend of 8%. The First Virginia preferred stock,
regardless of series, is voting stock and, unless otherwise required by law,
each share is entitled to the same vote as each share of First Virginia
common stock on all matters presented to stockholders. In the event of the
voluntary dissolution of First Virginia, the then holders of shares of any
series of First Virginia preferred stock would receive the redemption price
of their shares plus accrued but unpaid dividends and interest, if any,
unless there are insufficient assets to pay the same in which event they will
be paid ratably in proportion to the amounts to which they are entitled.
OTHER MATTERS
As of the date of this proxy statement-prospectus, James River's board
of directors does not know of any matters that will be presented for
consideration at the special meeting other than as described in this proxy
statement-prospectus. However, if any other matters properly come before the
special meeting or any adjournment or postponement of the special meeting and
are voted upon, the enclosed proxy will be deemed to confer discretionary
authority to the individuals named as proxies to vote the shares represented
by such proxies as to any such matters, including a proposal to adjourn the
special meeting in order to permit further solicitation of proxies. No proxy
holder, however, will vote any proxies voted against approval of the merger
in favor of a proposal to adjourn the special meeting to solicit additional
proxies.
STOCKHOLDER PROPOSALS
James River will hold its 2001 annual meeting of stockholders only if
the merger is not consummated. In order to be eligible for inclusion in
James River's proxy materials for the 2001 annual meeting, if held, any James
River stockholder proposal to take action at such meeting should have been
sent by November 15, 2000 to Harold U. Blythe, President and Chief Executive
Officer of James River at 1514 Holland Road, Suffolk, Virginia 23434. Any
such proposals shall be subject to the requirements of the proxy rules
adopted under the Securities Exchange Act of 1934, Virginia law and James
River's articles of incorporation and bylaws.
First Virginia expects to hold its next annual meeting of stockholders
in April 2002, after the merger. Under the SEC rules, proposals of First
Virginia stockholders intended to be presented at that meeting must be
received by First Virginia at its principal executive offices no later than
November 9, 2001, to be included in the proxy statement for the meeting. Any
such proposals shall be subject to the requirements of the proxy rules
adopted under the Securities Exchange Act of 1934, Virginia law and First
Virginia's articles of incorporation and bylaws.
EXPERTS
The consolidated financial statements of First Virginia Banks, Inc. and
subsidiaries as of December 31, 2000 and 1999 and for the years then ended
have been incorporated by reference herein and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, incorporated by reference herein and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of First Virginia Banks, Inc. for
the year ended December 31, 1998, appearing in First Virginia Banks, Inc.
Annual Report (Form 10-K) for the year ended December 31, 2000 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon and included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference
in reliance upon such report given on the authority of such firm as experts
in accounting and auditing.
The consolidated financial statements of James River Bankshares, Inc.
and subsidiaries incorporated into this proxy statement-prospectus by
reference to James River's Annual Report on Form 10-K for the years ended
December 31, 2000, have been so incorporated in reliance upon the reports of
Yount, Hyde & Barbour, P.C. and Goodman & Company, LLP, independent
accountants, given on the authority of said firms as experts in accounting
and auditing.
OPINIONS
The legality of the shares of First Virginia common stock to be issued
in the merger will be passed upon by Christopher M. Cole, Vice President and
Assistant General Counsel. Christopher M. Cole is an officer of and
stockholder in, and receives compensation from, First Virginia.
Certain tax consequences of the transaction have been passed upon by
Kaufman & Canoles, Norfolk, Virginia.
WHERE YOU CAN FIND MORE INFORMATION
First Virginia and James River file annual, quarterly and current
reports, proxy and information statements, and other information with the SEC
under the Securities Exchange Act of 1934. You may read and copy this
information at the Public Reference Section at the SEC at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. You may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports,
proxy and information statements, and other information about issuers that
file electronically with the SEC. The address of that site is
http://www.sec.gov. In addition, you can read and copy this information at
the regional offices of the SEC at 7 World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. You can also inspect reports, proxy and
information statements, and other information about First Virginia at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
First Virginia filed a registration statement with the SEC under the
Securities Act of 1933, as amended, relating to the First Virginia common
stock offered to the James River stockholders. The registration statement
contains additional information about First Virginia and the First Virginia
common stock. The SEC allows First Virginia to omit certain information
included in the registration statement from this proxy statement-prospectus.
The registration statement may be inspected and copied at the SEC's public
reference facilities described above.
This proxy statement-prospectus incorporates important business and
financial information about First Virginia and James River that is not
included in or delivered with this proxy statement-prospectus. The following
documents filed with the SEC by First Virginia are incorporated into this
proxy statement-prospectus by reference (SEC File No. 001-06580):
(1) First Virginia's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000; and
(2) The description of First Virginia's current management and First
Virginia's board of directors contained in First Virginia's proxy
statement filed pursuant to Section 14(a) of the Exchange Act for
First Virginia's Annual Meeting of stockholders held on April 27,
2001.
The following documents filed with the SEC by James River are
incorporated into this proxy statement-prospectus by reference (SEC File No.
000-26314):
(1) James River's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000; and
(2) James River's current report on Form 8-K dated March 29, 2001.
First Virginia and James River also incorporate into this proxy
statement-prospectus by reference additional documents filed by them pursuant
to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of
this proxy statement-prospectus and prior to final adjournment of the special
meeting. Any statement contained in this proxy statement-prospectus or in a
document incorporated or deemed to be incorporated into this proxy
statement-prospectus by reference shall be deemed to be modified or
superseded to the extent that a statement contained herein or in any
subsequently filed document which also is, or is deemed to be, incorporated
into this proxy statement-prospectus by reference modifies or supersedes such
statement.
You may obtain copies of the information incorporated into this proxy
statement-prospectus by reference upon written or oral request. The inside
front cover of this proxy statement-prospectus contains information about how
such requests should be made.
All information contained in this proxy statement-prospectus or
incorporated into this proxy statement-prospectus by reference with respect
to First Virginia was supplied by First Virginia, and all information
contained in this proxy statement-prospectus with respect to James River was
supplied by James River.
Appendix A
AGREEMENT AND PLAN OF REORGANIZATION
between
FIRST VIRGINIA BANKS, INC.
and
JAMES RIVER BANKSHARES, INC.
March 3, 2001
- -
INDEX
Page
ARTICLE 1. THE MERGER. . . . . . . . . . . . . . . . . . . . .A-4
1.1 The Merger. . . . . . . . . . . . . . . . . . . . . .A-4
1.2 Effective Date and Closing Date . . . . . . . . . . .A-6
1.3 Dissenting James River Stockholders . . . . . . . . .A-6
1.4 Employee Benefits . . . . . . . . . . . . . . . . . .A-6
1.5 Merger of James River's Subsidiary Banks. . . . . . .A-7
1.6 Execution of Stock Option Agreement . . . . . . . . .A-8
1.7 Execution of an Agreement with Directors. . . . . . .A-8
1.8 Directorships and Director Compensation . . . . . . .A-8
1.9 Directors and Officers Insurance
and Indemnification. . . . . . . . . . . . . . . . .A-9
2.0 Certain Definitions . . . . . . . . . . . . . . . . .A-9
ARTICLE II. EVENTS PRECEDING EFFECTIVENESS. . . . . . . . . .A-10
2. Events. . . . . . . . . . . . . . . . . . . . . . . .A-10
ARTICLE III. REPRESENTATIONS AND WARRANTIES.. . . . . . . . .A-11
3.1 Representations and Warranties of James River . . . .A-11
3.2 Representations and Warranties of First Virginia. . .A-20
ARTICLE IV. CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE
DATE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-22
4.1 Conduct of the Business of James River and its
Subsidiaries Prior to the Effective Date. . . . . . .A-22
4.2 Forbearances. . . . . . . . . . . . . . . . . . . . .A-22
4.3 No Solicitation . . . . . . . . . . . . . . . . . . .A-23
4.4 Compliance with Tax-Free Provisions . . . . . . . . .A-24
4.5 Access and Information. . . . . . . . . . . . . . . .A-24
4.6 Confidentiality . . . . . . . . . . . . . . . . . . .A-25
4.7 Consents. . . . . . . . . . . . . . . . . . . . . . .A-25
4.8 Meeting of James River Stockholders . . . . . . . . .A-25
4.9 Affiliates of James River . . . . . . . . . . . . . .A-25
4.10 Insurance Applications. . . . . . . . . . . . . . . .A-26
4.11 Applications to the Virginia State Corporation
Commissioner. . . . . . . . . . . . . . . . . . . . .A-26
4.12 Federal Reserve Applications. . . . . . . . . . . . .A-26
4.13 Changes Requested by First Virginia . . . . . . . . .A-26
ARTICLE V. COVENANTS OF FIRST VIRGINIA. . . . . . . . . . . .A-26
5.1 Issuance of Stock and Payment of Cash . . . . . . . .A-26
5.2 Stock Adjustments . . . . . . . . . . . . . . . . . .A-26
5.3 Preparation of Registration Statement . . . . . . . .A-27
5.4 Application to the Virginia State Corporation
Commission. . . . . . . . . . . . . . . . . . . . . .A-27
5.5 Federal Reserve Applications. . . . . . . . . . . . .A-27
ARTICLE VI. CONDITIONS PRECEDENT TO FIRST VIRGINIA'S
OBLIGATIONS HEREUNDER. . . . . . . . . . . . . . .A-27
6.1 Representations, Warranties . . . . . . . . . . . . .A-27
6.2 No Adverse Changes. . . . . . . . . . . . . . . . . .A-28
6.3 Audit of James River and its Subsidiaries . . . . . .A-28
6.4 Legal Opinion . . . . . . . . . . . . . . . . . . . .A-28
6.5 Events Preceding the Effective Date . . . . . . . . .A-28
6.6. No Adverse Proceedings. . . . . . . . . . . . . . . .A-28
ARTICLE VII. CONDITIONS PRECEDENT TO JAMES RIVER'S OBLIGATIONS
HEREUNDER. . . . . . . . . . . . . . . . . . . . . A-28
7.1 Representations, Warranties and Covenants. . . . . . A-28
7.2 Events Preceding the Effective Date. . . . . . . . . A-29
7.3 No Adverse Proceedings or Events . . . . . . . . . . A-29
7.4 No Adverse Changes . . . . . . . . . . . . . . . . . A-29
7.5. Legal Opinion. . . . . . . . . . . . . . . . . . . . A-29
7.6 Fairness Opinion . . . . . . . . . . . . . . . . . . A-29
ARTICLE VIII. TAX OPINION AND RESTRICTIONS CONCERNING THE
RESALE OF FIRST VIRGINIA COMMON STOCK BY
AFFILIATES OF JAMES RIVER. . . . . . . . . . . . A-30
8.1 Tax Opinion. . . . . . . . . . . . . . . . . . . . . A-30
8.2 Restrictions on Affiliates . . . . . . . . . . . . . A-30
ARTICLE IX. TERMINATION, AMENDMENT AND SURVIVAL OF
REPRESENTATIONS. . . . . . . . . . . . . . . . . . A-31
9.1 Amendment. . . . . . . . . . . . . . . . . . . . . . A-31
9.2 Termination. . . . . . . . . . . . . . . . . . . . . A-31
9.3 Survival of Representations and Covenants. . . . . . A-32
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . A-32
9.5 Notices. . . . . . . . . . . . . . . . . . . . . . . A-32
9.6 Entire Agreement in Effect . . . . . . . . . . . . . A-33
9.7 General. . . . . . . . . . . . . . . . . . . . . . . A-33
9.8 Governing Law. . . . . . . . . . . . . . . . . . . . A-33
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")dated this 3rd
day of March, 2001 by and between FIRST VIRGINIA BANKS, INC. ("First
Virginia"), a Virginia corporation with its main office at 6400 Arlington
Boulevard, Falls Church, Virginia22042-2336 and JAMES RIVER BANKSHARES, INC.
("James River"), a Virginia corporation and a registered bank holding
company, with its main office at 1514 Holland Road, Suffolk, Virginia
23434(First Virginia and James River each being referred to herein asa
"Party" and collectively referred to herein as "Parties").
W I T N E S E T H:
WHEREAS, the Boards of Directors of First Virginia and James River deem
it advisable and in the best interests of the Parties and their stockholders
that James River be acquired by First Virginia through a merger (the
"Merger") of James River with and into First Virginia pursuant to a Plan of
Merger in the form attached hereto as Exhibit A (the "Plan of Merger"); and
WHEREAS, as an inducement for First Virginia to enter into this
Agreement, James River and First Virginia are entering into a Stock Option
Agreement simultaneously with the execution and delivery of this Agreement
pursuant to which James River is granting to First Virginia an option to
purchase shares of James River Common Stock; and
WHEREAS, the Parties desire to provide for certain undertakings,
conditions, warranties, representations and covenants in connection with the
transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the
Parties agree as follows:
ARTICLE 1.
THE MERGER
1.1 The Merger. Upon performance of all covenants and obligations of
the Parties contained in this Agreement and upon the terms and conditions
contained herein, on the Effective Date of the Merger, James River shall be
merged with and into First Virginia, pursuant to the Plan of Merger, the
terms of which are incorporated herein by reference to the same extent as if
fully set forth herein. The Plan of Merger provides for the terms of the
Merger, the mode of carrying the same into effect and the basis and manner of
converting the outstanding shares of James River Common Stock, $5.00 par
value per share (the "James River Common Stock") into shares of First
Virginia Common Stock, $1.00 par value per share (the "First Virginia Common
Stock"). As a result of the Merger, each share of James River Common Stock
outstanding on the Effective Date (other than "Dissenting Shares"as
hereinafter defined) will be converted into .51 shares of First Virginia
Common Stock, proportionately adjusted for any stock split, stock dividends
or other similar capital adjustments between the date of this Agreement and
the Effective Date. No fractional shares of First Virginia Common Stock
shall be issued to James River stockholders. In lieu thereof, each James
River stockholder shall receive upon surrender of his James River Common
Stock an amount in cash equal to the amount of any fractional share he would
otherwise be entitled to receive multiplied by the average of the closing
prices per share of First Virginia Common Stock as reported by The Wall
Street Journal under the heading "New York Stock Exchange--Composite
Transactions" or any comparable heading then in use, for each of the last ten
trading days ending on the Effective Date of the Merger.
Holders of shares of James River Common Stock will be given the option of
exchanging their shares for $24.00 per share in cash, provided that the
number of shares that may be exchanged for cash, when added to Dissenting
Shares (as defined in Section1.3), shall not exceed 40% of the shares of
James River Common Stock outstanding immediately prior to the Effective Date.
The cash election must be made no later than the time James River
stockholders vote on the Merger and once such vote has been taken, cash
elections shall be irrevocable. If the aggregate of(i) shares for which a
cash election is made and (ii) Dissenting Shares exceed 40% of the shares of
James River Common Stock outstanding immediately prior to the Effective Date
of the Merger, First Virginia first will pay cash for shares submitted for
cash exchange by each holder of 100 or fewer shares of James River Common
Stock (if such holder has submitted all his shares for cash exchange) and
then will pay cash for shares submitted for cash pro rata. Shares not
exchanged for cash after proration will be exchanged for First Virginia
Common Stock at the exchange ratio provided above.
Stockholders who elect to exchange some or all of their shares of James
River Common Stock for cash must elect cash at or prior to the meeting of
James River stockholders referred to in Paragraph 4.8. If the Merger is
approved by James River stockholders at this meeting, a stockholder's
election to receive cash is irrevocable.
On the Effective Date of the Merger, outstanding options to acquire James
River Common Stock ("James River Options") shall be converted, based on the
exchange ratio stated above, into options to acquire First Virginia Common
Stock ("First Virginia Options"). The exercise price per share of First
Virginia Common Stock under a First Virginia Option shall be equal to the
exercise price of James River Common Stock under the James River Option
divided by the exchange ratio (rounded up to the nearest cent). First
Virginia will honor the terms and provisions of each stock option that is
converted except that First Virginia may amend (a) the exercise price and the
number of shares of First Virginia Common Stock that will be covered by the
option, which shall be adjusted for the conversion of James River Common
Stock to First Virginia Common Stock and (b) the plan administrator, which
will be changed to substitute First Virginia's Management Compensation and
Benefits Committee as the new administrator.
1.2 Effective Date and Closing Date. The Effective Date of the Merger
shall be the date specified in the Articles of Merger filed with the Virginia
State Corporation Commission pursuant to the Virginia Stock Corporation Act.
The Closing Date shall be the date when all documents, including officers'
certificates, legal opinions, shareholder resolutions and agreements shall be
exchanged between the parties hereto. The Closing Date shall be a date
mutually agreed to by First Virginia and James River but in any case shall be
no later than five business days from the date of James River's Special
Meeting of Stockholders called to consider the Merger.
1.3 Dissenting James River Stockholders. Not withstanding anything in
this Agreement to the contrary, shares of James River Common Stock which are
issued and outstanding immediately prior to the Effective Date of the Merger
and which are held by a stockholder who has exercised in accordance with
applicable law the right (to the extent such right is available by law) to
demand and receive payment of the fair value of his shares of James River
Common Stock ("Dissenting Shares" and the holders of Dissenting Shares being
"Dissenting Stockholders") pursuant to the Virginia Stock Corporation Act
("VSCA") shall not be converted into or be exchangeable for the right to
receive the consideration provided in Section 1.1 of this Agreement, unless
and until such holder shall fail to perfect his right to receive payment of
such fair value or shall have effectively withdrawn or lost such right. If
such holder shall have so failed to perfect his right to receive payment of
such fair value or shall have effectively withdrawn or lost such right, each
of his shares of James River Common Stock shall thereupon be deemed to have
been converted into, at the Effective Date of the Merger, the right to
receive shares of First Virginia Common Stock as provided in Paragraph 1.1.
Prior to the Effective Date, James River shall comply with all notice and
other provisions of the VSCA and shall keep First Virginia fully advised
thereof and shall give First Virginia prompt notice of any demands received
from Dissenting Stockholders and the opportunity to participate in all
negotiations and proceedings with respect to any such demands. James River
shall not, except with the prior written consent of First Virginia,
voluntarily make any payment with respect to or settle any such demands for
payment.
1.4 Employee Benefits. Employees of James River and its subsidiaries
(each direct or indirect subsidiary of James River described in Section
3.1(d) hereof is hereinafter referred to as"Subsidiary" or collectively as
the "Subsidiaries") will be eligible to participate in all of First
Virginia's employee benefit programs, provided they meet the eligibility
requirements of those programs. Service with James River and its
Subsidiaries shall be considered service with First Virginia for purposes of
eligibility and vesting as described below:
(a) James River's employees will receive credit under the First
Virginia Pension Trust Plan for their prior service with James River for
purposes of determining eligibility and vesting, but not for determining
accrued benefits.
(b) James River's Defined Contribution Plan (which is a 401k plan)
will either be terminated or merged into the Employees Thrift Plan of First
Virginia Banks, Inc. (the "Thrift Plan") at First Virginia's sole discretion.
For purposes of determining eligibility under the Thrift Plan, James River
employees would be credited with years of employment with James River prior
to the Effective Date. James River's 401k plan maybe amended prior to the
Effective Date to accelerate vesting for plan participants provided (1) such
acceleration does not violate any law or regulation or (2) there are no
additional costs to First Virginia or James River other than de minimus
administrative expenses.
(c) With respect to First Virginia's Nonqualified Employee Profit
Sharing Plan, all eligible employees of James River and its Subsidiaries as
of the Effective Date of the Merger shall be eligible to participate in that
plan and to participate in the benefits for the plan year in which the Merger
is completed (which participation in the year of Merger will be pro-rated
based on the period of time during that year that employees of James River
and its Subsidiaries are covered by that plan).
(d) Any sick or vacation leave that has been accrued by any
employee of James River or its subsidiaries as of the Effective Date shall
not be disturbed but must be used in full by December 31, 2001.
(e) Existing management contracts, severance plans, deferred
compensation, split dollar insurance and supplemental income agreements of
James River and its Subsidiaries will be honored by First Virginia (a list of
which is disclosed in a letter from James River's Chief Financial Officer
dated as of the date of this Agreement) provided such plans, contracts, or
agreements have not been changed (except for one supplemental income
agreement previously disclosed to First Virginia) since the commencement of
negotiations between James River and First Virginia, and First Virginia will
make reasonable efforts to retain the officers and employees of James River
and its Subsidiaries. First Virginia shall honor the terms of the James
River severance plans for six months after the Effective Date, at which time
First Virginia may discontinue them and James River employees will be subject
to the First Virginia severance plan.
(f) For purposes of eligibility only but not for purposes of
determining the level of subsidies, service with James River and its
Subsidiaries shall be considered service for First Virginia with respect to
the First Virginia Post Retirement Medical Program. All employees of James
River and its Subsidiaries as of the Effective Date who participate in the
James River medical plan will be able to participate in the First Virginia
medical plan without limitations of pre-existing conditions.
(g) With respect to those James River employees who have Change of
Control provisions in their agreements, First Virginia will amend those
agreements so that those employees will have only one year from the date of
this Agreement to exercise their termination rights.
1.5 Merger of James River's Subsidiary Banks. Following the effective
date of the Merger, each of James River's subsidiary banks shall be merged
into a First Virginia subsidiary bank in their current geographic area.
1.6 Execution of Stock Option Agreement. Immediately after the
execution of this Agreement by the Parties and as a condition thereto, James
River is executing and delivering to First Virginia a Stock Option Agreement
under which First Virginia will have the option to purchase shares of James
River Common Stock.
1.7 Execution of Agreements with Directors. As a condition of executing
this Agreement, each director of James River will execute a Support Agreement
substantially in the form attached hereto as Exhibit C. Within sixty days of
the date of this Agreement, James River will use its best efforts to cause
each director of a James River Subsidiary Bank to execute a Support
Agreement.
1.8 Directorships and Director Compensation. Following the Effective
Date, each member of the Board of Directors of James River shall become a
member of the Board of Directors of the First Virginia subsidiary bank
serving the area where such director resides and will be eligible to continue
serving on that Board through December, 2002, at which time First Virginia
shall determine whether he should continue to serve as a director. Each
nonemployee member of the Board of Directors of James River who serves as a
director of one of First Virginia's subsidiary banks will continue receiving
director fees at the same rate per meeting plus monthly retainer that the
director received as a director of James River through the December board
meeting in 2002. Following that meeting, such director (if retained) will
then be paid the fees paid to other directors of that First Virginia
subsidiary bank. Any James River director whose age exceeds the retirement
age as of the date of this Agreement or who reaches the retirement age prior
to December 2002, will continue to be eligible to serve as director of one of
First Virginia's subsidiary bank's board until December 2002, at which time
such director will be subject to the retirement policy of that bank for
directors.
Following the Effective Date, only those directors of the James
River Subsidiary Banks who are not directors of James River and who sign the
Support Agreement described in Section 1.8 above will become Advisory Board
members for the First Virginia subsidiary bank that serves the area where
they reside. For their service as an Advisory Board member, through December
2001, nonemployee directors will be paid directors' fees at the First
Virginia Advisory Board director rate and a monthly retainer as they
currently receive as directors of one of James River's Subsidiary Banks.
Following the December, 2001 meeting, eligible James River directors who are
reelected will then receive only the fees paid to other advisory directors of
that First Virginia subsidiary bank. Those directors of James River's
Subsidiary Banks whose age exceeds the retirement age for a bank director as
of the date of this Agreement or who reach the retirement age prior to
December, 2001, will continue to be eligible to serve on the Advisory Board
(provided they have signed the Support Agreement) until December 2001, at
which time they will be subject to the retirement policy of that bank for
directors. The First Virginia subsidiary banks may discontinue the Advisory
Boards after December, 2002.
1.9 Directors and Officers Insurance Indemnification. First Virginia
shall purchase and keep in force for a period of three years after the
Effective Date directors' and officers' liability insurance providing
coverage to directors and officers of James River for acts or omissions
occurring prior to the Effective Date. Such insurance shall provide at least
the same coverage and amounts as contained in James River's policy on the
date hereof; provided, that in no event shall the annual premium on such
policy exceed 200% of the annual premium payments on James River's policy in
effect as of the date hereof (the"Maximum Amount"). If the amount of the
premiums necessary to maintain or procure such insurance coverage exceeds the
Maximum Amount, First Virginia will use its reasonable efforts to maintain
the most advantageous policies of directors' and officers' liability
insurance obtainable for a premium equal to the Maximum Amount. For a period
of three years, First Virginia(or any First Virginia Subsidiary) further
agrees to indemnify all individuals who are or have been officers or
directors of James River or any James River Subsidiary prior to the Effective
Date, to the fullest extent that such indemnification is provided pursuant to
the Articles of Incorporation and Bylaws of James River (or one of its
subsidiaries) on the date hereof and is permitted under the Virginia Stock
Corporation Act.
2.0 Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
(a) the term "disclosed in writing" by a party shall mean
information set forth in one or more written disclosure letters delivered by
that party to the other party on or prior to March 19, 2001.
(b) "material" means material to James River or First Virginia (as
the case may be) and its respective subsidiaries, taken as a whole, and
determined in light of the facts and circumstances of the matter in question;
provided, that any specific monetary amount stated in this Agreement with
respect to materiality shall determine materiality in that instance.
(c) "Material Adverse Effect," with respect to a party shall mean
an event, change or occurrence which, individually or together with any other
event, change or occurrence, (i) has or is reasonably likely to have a
material adverse effect on the financial condition, results of operations,
business or shareholders equity of a party and the Subsidiaries of such party
taken as a whole, or (ii) materially impairs the ability of a party to
perform its obligations under this Agreement or to consummate the Merger and
the other transactions contemplated by this Agreement; provided that
"Material Adverse Effect" shall not be deemed to include the impact of (a)
actions and omissions of a party taken with the prior written consent of the
other party in contemplation of the transactions contemplated hereby and (b)
the direct effects of compliance with this Agreement on the operating
performance of the parties, including expenses incurred by the parties in
consummating the transactions contemplated by this Agreement or relating to
any litigation arising as a result of the Merger; provided that with respect
to James River, only if and to the extent any such expenses payable to third
parties are disclosed by James River or incurred by James River following the
date hereof as permitted by this Agreement.
(d) "person" includes an individual, corporation, partnership,
limited liability company, association, trust or unincorporated organization.
(e) "to the knowledge of" or "to the best of the knowledge of"
James River or First Virginia or similar phrases includes the knowledge of
the current directors and the current executive officers after due inquiry
(including the knowledge of the chief executive officer and chief financial
officer after due inquiry) of James River or First Virginia, as the case may
be.
ARTICLE II.
EVENTS PRECEDING EFFECTIVENESS.
2. Events. On or before the Effective Date the following shall have
occurred:
(a) a majority of the entire Boards of Directors of First Virginia
and James River shall have approved this Agreement;
(b) the Federal Reserve shall have approved the merger of James
River into First Virginia pursuant to the Bank Holding Company Act and the
acquisition of all of James River's Subsidiaries and the time period for
Department of Justice review has expired without any intervention or
threatened action by that department having been received;
(c) the Bureau of Financial Institutions of the Virginia State
Corporation Commission shall have approved the Merger pursuant to the
provisions of the Code of Virginia;
provided, however, that no approval or consent to be obtained pursuant to
Section 2(b) or 2(c) shall have imposed any condition or requirement which
would materially impact the economic or business benefits to First Virginia
of the transactions contemplated herein so as to render inadvisable the
consummation of the Merger;
(d) a registration statement on Form S-4 containing the proxy
statement for James River shall have been filed with the Securities and
Exchange Commission (the "SEC") pertaining to the shares of First Virginia
Common Stock to be issued in connection with this Agreement and the Plan of
Merger (the "Registration Statement"), the Registration Statement shall have
become effective, and no stop order shall have been entered with regard to
such Registration Statement;
(e) this Agreement and the Plan of Merger shall have been submitted
to the stockholders of James River and approved by an affirmative vote of the
holders of more than two-thirds of all the outstanding shares of James River
entitled to vote; and
(f) Articles of Merger containing the provisions required by, and
executed in accordance with the Virginia Stock Corporation Act (the "Articles
of Merger"), shall have been filed with the Virginia State Corporation
Commission.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES.
3.1 Representations and Warranties of James River. James River
represents and warrants to First Virginia, to the best of the knowledge of
James River, the following:
(a) Organization and Authority. James River is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Virginia. Each of James River's Subsidiaries is duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated. Each has all requisite power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted, except as otherwise disclosed in writing.
James River and its Subsidiaries have delivered to First Virginia complete
and correct copies of (1) their charters and all amendments thereto to the
date hereof and (2) their Bylaws as amended to the date hereof.
(b) Capital Structure.
(1) As of the date of this Agreement, the authorized capital
stock of James River consists of 10,000,000 shares of Common Stock, $5.00 par
value per share and 2,000,000 shares of Preferred Stock, $5.00 par value per
share. As of the date hereof, 4,556,219 shares of James River Common Stock
are outstanding, all of which were validly issued, fully paid and
nonassessable and there are options outstanding to purchase 263,513 shares of
Common Stock, and there are no outstanding shares of Preferred Stock. Except
for options issued to employees and directors pursuant to stock option plans
and except for the stock option granted to First Virginia pursuant to the
Stock Option Agreement of even date hereof, no other options to purchase
James River Common Stock have been issued.
(2) Other than the options mentioned above in subparagraph
3.1(b)(1), James River has no commitments to issue or sell any such shares or
any securities or obligations convertible into or exchangeable for such
shares, or given any person the right to subscribe for or acquire any such
shares and no securities or obligations representing such rights are
outstanding.
(c) Corporate Authority. The execution of this Agreement and the
Plan of Reorganization and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by the Board of Directors of
James River. This Agreement and the Plan of Reorganization are valid and
binding obligations of James River and no further corporate authorization on
the part of James River is necessary to consummate the transactions
contemplated hereby or thereby except the approval of the stockholders of
James River pursuant to applicable law. Except as otherwise disclosed in
writing to First Virginia, to the knowledge of James River, neither the
execution and delivery of this Agreement and the Plan of Merger nor the
consummation in accordance with the terms of the transactions contemplated
hereby and thereby nor compliance by James River or any of its Subsidiaries
with any provision hereof or thereof will (i) conflict with or result in a
breach of any provision of their charters or bylaws or give rise to any right
of termination, cancellation or acceleration under any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which James River or
any of its Subsidiaries is a party or by which James River and its
Subsidiaries or any of their properties or assets may be bound (ii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable
to James River or its Subsidiaries or any of their properties or assets in
any instance in which such conflict or violation described in (i) or (ii)
would have a Material Adverse Effect. Except as otherwise disclosed in
writing to First Virginia, to the knowledge of James River, no consent is
required in connection with the execution and delivery by James River of this
Agreement or the Plan of Merger except for the consents, approvals, and
satisfaction of conditions hereinafter set forth and consummation by James
River and its Subsidiaries of the transactions contemplated hereby.
(d) Subsidiaries. James River owns all the issued and
outstanding shares of First Colonial Bank, James River Bank, James River
Bank/Colonial, State Bank and James River Support, Inc. James River Bank owns
all of the issued and outstanding shares of James River Bank Services
Corporation and Mortgage Company of James River, Inc. James River
Bank/Colonial owns all of the issued and outstanding shares of James
River/Colonial Services Corporation and East Bank Services Corporation. State
Bank owns all of the issued and outstanding shares of State Bank Services
Corporation. First Colonial Bank owns all the issued and outstanding shares
of Family Finance Corp., Family Finance of Virginia, Inc. and First Colonial
Financial Corporation. There are no other direct or indirect Subsidiaries of
James River other than those described above. The outstanding shares of
capital stock or other equity interest of the Subsidiaries are validly
issued, fully paid and nonassessable and are free and clear of all liens,
claims and encumbrances or preemptive rights of any person. All ownership
interests of five percent (5%) or more of any corporation, partnership, joint
venture, or other organization owned directly or indirectly by James River
have been disclosed in writing to First Virginia.
(e) Financial Statements. James River has delivered to First
Virginia its 1999 Annual Report to Stockholders and Form 10-K and James River
has also delivered its Quarterly Report on Form 10-Q for the period ended
September 30, 2000 which includes (1) Unaudited Consolidated Balance Sheet as
of September 30, 2000 and Audited Consolidated Balance Sheet as of December
31, 1999; (2) Unaudited Consolidated Statements of Changes in Stockholders'
Equity for the nine months ended September 30, 2000 and 1999; (3) Unaudited
Consolidated Statements of Income for the nine months ended September 30,
2000 and 1999 and (4) the Unaudited Consolidated Statements of Cash Flows for
the nine months ended September 30, 2000 and 1999 together with the Notes to
those Consolidated Statements (the "Financial Statements"). Subject to
required yearend adjustments and the absence of certain footnote information
in the unaudited statements, the Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated or as more particularly set
forth therein. The Unaudited Consolidated Balance Sheets included as a part
of the Financial Statements present fairly as of September 30,2000 the
consolidated financial position and assets and liabilities of James River.
The Unaudited Consolidated Statements of Income present fairly the
consolidated results of operations of James River for the periods indicated.
(f) Absence of Undisclosed Liabilities. Except to the extent
reflected or reserved against in the Financial Statements or as disclosed in
writing to First Virginia, neither James River nor any of its Subsidiaries as
of the date of this Agreement has any liabilities or obligations of any
nature (other than contingent liabilities that have been disclosed in writing
to First Virginia) that would have a Material Adverse Effect or any
liabilities in the nature of employment contracts with, or agreements to pay
bonuses to any of its directors, officers or employees, other than
liabilities or obligations incurred in the ordinary course of business, none
of which liabilities or obligations would have, individually or in the
aggregate, a Material Adverse Effect on James River and its Subsidiaries.
(g) No Material Adverse Changes. Since September 30, 2000, there
has been no material adverse change in the assets or liabilities or in the
business or condition (financial or otherwise) of James River or its
Subsidiaries that would have, individually or in the aggregate, a Material
Adverse Effect on James River and its Subsidiaries, which has not been
previously disclosed to First Virginia.
(h) Tax Matters. James River and its Subsidiaries have filed all
tax returns required to be filed for each of the five years ended December
31, 1999, and have paid or set up an adequate reserve for the payment of all
taxes required to be paid in respect of the periods covered by such returns
and have set up an adequate reserve for the payment of all income, property,
sales, employment, franchise or other taxes anticipated to be payable in
respect of the period subsequent to the last of said periods and for the
payment of all other taxes, except where the failure to do so would not have
a Material Adverse Effect on James River and its Subsidiaries. James River
and its Subsidiaries will not have any material liability for any such taxes
in excess of the amounts so paid or the reserve so established and James
River and its Subsidiaries are not delinquent in the payment of any material
tax assessment or governmental charge. No material deficiencies for any tax
assessment or governmental charge have been proposed, asserted or assessed
against James River and its Subsidiaries which would not be covered by
existing reserves and, as of the date of this Agreement, no requests for
waivers for the time to assess any such taxes are pending. All of the James
River's Subsidiaries have timely filed all information returns for customers
required to be filed by the IRS and to the best of its knowledge, has
complied with all IRS requirements regarding the certification of taxpayer
identification numbers of customers and backup withholding, except where
failure to do so would not have, individually or in the aggregate, a Material
Adverse Effect on James River and its Subsidiaries.
(i) Property.
(1) James River and its Subsidiaries own all operating real
properties reflected as owned by them in the Financial Statements free and
clear of all mortgages, liens, pledges, charges or encumbrances of any nature
whatsoever (collectively, "Encumbrances") that are material to the financial
condition, results of operations or business of James River and its
Subsidiaries taken as a whole, except (i) liens for current taxes not yet due
and payable, (ii) mortgages, deeds of trust or other Encumbrances reflected
in the Financial Statements, (iii) such imperfections of title, easements and
other Encumbrances as do not materially detract from or interfere with the
present use of such operating real properties subject thereto or affected
thereby, (iv) Encumbrances incurred in the ordinary course of business after
the date of this Agreement, and (v) Encumbrances disclosed in writing to
First Virginia.
(2) As of the date of this Agreement, substantially all
tangible real or personal property and assets material to the business
operation or financial condition of James River and its Subsidiaries on a
consolidated basis which are owned by them or in which any of them has an
interest (other than a security interest) are in substantially good operating
condition and repair, ordinary wear and tear excepted.
(3) All leases material to James River and its Subsidiaries on
a consolidated basis pursuant to which James River and its Subsidiaries lease
real property are valid and effective in accordance with their respective
terms, subject to bankruptcy, insolvency, reorganization, moratorium and
similar laws, and there is not to James River's knowledge, under any such
leases, any material existing default by James River and its Subsidiaries or
any event which with notice or lapse of time or both would constitute such a
material default.
(j) Litigation. Other than as has been disclosed in writing to
First Virginia, neither James River nor any of its Subsidiaries is a party to
any pending or, to the best of James River's knowledge and belief, threatened
claim, action, suit, investigation or proceeding, nor is subject to any
order, judgment or decree except for matters which in the aggregate will not
have and cannot reasonably be expected to have a Material Adverse Effect on
James River and its Subsidiaries. Except as disclosed in writing to First
Virginia, neither James River nor any of its Subsidiaries is subject to any
agreement, memorandum or understanding or similar arrangement with any
regulatory authority restricting its operations or requiring that certain
actions be taken, and, neither James River nor any of its Subsidiaries has
received any notification from any governmental or regulatory authority, or
the staff thereof, asserting that it is not in compliance with any statutes,
regulations or ordinances which such authority enforces, noncompliance with
which could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on James River and its Subsidiaries. For the
purposes of this paragraph, a threatened claim shall mean any claim which has
been actually and overtly asserted against James River or its Subsidiaries in
a written communication delivered to an officer of James River.
(k) Contracts and Commitments. Except as reflected in the
Financial Statements or as disclosed in writing to First Virginia, neither
James River nor its Subsidiaries has as of the date hereof and, except to the
extent consented to in writing by First Virginia, will not have on the
Effective Date:
(1) any bonus, stock option plans, deferred compensation
plans, severance agreements, split dollar insurance agreements,
profit-sharing, retirement arrangements or other fringe benefit plans nor any
outstanding calls, commitments or agreements of any character requiring the
issuance of shares of its capital stock;
(2) any debt obligations for borrowed money (including
guaranties or agreements to acquire such debt obligations of others) except
for debt obligations incurred or acquired in the ordinary course of its
banking business;
(3) any outstanding loans for any person other than those made
in the ordinary course of James River's banking business;
(4) any outstanding loan participations with any of its
directors, officers, stockholders or employees;
(5) any agreement for services or for the purchase or
disposition of any equipment or supplies except those incurred in the
ordinary course of business;
(6) any lease of personal property with annual rentals
aggregating $100,000 or more;
(7) any agreement or contract with any third party for the
provision of data processing or other services to James River or its
Subsidiaries which involves payment by James River or its Subsidiaries of
more than $10,000 per month and which (i) has more than six months to run
from the date of this Agreement or (ii) may not be canceled by James River or
its Subsidiaries as appropriate on 180 days notice or less without penalty;
and
(8) any outstanding loans to its officers, directors,
significant stockholders (collectively "insiders"), or to firms, partnerships
or corporations in which any insiders are partners, executive officers,
directors or significant stockholders or to any entity which would be a
"related interest" of an insider as defined in 12 C.F.R. Section 215.2(1)
made at rates of interest more favorable or involving greater risks of
collectibility than similar loans made to outsiders.
(l) Accuracy of Information Supplied. As of their respective
filing dates, James River's Annual Reports on Form 10- K for the fiscal years
ended December 31, 1999 and 1998 and proxy statement for 2000, and any other
filings made from and after the date hereof with the SEC pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (such
filings being collectively referred to herein as the "James River Filings")
complied in all material respects with the regulations of the SEC, and none
of the James River Filings, as of the respective dates thereof, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements made
therein not misleading. The information which has been or will be supplied
by James River to First Virginia for inclusion in the Registration Statement
or any amendment thereto pertaining to the transactions contemplated hereby
(the "Registration Statement") filed with the Securities and Exchange
Commission ("the "SEC") or the Prospectus contained therein (the
"Prospectus"), at the time the Registration Statement becomes effective will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein not misleading; provided, that information as of a
later date shall be deemed to modify information of an earlier date.
(m) Employee Benefit Plans. James River and its Subsidiaries have
filed with the appropriate governmental authority, as to each employee
benefit plan subject to the Employee Retirement Income Security Act of 1974
("ERISA"), a true and correct copy of (i) the most recent annual report (Form
5500, 5500-C or 5500-R, as appropriate) required to be filed with the
Internal Revenue Service ("IRS"), (ii) each IRS favorable determination
letter or opinion letter for each such Plan, as applicable, (iii) such Plan
documents, (iv) each such Plan, (v) each applicable Summary Plan Description,
and (vi) the most recent actuarial report or valuation relating to each tax-
qualified Deferred Compensation Plan that was delivered to James River or one
of its Subsidiaries by the actuary or recordkeeper for such Plan, except
where the failure to make such filings could not reasonably be expected to
have a Material Adverse Affect on the operations of James River.
(n) Defined Benefit and Defined Contribution Plans. With respect
to each defined benefit and defined contribution plan that James River and/or
its Subsidiaries have: (i) each plan substantially complies in all material
respects with all applicable provisions of ERISA; (ii) all material reporting
and disclosure requirements of ERISA imposed upon each plan have been
substantially complied with, (iii) each plan has not engaged in any material
transaction prohibited by Title I of ERISA or Section 4975 of the Internal
Revenue Code of 1986 as amended (the "Code") for which an exemption is not
applicable; (iv) the minimum funding standards in Section 302 of ERISA and
Section 412 of the Code, do not apply with respect to each plan; (v) no
material contributions to each plan from James River are currently past due;
(vi) each plan is not subject to any partial plan terminations; (vii) each
plan does not have any material property (other than shares of James River
Common Stock) which does not have a readily ascertainable value; (viii) each
plan does not own any employer security or real property as defined in ERISA
Section 407 (other than shares of James River Common Stock); (ix) no
proceedings, investigation, filing, or other matters are pending before the
IRS, the Department of Labor, the Pension Benefit Guaranty Corporation, or
other public or quasi- public body in connection with the plan except for
such matters as may have been instituted by James River by virtue of the
Merger contemplated by this Agreement or which if adversely determined or
resolved would not have a Material Adverse Effect on James River and its
Subsidiaries; and (x) each plan is qualified in all material respects under
Section 401(a) and other applicable provisions of the Code.
(o) Environmental Matters. For purposes of this subsection, the
following term shall have the indicated meaning:
"Environmental Law" means any federal, state or
local law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent,
order, judgment, decree, injunction or agreement with
any governmental entity relating to (i) the protection,
preservation or restoration of the environment
(including, without limitation, air, water vapor,
surface water, groundwater, drinking water supply,
surface soil, subsurface soil, plant and animal life or
any other natural resource), and/or (ii) the use,
storage, recycling, treatment, generation,
transportation, processing, handling, labeling,
production, release or disposal of Hazardous
Substances. The term "Environmental Law" includes
without limitation the Comprehensive Environmental
Response, Compensation and Liability Act, as amended,
42 U.S.C. Sec. 9601, et seq; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Sec. 6901, et seq; the
Clean Air Act, as amended, 42 U.S.C. Sec. 7401, et seq;
the Federal Water Pollution Control act, as amended, 33
U.S.C. Sec. 1251, et seq; the Toxic Substances Control
Act, as amended, 15 U.S.C. Sec. 9601, et seq; the
Emergency Planning and Community Right to Know Act, 42
U.S.C. Sec. 11001, et seq; the Safe Drinking Water Act, 42
U.S.C. Sec. 300f, et seq; and all comparable state and
local laws that may impose liability or obligations
for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous
Substance. The term "Hazardous Substance" means any
toxic or hazardous wastes, pollutants or substances
defined or listed as hazardous substances pursuant to
any environmental law.
To the knowledge of James River, except as otherwise disclosed in writing
to First Virginia, neither James River, any of its Subsidiaries, nor any
properties owned or operated by James River or any of its Subsidiaries or in
which such entity has a security interest, has been or is in violation of or
liable under any Environmental Law, except for such violations or liabilities
that are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on James River and its Subsidiaries. To the
knowledge of James River, there are no actions, suits or proceedings, or
demands, claims, notices or investigations (including without limitation
notices, demand letters or requests for information from any environmental
agency) instituted, pending or threatened relating to the liability of any
properties owned or operated by James River or any of its Subsidiaries or in
which such entity has a security interest under any Environmental Law, except
for liabilities or violations that would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(p) Loan Portfolio. Except as disclosed in writing to First
Virginia, each loan outstanding on the books of James River's Subsidiaries is
in all respects what it purports to be, was made in the ordinary course of
business, was not known to be uncollectible at the time it was made, and was
made substantially in accordance with the respective Subsidiary's standard
loan policies as in effect at the time made. The records of the Subsidiaries
regarding all loans outstanding on its books are accurate in all material
respects. The reserves for possible loan losses (subject to yearend
adjustments) on the outstanding loans of the Subsidiaries and the reserves
for the real estate owned by the Subsidiaries as reflected in the Financial
Statements, have been established in accordance with generally accepted
accounting principles and with the requirements of the federal and state
banking agencies, and in the best judgment of the management of the
Subsidiaries, are adequate to absorb all known and anticipated loan losses in
the loan portfolio of the Subsidiaries, and any losses associated with other
real estate owned or held by the Subsidiaries. Except for those loans
disclosed in writing to First Virginia, no loan in excess of $100,000 has
been classified as of the date hereof by the Subsidiaries or regulatory
examiners as "Other Loans Specifically Mentioned", "Substandard", "Doubtful"
or "Loss". Except as has been disclosed in writing to First Virginia, each
loan reflected as an asset on the Financial Statements is the legal, valid
and binding obligation of the obligor and any guarantor, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws, and no
defense, offset or counterclaim has been asserted with respect to any such
loan.
(q) Compliance with Laws. Except as disclosed in writing to First
Virginia, to the knowledge of James River, neither James River nor any of its
Subsidiaries (i) is in violation of any law, order or permit applicable to
its business, except for violations which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect or (ii) has
received any notification or communication from any agency or federal, state
or local government or any regulatory authority or the staff thereof (a)
asserting that either James River or its Subsidiaries is not in compliance
with any law or order which such governmental authority or regulatory
authority enforces, which noncompliance could reasonably be expected to have
a Material Adverse Effect; or (b) threatening to revoke any material permits,
or (c) requiring either James River or its Subsidiaries (1) to enter into or
consent to the issuance of a cease and desist order, formal agreement,
directive, commitment or memorandum of understanding or (2) to adopt any
Board resolution or similar undertaking which restricts materially the
conduct of its business, or in any manner relates to its capital adequacy,
its management, or the payment of dividends.
(r) Insurance. James River and its Subsidiaries are presently
insured, and since December 31, 1999 have been insured, for reasonable
amounts with financially sound and reputable insurance companies, against
such risks as companies engaged in a similar business would, in accordance
with good business practice, customarily be insured. All of the insurance
policies and bonds maintained by James River and its Subsidiaries are in full
force and effect, James River and its Subsidiaries are not in material
default thereunder, and all material claims thereunder have been filed in due
and timely fashion, except where the failure to make any such claim or to
have such insurance or bond coverage would not have, individually or in the
aggregate, a Material Adverse Effect on James River and its Subsidiaries.
James River and its Subsidiaries have no knowledge of any material inaccuracy
in any application for such policies or binders, any failure to pay premiums
when due or any similar state of facts that might form the basis for
termination of any such insurance. James River and its Subsidiaries have no
knowledge of any state of facts or of the occurrence of any event that is
reasonably likely to form the basis for any claim against it not fully
covered (except to the extent of any applicable deductible) by the policies
or binders referred to above except claims that would not have a Material
Adverse Effect.
(s) Charter Provisions. James River has taken all action so that
the entering into this Agreement and the consummation of the Merger and the
other transactions contemplated by this Agreement will be exempt from any
change in control or anti-takeover provisions of the Charter, Bylaws, or
other governing instruments of James River or any of its Subsidiaries and
will not restrict or impair the ability of First Virginia to vote, or
otherwise to exercise the rights of a stockholder with respect to, shares of
any of James River's Subsidiaries that may be acquired or controlled by First
Virginia.
(t) Investment Advisers. James River has retained no other
investment adviser or investment banker or broker in connection with the
Merger except for Keefe, Bruyette & Woods, Inc.
(u) Minute Books. The minute books of James River and each of its
Subsidiaries contain or will contain on the Effective Date accurate records
of all meetings and other corporate actions of its shareholders and Board of
Directors (including committees of its Board of Directors)
(v) Repurchase Agreements; Derivatives. With respect to all
agreements currently outstanding pursuant to which James River or any James
River Subsidiary has purchased securities subject to an agreement to resell,
James River or the James River Subsidiary has a valid, perfected first lien
or security interest in the securities or collateral securing such agreement,
and the value of such collateral equals or exceeds the amount of the debt
secured thereby. With respect to all agreements currently outstanding
pursuant to which James River or any James River Subsidiary has sold
securities subject to an agreement to repurchase, neither James River nor any
James River Subsidiary has pledged collateral materially in excess of the
amount of the debt secured thereby. Neither James River nor any James River
Subsidiary has pledged collateral materially in excess of the amount required
under any interest rate swap or other similar agreement currently
outstanding.
Neither James River nor any James River Subsidiary is party to or
has agreed to enter into an exchange-traded or over the counter swap,
forward, future, option, cap, floor, or collar financial contract, or any
other interest rate or foreign currency protection contract not included on
its balance sheets in the Financial Statements, which is a financial
derivative contract (including various combinations thereof), except for
options and forwards entered into in the ordinary course of its mortgage
lending business consistent with past practice and current policy.
3.2 Representations and Warranties of First Virginia. First Virginia
represents and warrants to James River, to the best of the knowledge of First
Virginia, as follows:
(a) Organization, Standing and Power. First Virginia is a
corporation duly organized, validly existing and in good standing under the
laws of the Commonwealth of Virginia, has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted, and is duly registered as a bank holding
company under the Bank Holding Company Act. Each of the subsidiary
corporations of First Virginia (and the subsidiaries thereof) are duly
organized, validly existing and in good standing in their respective state of
incorporation and which have all requisite corporate power and authority to
carry on their business as now being conducted and to own and operate their
assets, properties and business (the "First Virginia Subsidiaries"). Each
First Virginia Subsidiary that is a depository institution is an "insured
bank" as defined in the Federal Deposit Insurance Act and applicable
regulations thereunder, is a member of the Federal Reserve and, except as
disclosed in writing, is in compliance in all material respects with all
rules and regulations promulgated by the Federal Reserve, the SCC and any
other relevant regulatory authority except where noncompliance would not have
a Material Adverse Effect. All of the shares of capital stock of the First
Virginia Subsidiaries held by First Virginia are duly and validly issued,
fully paid and nonassessable, and all such shares are owned by First Virginia
or a First Virginia Subsidiary, free and clear of any claim, lien, pledge or
encumbrance of any kind, and were not issued in violation of the preemptive
rights of any shareholder or in violation of any agreement or of any
registration or qualification provisions of federal or state securities laws.
(b) Capital Structure. As of September 30, 2000, and as shown by
the 2000 Third Quarter Report to Stockholders, the authorized capital stock
of First Virginia consisted of 175,000,000 shares of Common Stock, par value
$1.00 per share, of which approximately 46,141,000 shares were issued and
outstanding as of such date and 3,000,000 shares of Preferred Stock, par
value $10.00 per share, of which 45,175 shares were issued and outstanding at
such date. As of September 30, 2000, 3,113,899 shares of Common Stock were
reserved: 99,224 for the conversion of Preferred Stock and 3,014,675 for
stock options. As of the date hereof and as of the Effective Date, all
outstanding shares of capital stock of First Virginia have been validly
issued and are fully paid and nonassessable.
(c) Authority. The execution and delivery of this Agreement and
the Plan of Merger and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors of
First Virginia, no approval of the stockholders of First Virginia is required
to consummate the transaction herein and therein, and this Agreement and the
Plan of Merger are valid and binding obligations of First Virginia. Neither
the execution and delivery of this Agreement and the Plan nor the
consummation of the transactions contemplated hereby or thereby, nor
compliance by First Virginia with any of the provisions hereof or thereof
will (i) conflict with or result in a breach of any provision of First
Virginia's Articles of Incorporation or Bylaws, or a default or give rise to
any right of termination, cancellation or acceleration under any of the
terms, conditions or provisions of any material note, bond, mortgage,
indenture, license, agreement or other instrument, or violation to which
First Virginia is a party or by which it or any of its properties or assets
may be bound in any instance in which such right of termination, cancellation
or acceleration if exercised would have a Material Adverse Effect, or (ii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to First Virginia or any of its properties or assets in any
instance in which such violation would have a Material Adverse Effect.
Except for consents the lack of which would not have a Material Adverse
Effect, no consent or approval by any governmental authority is required for
the execution and delivery by First Virginia of this Agreement and the Plan
of Merger except for the approval of all the applicable regulatory agencies
and meeting of conditions hereinafter set forth, the consummation by First
Virginia of the transactions contemplated hereby and thereby.
(d) Financial Statements. The consolidated financial statements
of First Virginia contained in First Virginia's 2000 Third Quarter Report to
Stockholders and heretofore delivered by it to James River have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated, all as more particularly
set forth in the notes to such financial statements. Each of the balance
sheets contained in such statements presents fairly as of its date the
consolidated financial condition and assets and liabilities of First
Virginia. The income statements, statements of stockholders' equity and
statements of cash flows contained in such statements present fairly the
consolidated results of operations of First Virginia for the periods
indicated.
(e) No Material Adverse Change. Since the date of the financial
statements described in Section 3.2(d) above, there has been no material
adverse change in the assets or liabilities or in the business or condition
(financial or otherwise), results of operations or prospects of First
Virginia that would have, individually or in the aggregate, a Material
Adverse Effect on First Virginia and its Subsidiaries.
(f) Accuracy of Information Supplied. As of their respective
filing dates, First Virginia's Annual Reports on Form 10-K for the fiscal
years ended December 31, 1999 and 1998 and proxy statement dated March 8,
2000, and any other filings made from and after the date hereof with the SEC
pursuant to the Exchange Act (such filings being collectively referred to
herein as the "First Virginia Filings") complied in all material respects
with the regulations of the SEC, and none of the First Virginia Filings, as
of the respective dates thereof, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements made therein not misleading. The
information which has been or will be supplied by First Virginia for
inclusion in the proxy statement to be distributed to the stockholders of
James River (the "Proxy Statement") in respect of the Merger or any amendment
or supplement thereto will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein not misleading;
provided, that information of a later date shall be deemed to modify
information of an earlier date.
(g) First Virginia Common Stock to be Issued. Each share of First
Virginia Common Stock issued in connection with the consummation of the
Merger to stockholders of James River will be validly issued, fully paid and
nonassessable.
(h) Litigation. Except as reflected in the First Virginia Filings,
there are no actions, proceedings or investigations pending or, to the best
of First Virginia's knowledge and belief, threatened against First Virginia
or any First Virginia subsidiary which, if adversely determined, would have a
Material Adverse Effect on the financial conditions or operations of First
Virginia and its subsidiaries. Neither First Virginia nor any of its bank
subsidiaries is subject to any agreement, memorandum of understanding or
similar arrangement with any regulatory authority restricting its operations
or requiring that certain actions be taken, and, neither First Virginia nor
any of its bank subsidiaries has received any notification from any
governmental or regulatory authority, or the staff thereof, asserting that
it is not in compliance with any statutes, regulations or ordinances
which such authority enforces, noncompliance with which could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on First Virginia and its Subsidiaries.
ARTICLE IV.
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE DATE.
4.1 Conduct of the Business of James River and its Subsidiaries Prior to
the Effective Date. During the period from the date of this Agreement to the
Effective Date, James River and its Subsidiaries shall conduct their
operations according to the ordinary and usual course of business consistent
with current practices and use their best efforts to maintain and preserve
their business organizations, employees and advantageous business
relationships and retain the services of their executive officers. First
Virginia and James River shall agree with each other as to the form and
substance of any press release with respect to the Agreement or the
transactions contemplated hereby and thereby, and shall consult with each
other as to the form and substance of other public disclosures related
thereto; provided, that nothing contained herein shall prohibit either party,
following notification to the other party, from making any disclosure which
in the opinion of its counsel is required by law.
4.2 Forbearances.
During the period from the date of this Agreement to the
Effective Date, neither James River nor its Subsidiaries shall without the
prior written consent of First Virginia:
(i) make any changes to their Charters or Bylaws;
(ii) adjust, split, combine or reclassify its Common Stock;
make, declare or pay any dividend (except that James River may declare or pay
its normal dividend at a quarterly rate of $ .14 per share on its regular
quarterly payment dates, provided that James River coordinates its dividend
record and payment dates with First Virginia so that no James River
shareholder receives a dividend both from First Virginia and James River for
the same period) or make any other distribution on, or directly or indirectly
redeem, purchase or otherwise acquire, any shares of their capital stock or
any securities or obligations convertible into or exchangeable for any shares
of their capital stock, or issue (except upon the exercise of a James River
option or First Virginia's option), sell, pledge, encumber or authorize the
issuance of any additional shares of James River stock, or grant any stock
options or stock appreciation rights or give any person any right or warrant
to acquire any shares of their capital stock except for the stock option
granted to First Virginia pursuant to the Stock Option Agreement of even date
hereof;
(iii) enter any contract or commitment or incur or agree to
incur any liability or make any capital expenditures except in the normal
course of business;
(iv) except as provided in Paragraph 1.4 and as disclosed in
writing, increase in any manner the compensation or fringe benefits of any of
their directors, officers, agents or employees or pay any pension or
retirement allowance not required by any existing plan or agreement to any
such directors, officers, agents or employees or become a party to, amend or
commit itself to any pension, retirement, profit sharing, welfare benefit
plan or agreement or employment agreement with or for the benefit of any
employee or officer or other person other than payments consistent with past
practices and current incentive compensation plans (including the application
of the James River's 2000 Cash Bonus Program and 401(k) Profit Sharing
Program award percentage and target amounts (target amounts shall be reduced
for the effects of changes as a result of Section 4.13 and identifiable
merger costs) on a pro rata basis for 2001 until the Effective Date, which
shall be paid on or before the Effective Date), increases which are not
material and other increases consented to by First Virginia in writing;
(v) sell, assign, lease (or agree to sell, lease or assign) or
otherwise transfer or dispose of any asset, property or equipment except in
the normal course of business;
(vi) merge or consolidate or agree to merge or consolidate with
or into any other corporation, or acquire directly or indirectly, control
over any corporation; or
(vii) change its lending, investment or asset liability
management policies in any material respect, except as may be required by
applicable law, regulation or directives or with the consent of First
Virginia.
4.3 No Solicitation. Unless and until this Agreement shall have been
terminated pursuant to its terms, from and after the date hereof neither
James River nor its Subsidiaries nor any of their executive officers,
directors, or agents shall, directly or indirectly, encourage, solicit or
initiate discussions or negotiations with any person (other than First
Virginia) concerning any merger, sale of substantial assets, tender offer,
sale of shares of stock or similar transaction involving James River or its
Subsidiaries (an "Acquisition Proposal") or disclose, directly or indirectly,
to any person in connection with an Acquisition Proposal any information not
customarily disclosed to the public concerning James River or its
Subsidiaries, afford to any other person access to the properties, books or
records of James River or its Subsidiaries in connection with an Acquisition
Proposal or otherwise assist any person preparing to make or who has made
such an Acquisition Proposal, or enter into any agreement with any third
party providing for a business combination transaction, equity investment or
sale of significant amount of assets, except in a situation in which a
majority of the full Board of Directors of James River has determined in good
faith, upon advice of counsel, that such Board has a fiduciary duty to
consider and respond to a bona fide Acquisition Proposal by a third party
(which Acquisition Proposal was not directly or indirectly solicited by James
River or its Subsidiaries or any of their respective officers, directors,
representatives, agents or affiliates after the date of this Agreement) and
provides written notice of its intention to consider such Acquisition
Proposal and the material terms thereof to First Virginia at least five days
before responding to the Acquisition Proposal provided, however, that if such
Acquisition Proposal by its terms requires a response in a shorter period,
James River shall provide such notice within one business day after it
receives the Acquisition Proposal and may thereafter respond in an
appropriate fashion. James River and its Subsidiaries will promptly
communicate to First Virginia the identity of the offeror and the terms of
any Acquisition Proposal which it may receive in respect to any of the
foregoing transactions.
4.4 Compliance with Tax-Free Provisions. Neither James River nor First
Virginia shall take any action prior to or after the Effective Date of the
Merger which would disqualify the Merger as a tax free reorganization under
Section 368(a) of the Internal Revenue Code of 1986 as amended.
4.5 Access and Information. James River and its Subsidiaries will
permit First Virginia to complete its audit of James River's books and
records within 25 days of the date of this Agreement and First Virginia will
advise James River of the results of the audit within 25 days of the date of
this Agreement. Such audit shall include an examination of loan files,
accounts receivable and accounts payable, liabilities, deposits, tax returns,
agreements, personnel files and plans, minute books, compliance records,
schedule of assets owned, investment portfolio and all other items deemed
necessary by First Virginia. James River and First Virginia will give to the
officers, accountants, counsel and authorized representatives of the other
Party access to its properties, books and records and those of its
Subsidiaries and will furnish the other Party with such additional financial
and operating data and other information as to its business and properties
and those of its Subsidiaries as the other Party may from time to time
request. James River and its Subsidiaries and their officers and directors
will cooperate with First Virginia and its representatives and counsel in the
preparation of any documents or other materials which may be required in
connection with the applications to the Federal Reserve Bank of Richmond and
the Virginia State Corporation Commission and First Virginia's registration
statement on Form S-4 as filed with the SEC or in connection with any other
documents or materials required by any governmental agency, stock exchange or
association of securities dealers. First Virginia will cooperate with and
furnish such information to, and cause its directors and officers and those
of its subsidiaries to cooperate with and furnish such information to, James
River as it may request in connection with the preparation of the proxy
statement for the special meeting of the stockholders of James River to
consider the Merger. First Virginia shall return the results of its audit
review to James River's Board of Directors if First Virginia terminates this
Agreement pursuant to Paragraph 9.2(g).
4.6 Confidentiality. First Virginia and James River shall cause its
advisers and agents to maintain the confidentiality of all confidential
information furnished to it by the other party concerning its and its
subsidiaries' businesses, operations, and financial positions and shall not
use such information for any purpose except in furtherance of the
transactions contemplated by this Agreement. If this Agreement is terminated
prior to the Effective Date of the Merger, each party shall promptly return
all documents and copies thereof, and all work papers containing confidential
information received from the other party. In the event that either James
River or First Virginia should violate any of the terms of this paragraph,
such party agrees that the party who is not in violation would have an
inadequate remedy at law for such violation and may, therefore, seek an
injunction without the necessity of bond, to prevent or halt any violation
hereof and such party agrees not to raise any defense that the party who is
not in violation of this paragraph has an adequate remedy at law. James
River and First Virginia further acknowledge and agree that in the event of a
violation of the terms and conditions of this paragraph that the party who is
not in violation shall have any and all remedies available at law or equity
and shall not be limited to the remedy of injunctive relief.
4.7 Consents. From the date of this Agreement to the Effective Date,
James River will use all reasonable efforts to obtain the written consents or
approvals of all private third parties whose consent or approval is required
with regard to the transactions contemplated by this Agreement, under the
terms of any lease, mortgage, indenture or other agreement to which James
River or any of its Subsidiaries is a party or by which any of their assets
is bound.
4.8 Meeting of James River Stockholders. James River will duly call and
will convene a meeting of its stockholders on a date anticipated to be after
the date all regulatory approval will have been received, to act upon the
transactions contemplated hereby as soon as practicable, will recommend
approval of this Agreement to its stockholders, and will use its best efforts
to obtain a favorable vote thereon. The calling and holding of such meetings
and all transactions, documents and information related thereto will be in
compliance with all applicable laws. The proxy statement for the
stockholders' meeting of James River will be contained in the Registration
Statement.
4.9 Affiliates of James River. James River will promptly (a) furnish
to First Virginia and its counsel such information as may be necessary to
determine those persons who may be deemed to be affiliates of James River
within the meaning of Rule 144 and Rule 145 under the Securities Act of 1933
and (b) use their best efforts to obtain from any person who may be deemed to
be such an affiliate such undertakings and agreements substantially in the
form of Exhibit B, attached.
4.10 Insurance Applications. James River and its Subsidiaries agree to
complete and deliver to First Virginia within 30 days from the date of this
Agreement the insurance applications necessary to include insurance coverage
for James River and the Subsidiaries' property, casualty and fidelity risks
under First Virginia's applicable insurance policies and include liability
coverage for James River and the Subsidiaries' directors and officers under
First Virginia's directors and officers liability insurance policy.
4.11 Applications to the Virginia State Corporation Commission. James
River and its Subsidiaries, jointly with First Virginia, will prepare and
file with the Virginia State Corporation Commission applications requesting
approval for First Virginia to acquire both James River and its Subsidiaries
pursuant to the provisions of Virginia law and will use their best efforts to
secure favorable action by the State Corporation Commission on such
applications.
4.12 Federal Reserve Applications. James River and its Subsidiaries,
jointly with First Virginia, will prepare and file with the Federal Reserve,
applications requesting approval for the Merger and will use its best efforts
to secure favorable action by the Federal Reserve on such applications.
4.13 Changes Requested by First Virginia. At the request of First
Virginia, on the last business day prior to the Effective Date of the Merger
James River shall, and James River shall cause each of its Subsidiaries to,
establish such additional accruals, reserves and charge-offs, through
appropriate entries in its accounting books and records, as may be necessary
to conform the accounting and credit loss reserve practices and methods of
James River and its Subsidiaries to those of First Virginia (as such
practices and methods are to be applied from and after the Effective Date of
the Merger) and to First Virginia's plans with respect to the conduct of the
business of James River and the Banks following the Effective Date of the
Merger. Any such accruals, reserves and charge-offs shall not be deemed to
cause any representation and warranty of James River to not be true and
accurate as of the Effective Date of the Merger.
ARTICLE V.
COVENANTS OF FIRST VIRGINIA.
5.1 Issuance of Stock and Payment of Cash. First Virginia will issue
and deliver or cause to be delivered the shares of First Virginia Common
Stock and cash as called for by Paragraph 1.1 of this Agreement.
5.2 Stock Adjustments. Nothing in this Agreement shall limit the right
of First Virginia to issue or agree to issue any of its stock or other
securities in any manner and for any consideration permitted by law prior to
or after the Effective Date; provided, however, that if First Virginia takes
any action which establishes prior to the Effective Date a record date or an
effective date for a stock dividend on its common stock, a split- up, any
combination of its common stock, or any distribution on shares of its common
stock other than cash dividends, First Virginia will take all such action as
shall be necessary in order that the James River Common Stock will be
converted in the Merger into additional shares of First Virginia Common Stock
which would have been delivered to the holders of James River Common Stock if
the Merger had been made effective immediately before such record or
effective date; provided, however, that there shall be no adjustment of First
Virginia Common Stock by reason of First Virginia issuing or agreeing to
issue, on such terms as it may determine, First Virginia Common Stock for
cash or property, in exchange for shares of stock of any other corporation or
on account of mergers or consolidations before, after or simultaneously with
the consummation of the Merger.
5.3 Preparation of Registration Statement. First Virginia, jointly with
James River, will prepare the Registration Statement and any amendments
thereto, file the Registration Statement with the SEC, use its best efforts
to secure its effectiveness and promptly after the effective date of the
Registration Statement, mail and deliver copies of the proxy statement
contained therein to the James River stockholders for use by its management
to solicit proxies for use at its stockholders' meetings.
5.4 Application to the Virginia State Corporation Commission. First
Virginia, jointly with James River, will prepare and file with the Virginia
State Corporation Commission an application requesting approval for First
Virginia to acquire James River and its Subsidiaries and will use its best
efforts to secure favorable action by the Virginia State Corporation
Commission on such application.
5.5 Federal Reserve Applications. First Virginia will prepare and file
with the Federal Reserve, applications requesting approval for the Merger and
will use its best efforts to secure favorable action by the Federal Reserve
on such applications.
ARTICLE VI.
CONDITIONS PRECEDENT TO FIRST VIRGINIA'S OBLIGATIONS HEREUNDER.
Unless waived in writing by First Virginia in its sole discretion, all
obligations of First Virginia hereunder to effect the Merger shall be subject
to the fulfillment prior to or at the Effective Date of the following
conditions:
6.1 Representations, Warranties. The representations and warranties of
James River herein contained shall be true in all material respects as of the
Effective Date, shall be deemed made again at and as of the Effective Date
and shall be true in all material respects as if so made again; James River
shall have performed all of the obligations and complied with all of the
covenants required by this Agreement to be performed or complied with by it
on or prior to the Effective Date in all material respects and First Virginia
shall receive from James River officers' certificates in such detail as First
Virginia may reasonably request dated the day of the Effective Date and
signed by the president, cashier or secretary to the foregoing effect.
6.2 No Adverse Changes. There shall not have been any material adverse
changes in the financial position, results of operations, assets, liabilities
or business of James River and its Subsidiaries, taken as a whole, from
September 30, 2000, the date of the Financial Statements referred to in
Paragraph 3.1(e) above, to the Effective Date, which changes, individually or
in the aggregate, have or constitute a Material Adverse Effect on James River
and its Subsidiaries.
6.3 Audit of James River and its Subsidiaries. The audit of James River
and its Subsidiaries conducted pursuant to Paragraph 4.5 shall reflect
stockholders' equity of James River and its Subsidiaries on a consolidated
basis of not less than $51.32 million. For purposes of the audit and this
Agreement, consolidated stockholders' equity shall be determined in
accordance with generally accepted accounting principles applied on a
consistent basis with James River's prior financial statements. Deductions
shall be made for any reserve required to reflect assets at their fair values
and to provide for any liabilities that should be reflected as of the date of
the audit.
However, no deductions will be made for intangible assets, such as goodwill,
to reflect fair values and no revaluations will be made to James River's real
estate (other than OREO real estate). Furthermore, there will be no change
in value of any asset due to the level of interest rates. For purposes of
valuing the loans at fair value, First Virginia shall give credit for any
loan loss reserve in excess of 1.10% reserve on the books of James River as
of September 30, 2000.
6.4 Legal Opinion. First Virginia shall have received a written opinion
from outside counsel to James River, in form reasonably satisfactory to First
Virginia, which shall cover matters customary in transactions of this nature.
6.5 Events Preceding the Effective Date. Each of the events set forth
in Paragraphs 2(a)-2(f) shall have occurred.
6.6. No Adverse Proceedings. No action or proceeding against First
Virginia, James River or its Subsidiaries or the consummation of the
transactions contemplated by this Agreement shall have been instituted or
threatened or any investigations or inquiries undertaken that might eventuate
in any such action or proceeding.
ARTICLE VII.
CONDITIONS PRECEDENT TO JAMES RIVER'S OBLIGATIONS HEREUNDER.
Unless waived in writing by James River in its sole discretion, all
obligations of James River hereunder to effect the Merger shall be subject to
the fulfillment prior to or at the Effective Date of the following
conditions:
7.1 Representations, Warranties and Covenants. The representations and
warranties of First Virginia herein contained shall be true in all material
respects as of the Effective Date, shall be deemed made again at and as of
the Effective Date and shall be true in all material respects as if so made
again. First Virginia shall have performed all obligations and complied with
all covenants required by this Agreement to be performed or complied with by
it on or prior to the Effective Date in all material respects and James River
shall have received from First Virginia an officer's certificate in such
detail as James River may reasonably request dated the Effective Date and
signed by its president, cashier or secretary to the foregoing effect.
7.2 Events Preceding the Effective Date. Each of the events set forth
in Paragraphs 2(a)-2(f) shall have occurred.
7.3 No Adverse Proceedings or Events. No action or proceeding against
James River or its Subsidiaries or First Virginia or the consummation of the
transactions contemplated by this Agreement shall have been instituted or
threatened or any investigations or inquiries undertaken that might eventuate
in any such action or proceeding.
7.4 No Adverse Changes. There shall not have been any material adverse
change in the financial position, results of operations, assets, liabilities
or business of First Virginia and its Subsidiaries taken as a whole from
September 30, 2000 to the Effective Date, which changes, individually or in
the aggregate, have or constitute a Material Adverse Effect; provided,
however, that a merger or acquisition or the announcement of a merger or
acquisition involving First Virginia or a subsidiary of First Virginia and
requiring the issuance of First Virginia Common or Preferred Stock or cash
will not be considered for purposes of this section as an "adverse change" in
the financial position, results of operations, assets, liabilities or
business of First Virginia.
7.5. Legal Opinion. James River shall have received a written opinion,
dated as of the Effective Date, of in-house counsel to First Virginia, in
form reasonably satisfactory to James River, which shall cover matters
customary in transactions of this nature; and furthermore, that James River
shall have received a written tax opinion from outside counsel acceptable to
James River opining to the matters referred to Section 8.1 herein.
7.6 Fairness Opinion. James River shall have received an opinion from
Keefe, Bruyette & Woods, Inc. dated as of the date the James River Board
approved this Agreement, that the Merger is fair to such stockholders from a
financial point of view; provided, however, that whether or not the opinion
concludes that the Merger transaction is fair shall not be considered a
condition precedent to Closing by James River.
ARTICLE VIII.
TAX OPINION AND RESTRICTIONS CONCERNING THE RESALE OF FIRST
VIRGINIA COMMON STOCK BY AFFILIATES OF JAMES RIVER
8.1 Tax Opinion. First Virginia and James River agree to jointly obtain
a tax opinion (the "Tax Opinion") which opinion may be relied on by James
River and its stockholders to the effect that:
(a) the Merger will constitute a reorganization within the meaning
of Code Section 368(a)(1)(A) and James River and First Virginia will each be
"a party to a reorganization" within the meaning of Code Section 368(b);
(b) no gain or loss will be recognized by James River or First
Virginia upon the transfer of James River's assets to First Virginia pursuant
to the Merger and the assumption by First Virginia of the liabilities of
James River pursuant to the Merger;
(c) the gain, if any, realized by a holder of shares of James River
Common Stock upon receipt of shares of First Virginia Common Stock and/or
cash in exchange for shares of James River Common Stock pursuant to the
Merger will be recognized but not in excess of the amount of cash received;
and no loss will be recognized by those James River stockholders who exchange
their shares of James River Common Stock for shares of First Virginia Common
Stock pursuant to the Merger; and
(d) the basis of First Virginia Common Stock to be received by
James River stockholders will be the same as the basis of James River Common
Stock surrendered in exchange therefor and the holding period of the First
Virginia Common Stock to be received by James River stockholders will include
the period during which James River Common Stock surrendered in exchange
therefor was held, provided the James River Common Stock was held as a
capital asset by such James River stockholder at the Effective Date.
8.2 Restrictions on Affiliates. Each of the executive officers and
directors of James River shall, prior to or on the Effective Date, execute
and deliver to First Virginia a written representation substantially in the
form of Exhibit B of this Agreement to the effect that no disposition will be
made by that person of any shares of First Virginia Common Stock received
after the Effective Date except within the limits and in accordance with the
applicable provisions of Paragraph C, E, F, and G of Rule 144 under the
Securities Act of 1933.
ARTICLE IX.
TERMINATION, AMENDMENT AND SURVIVAL OF REPRESENTATIONS.
9.1 Amendment. This Agreement and the Plan of Merger attached hereto
may be amended at any time prior to the Effective Date; provided that any
such amendment is in writing and is approved by the Board of Directors of
each of the parties hereto and provided, further, that subsequent to the
meeting in which this Agreement is approved by stockholders of James River,
no amendment shall be made in the exchange rate which decreases the
consideration to James River's stockholders without the approval of
stockholders holding more than two-thirds of all issued and outstanding
shares of James River Common Stock.
9.2 Termination. Notwithstanding any other provision to the contrary of
this Agreement, and notwithstanding the approval of this Agreement by the
stockholders of James River, this Agreement and the Plan of Merger may be
terminated and the Merger abandoned (without any obligation by First Virginia
or James River to renegotiate the Agreement) at any time prior to the
Effective Date:
(a) By mutual consent of the Board of Directors of First Virginia
and the Board of Directors of James River; or
(b) By the Board of Directors of either James River or First
Virginia (provided that the terminating Party is not then in material breach
of any material representation, warranty, covenant, or other agreement
contained in this Agreement) in the event of a material breach by the other
Party of any material representation or warranty contained in this Agreement
which cannot be or has not been cured within thirty (30) days after the
giving of written notice to the breaching Party of such breach; or
(c) By the Board of Directors of either First Virginia or James
River (provided that the terminating Party is not then in material breach of
any material representation, warranty, covenant or other agreement contained
in this Agreement) in the event of a material breach by the other Party of
any material covenant or agreement contained in this Agreement which cannot
be or has not been cured within thirty (30) days after the giving of written
notice to the breaching Party of such breach; or
(d) By the Board of Directors of either First Virginia or James
River (provided that the terminating Party is not then in material breach of
any material representation, warranty, covenant or other agreement contained
in the Agreement) if (i) the Federal Reserve Board or the Virginia State
Corporation Commission deny approval of the Merger and the time period for
all appeals or requests for reconsideration has run or (ii) the shareholders
of James River fail to vote their approval of the Agreement and the Merger;
or
(e) By the Board of Directors of either James River or First
Virginia in the event the Merger should not become effective within nine
months of the date of this Agreement, in each case only if the failure to
consummate the Merger is not caused by any breach of the Agreement by the
Party electing to terminate; or
(f) By the Board of Directors of either James River or First
Virginia (provided that the terminating Party is not then in material breach
of any material representation, warranty, covenant or other agreement
contained in this Agreement) in the event that any of the conditions
precedent to the obligations of such Party to consummate the Merger cannot be
satisfied or fulfilled within nine months of the date of this Agreement; or
(g) By the Board of Directors of First Virginia, at any time up to
(and including)the 25th day after execution of this Agreement in the event
that First Virginia determines, after its audit of James River and its
Subsidiaries referred to in Paragraph 4.5, that the financial conditions of
James River and its Subsidiaries, taken as a whole as of the date of
completion of the audit, do not meet the standards described in Paragraph
6.3.
In the event of the termination of this Agreement and the Plan of Merger
and the abandonment of the Merger pursuant to this Paragraph 9.2, other than
the provisions of Paragraphs 4.6 and 9.4 which shall survive such
termination, this Agreement and the Plan of Merger shall become void and have
no effect, without any liability on the part of either Party or its
directors, officers or stockholders. Notwithstanding the foregoing, nothing
contained in this Paragraph 9.2 shall relieve either Party from liability for
any breach of this Agreement.
9.3 Survival of Representations and Covenants. The respective
warranties, representations, obligations and agreements of the Parties hereto
shall survive the Effective Date of the Merger.
9.4 Expenses. Whether or not the transactions herein are consummated,
First Virginia shall pay for all of its expenses and fees in connection with
this Agreement and the Merger provided for herein and James River shall pay
for all of its expenses and fees including (a) all of their legal expenses
and fees, and (b) all the expenses and fees of their advisors, including but
not limited to their investment banker, their counsel and their accountant,
in connection with the Merger.
9.5 Notices. All notices, requests, demands and other communications
under or connected with this Agreement shall be in writing and (a) if to
First Virginia shall be addressed to First Virginia Banks, Inc. 6400
Arlington Boulevard, Falls Church, Virginia 22042-2336, Attention: Barry J.
Fitzpatrick, Chairman, President and Chief Executive Officer, with copies to
its counsel, Christopher M. Cole, Vice President and Assistant General
Counsel and (b) if to James River shall be addressed to James River
Bankshares, Inc., Harold U. Blythe, President and Chief Executive Officer,
1514 Holland Road, Suffolk, Virginia 23434, with copies to its counsel, Jody
M. Wagner, Esquire, Kaufmann & Canoles, One Commercial Place, P.O. Box 3037,
Norfolk, Virginia 23514-3037.
9.6 Entire Agreement in Effect. This Agreement, including Exhibits A, B
and C is intended by the Parties to and does constitute the entire agreement
of the Parties with respect to the transactions contemplated hereunder. This
Agreement including the Plan of Merger attached hereto supersedes any and all
other prior understandings and agreements between the Parties hereto and it
may not be changed, waived, discharged or terminated orally but only in
writing by a party against which enforcement of the change, waiver, or
discharge or termination is sought.
9.7 General. The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement and the Plan of Merger
attached hereto may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, all of which shall become one and
the same instrument. This Agreement and the Plan of Merger attached hereto
shall inure to the benefit of and be binding upon the parties hereto and
their respective successors; it shall not be assigned.
9.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Virginia.
IN WITNESS WHEREOF, First Virginia and James River have caused this
Agreement to be duly executed by their respective chairmen or presidents and
their respective seals to be hereunto affixed and attested by their
respective cashiers or secretaries thereunto duly authorized as of the date
first written above.
ATTEST: FIRST VIRGINIA BANKS, INC.
/s/ Barbara J. Chapman /s/ Barry J. Fitzpatrick
- ---------------------- By:-------------------------------
Barbara J. Chapman, Barry J. Fitzpatrick, Chairman,
Vice President and President and Chief Executive
Secretary Officer
ATTEST: JAMES RIVER BANKSHARES, INC.
/s/ Donald W. Fulton, Jr. /s/ Harold U. Blythe
- ------------------------- By:-------------------------------
Donald W. Fulton, Jr. Harold U. Blythe
Senior Vice President, President and Chief Executive
Corporate Secretary and Officer
Chief Financial Officer
APPENDIX B
PLAN OF MERGER
OF
JAMES RIVER BANKSHARES, INC.
INTO
FIRST VIRGINIA BANKS, INC.
1. The Parties. James River Bankshares, Inc., a Virginia corporation
("James River") shall merge with and into First Virginia Banks, Inc. (the
"Merger"), a Virginia corporation ("First Virginia") (collectively referred
to herein as the "Constituent Corporations"). First Virginia shall be (as is
hereinafter called when reference is made to it at and after the consummation
of the Merger) the Surviving Corporation. The name of the Surviving
Corporation shall be First Virginia Banks, Inc. The Merger shall become
effective at a time specified in the Articles of Merger filed with the
Virginia State Corporation Commission (the "Effective Date").
2. Articles of Incorporation; Bylaws. At the Effective Date, the
Articles of Incorporation and Bylaws of the Surviving Corporation shall be
the Articles of Incorporation and Bylaws of First Virginia as in effect
immediately prior to the Effective Date.
3. Effect of the Merger on Capital Stock, Assets, Liabilities and
Capitalization of James River and First Virginia.
3.1 Conversion of Stock of James River. At the Effective Date,
each issued and outstanding share of James River Common Stock other than
treasury shares shall by virtue of the Merger and without any action by the
holder thereof be converted in accordance with the provisions of Section 3.2
hereof, into shares of First Virginia Common Stock which shall be validly
issued, fully paid and nonassessable, or cash. Each share of the Common
Stock of the Surviving Corporation which shall be issued and outstanding
prior to the Merger shall continue to be issued and outstanding.
3.2 Conversion Rate. At the Effective Date of the Merger:
(a) Conversion of Stock. Each share of James River Common Stock which
is issued and outstanding as of the Effective Date of the Merger (other than
shares exchanged for cash and Dissenting Shares) shall, and without any
action by the holder thereof, be converted into .51 shares of First Virginia
Common Stock, proportionately adjusted for any stock split, stock dividends
or other similar capital adjustments between the date of the Agreement and
Plan of Reorganization between the Parties hereto (the "Agreement") and the
Effective Date of the Merger by First Virginia. No fractional shares of
First Virginia Common Stock shall be issued to James River stockholders. In
lieu thereof, each James River stockholder shall receive upon surrender of
his James River Common Stock an amount in cash equal to the amount of any
fractional share he would otherwise be entitled to receive multiplied by the
average of the closing prices per share of First Virginia Common Stock as
reported in The Wall Street Journal under the heading "New York Stock
Exchange--Composite Transactions" or any comparable heading then in use, for
each of the last ten trading days ending on the Effective Date of the Merger.
(b) Holders of shares of James River Common Stock will be given the
option of exchanging their shares for $24.00 per share in cash, provided that
the number of shares that may be exchanged for cash, when added to Dissenting
Shares (as defined in Section 1.3), shall not exceed 40% of the shares of
James River Common Stock outstanding immediately prior to the Effective Date.
The cash election must be made no later than the time James River
stockholders vote on the Merger and once such vote has been taken, cash
elections shall be irrevocable. If the aggregate of (i) shares for which a
cash election is made and (ii) Dissenting Shares exceed 40% of the shares of
James River Common Stock outstanding immediately prior to the Effective Date
of the Merger, First Virginia first will pay cash for shares submitted for
cash exchange by each holder of 100 or fewer shares of James River Common
Stock (if such holder has submitted all his shares for cash exchange) and
then will pay cash for shares submitted for cash pro rata. Shares not
exchanged for cash after proration will be exchanged for First Virginia
Common Stock at the exchange ratio provided above.
Stockholders who elect to exchange some or all of their shares of James
River Common Stock for cash must elect cash at or prior to the meeting of
James River stockholders called to consider the Merger. If the Merger is
approved by James River stockholders at this meeting, a stockholder's
election to receive cash is irrevocable.
(c) After the Effective Date of the Merger, each holder of a certificate
for theretofore outstanding shares of James River Common Stock, upon
surrender of such certificate to the exchange agent designated by First
Virginia (the "Exchange Agent"), unless previously surrendered to James River
in connection with the exercise of the cash option, and a letter of
transmittal which shall be mailed to each holder of a certificate for
theretofore outstanding shares of James River Common Stock by the Exchange
Agent promptly following the Effective Date of the Merger, shall be entitled
to receive in exchange therefor a certificate or certificates representing
the number of full shares of First Virginia Common Stock for which shares of
James River Common Stock theretofore represented by the certificate or
certificates so surrendered shall have been exchanged as provided in the
Agreement and this Plan of Merger, or cash if the cash option provided above
is properly elected, or in the event of a pro rata cash payment as provided
above, a combination of cash and First Virginia Common Stock. Until so
surrendered, each outstanding certificate which, prior to the Effective Date
of the Merger, represented James River Common Stock, will be deemed evidence
of the right to receive either (i) the number of full shares of First
Virginia Common Stock into which the number of shares of James River Common
Stock formerly represented thereby may be converted in accordance with the
exchange ratio provided above, or (ii) $24.00 cash per share multiplied by
the number of shares of James River Common Stock formerly represented by such
certificate if the cash option provided above was properly elected, or (iii)
a combination thereof as provided above; and after the Effective Date of the
Merger (unless the cash option is properly elected) will be deemed for all
corporate purposes of First Virginia to evidence ownership of the number of
full shares of First Virginia Common Stock into which the shares of James
River Common Stock formerly represented thereby were converted.
With respect to shares of First Virginia Common Stock into which shares
of James River Common Stock are converted pursuant to the Merger, until such
outstanding certificates formerly representing James River Common Stock are
surrendered, no dividend payable to holders of record of First Virginia
Common Stock for any period as of any date subsequent to the Effective Date
of the Merger shall be paid to the holder of such outstanding certificates in
respect thereof. After the Effective Date of the Merger, there shall be no
further registry transfer on the records of James River of shares of James
River Common Stock. If a certificate representing such shares is presented
to First Virginia, it shall be cancelled and exchanged for a certificate
representing shares of First Virginia Common Stock as herein provided. Upon
surrender of certificates of James River Common Stock in exchange for First
Virginia Common Stock, there shall be paid to the record holder of the
certificates of First Virginia Common Stock issued in exchange therefor (i)
the amount of dividends theretofore paid with respect to such full shares of
First Virginia Common Stock as of any date subsequent to the Effective Date
of the Merger which have not been paid to a public official pursuant to
abandoned property laws and (ii) at the appropriate payment date the amount
of dividends with a record date after the Effective Date of the Merger but
prior to surrender and a payment date subsequent to surrender. No interest
shall be payable with respect to such dividends upon surrender of outstanding
certificates. Subject to the immediately preceding two sentences, whenever a
dividend or other distribution is declared by First Virginia on First
Virginia Common Stock, the record date for which is on or after the Effective
Date of the Merger, the declaration shall include dividends or other
distributions on all shares of First Virginia Common Stock issuable pursuant
to the Merger as provided above, whether or not certificates for those shares
of First Virginia Common Stock have then been issued as provided above.
Options outstanding on the Effective Date of the Merger to acquire James
River Common Stock ("James River Options") shall be converted, based on the
exchange ratio, into options to acquire First Virginia Common Stock ("First
Virginia Options"). The exercise price per share of First Virginia Common
Stock under a First Virginia Option shall be equal to the exercise price of
James River Common Stock under the James River Option divided by the exchange
ratio (rounded up to the nearest cent).
3.3 Dissenting James River Shares. Notwithstanding anything in
this Plan of Merger to the contrary, shares of James River Common Stock which
are issued and outstanding immediately prior to the Effective Date of the
Merger and which are held by a stockholder who exercised in accordance with
applicable law the right (to the extent such right is available by law) to
demand and receive payment of the fair value of his shares of James River
Common Stock pursuant to Virginia law (the "Dissenting Shares") shall be
canceled and shall not be converted into or be exchangeable for the right to
receive the consideration provided in Section 3.2 of this Plan of Merger, but
the holders thereof shall be entitled to payment of the fair market value of
such shares in accordance with Virginia law subject to the procedures and
conditions specified under Virginia law unless and until such holder shall
fail to perfect his right to dissent or shall have effectively withdrawn or
lost such right as the case may be. If such holder shall have failed to
perfect or shall have effectively withdrawn or lost such right, his shares of
James River Common Stock shall thereupon be deemed at the Effective Date of
the Merger to have been converted into the right to receive the consideration
provided in Section 3.2 of this Plan of Merger.
3.4 Assets. The Surviving Corporation shall possess all the
rights, interest, privileges, immunities, powers, franchises, concessions,
certificates of authority of a public as well as a private nature of each of
First Virginia and James River and all property, real and personal, and every
interest therein, and all debts and other obligations due on whatever
account, and all other chooses in action and all and every interest of, or
belonging to, or due to each of First Virginia and James River and the title
to all real estate or any interest therein, vested in either of James River
or First Virginia, shall not revert or be in any way impaired by reason of
the Merger.
3.5 Liabilities. The Surviving Corporation shall be liable for
liabilities of James River and all valid debts, liabilities, duties and
obligations of James River shall thenceforth attach to the Surviving
Corporation and may be enforced against it to the same extent as if said
debts, liabilities, duties and obligations had been originally incurred or
contracted by it and neither the rights of creditors nor any liens upon the
property of either James River or First Virginia shall be impaired by the
Merger.
4. Board of Directors and Officers. From and after the Effective Date,
the directors of the Surviving Corporation shall be the directors of First
Virginia immediately prior to the Effective Date and the officers of the
Surviving Corporation shall be the officers of First Virginia immediately
prior to the Effective Date.
5. Conditions. Consummation of the Merger is subject to the following
conditions:
(i) approving vote of the holders of more than two-thirds of the
outstanding shares of James River Common Stock entitled to vote; (ii) the
approval of the Merger by the Board of Directors of the Federal Reserve
System and the State Corporation Commission of Virginia; and (iii) the
satisfaction of all other conditions to the Merger as contained in the
Agreement.
6. Termination and Abandonment. This Plan of Merger may be terminated
and the Merger abandoned as provided in Paragraph 9.2 of the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Plan of Merger as
of the 3rd day of March, 2001.
ATTEST: FIRST VIRGINIA BANKS, INC.
/s/ Barbara J. Chapman /s/ Barry J. Fitzpatrick
- ----------------------- By:-----------------------------
Barbara J. Chapman Barry J. Fitzpatrick
Vice President and Secretary Chairman of the Board, President
and Chief Executive Officer
ATTEST: JAMES RIVER BANKSHARES, INC.
/s/ Donald W. Fulton, Jr. /s/ Harold U. Blythe
- ------------------------- By:-----------------------------
Donald W. Fulton, Jr. Harold U. Blythe
Senior Vice President, Secretary President and Chief
Chief Financial Officer Executive Officer
APPENDIX C
KEEFE, BRUYETTE & WOODS, INC.
SPECIALISTS IN BANKING AND FINANCIAL SERVICES
THREE JAMES CENTER
1051 EAST CARY STREET SUITE 1415
RICHMOND, VIRGINIA 23219
TELEPHONE FACSIMILE
804-643-4250 804-643-4253
March 2, 2001
The Board of Directors
James River Bankshares, Inc.
1514 Holland Road
Suffolk, Virginia 23434
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the stockholders of James River
Bankshares, Inc. ("James River") of the exchange ratio in the proposed merger
(the "Merger") of James River Bankshares, Inc. into First Virginia Banks,
Inc. ("First Virginia"), pursuant to the Agreement and Plan of Merger, dated
as of March 3, 2001, between James River and First Virginia (the
"Agreement"). Pursuant to the terms of the Agreement, each outstanding share
of common stock, par value $5.00 per share, of James River (the "Common
Shares") will be converted into 0.5100 shares of common stock, par value
$1.00 per share, of First Virginia. James River stockholders will be given
the option of exchanging their Common Shares for $24.00 per share in cash,
subject to the condition that not more than 40% of Common Shares exchange for
cash.
Keefe, Bruyette & Woods, Inc., as part of its investment banking
business, is continually engaged in the valuation of bank and bank holding
company securities in connection with acquisitions, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for various other purposes. As specialists in the securities
of banking companies, we have experience in, and knowledge of, the valuation
of the banking enterprises. In the ordinary course of our business as a
broker-dealer, we may, from time to time purchase securities from, and sell
securities to, James River and First Virginia, and as a market maker in
securities, we may from time to time have a long or short position in, and
buy or sell, debt or equity securities of James River and First Virginia for
our own account and for the accounts of our customers. We have acted
exclusively for the Board of Directors of James River in rendering this
fairness opinion and will receive a fee from James River for our services.
In connection with this opinion, we have reviewed, analyzed and relied
upon material bearing upon the financial and operating condition of James
River and First Virginia and the Merger, including among other things, the
following: (i) the Agreement; (ii) the Annual Reports to Shareholders and
Annual Reports on Form 10-K for the three years ended December 31, 1999 of
James River and First Virginia; (iii) certain interim reports to and
Quarterly Reports on Form 10-Q of James River and First Virginia and certain
other communications from James River and First Virginia to their respective
stockholders; and (iv) other financial information concerning the businesses
and operations of James River and First Virginia furnished to us by James
River and First Virginia for purposes of our analysis. We have also held
discussions with senior management of James River and First Virginia
regarding the past and current business operations, regulatory relations,
financial condition and future prospects of their respective companies and
such other matters as we have deemed relevant to our inquiry. In addition, we
have compared certain financial and stock market information for James River
and First Virginia with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the banking industry and performed
such other studies and analyses as we considered appropriate.
In conducting our review and arriving at our opinion, we have relied
upon the accuracy and completeness of all of the financial and other
information provided to us or publicly available and we have not assumed any
responsibility for independently verifying the accuracy or completeness of
any such information. We have relied upon the management of James River and
First Virginia as to the reasonableness and achievability of the financial
and operating forecasts and projections (and the assumptions and bases
therefor) provided to us, and we have assumed that such forecasts and
projections reflect the best currently available estimates and judgments of
such managements and that such forecasts and projections will be realized in
the amounts and in the time periods currently estimated by such managements.
We are not experts in the independent verification of the adequacy of
allowances for loan and lease losses and we have assumed, with your consent,
that the aggregate allowances for loan and lease losses for James River and
First Virginia are adequate to cover such losses. In rendering our opinion,
we have not made or obtained any evaluations or appraisals of the property of
James River or First Virginia, nor have we examined any individual credit
files.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including, among others, the following:
(i) the historical and current financial position and results of operations
of James River and First Virginia; (ii) the assets and liabilities of James
River and First Virginia; and (iii) the nature and terms of certain other
merger transactions involving banks and bank holding companies. We have also
taken into account our assessment of general economic, market and financial
conditions and our experience in other transactions, as well as our
experience in securities valuation and knowledge of the banking industry
generally. Our opinion is necessarily based upon conditions as they exist
and can be evaluated on the date hereof and the information made available to
us through the date hereof, and does not address the relative merits of the
Merger as compared to any alternative business strategies that might exist
for James River or any other business combination in which James River might
engage.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the exchange ratio in the Merger is fair, from a financial
point of view, to holders of the Common Shares.
Very truly yours,
/s/ Keefe, Bruyette & Woods, Inc.
Keefe, Bruyette & Woods, Inc.