| The merger cannot be completed unless, among other things, the majority of the outstanding shares of PFG common stock entitled to vote at the PFG special meeting vote in favor of the merger (which we refer to as the “effective time”), each holder of Tennessee Bancshares common stock, no par value (which we refer to as “Tennessee Bancshares common stock”), will receive 0.8065 shares of SmartFinancial common stock, par value $1.00 per share (which we refer to as “SmartFinancial common stock”), for each share of Tennessee Bancshares common stock held immediately prior to the merger (which we refer to as the “stock consideration”). Additionally, the merger agreement provides that Tennessee Bancshares will be entitled to pay, immediately prior to the closing of the merger, a one-time, special cash dividend of up to $0.70 per share (which we refer to as the “special dividend”, and together with the stock consideration, the “merger consideration”), subject to the satisfaction of certain conditions.Based on the number of shares of SmartFinancial and Tennessee Bancshares common stock outstanding as of [ ], 2018, the last practicable date before the date of this proxy statement/prospectus, we expect that current Tennessee Bancshares shareholders will hold, in the aggregate, approximately 11.50% of the outstanding shares of SmartFinancial common stock immediately following the closing of the merger.
The merger cannot be completed unless, among other things, Tennessee Bancshares shareholders approve the Tennessee Bancshares proposal to approve and adopt the merger agreement.
| Q: | Why is Tennessee Bancshares merging with SmartFinancial? |
| A: | Tennessee Bancshares is merging with SmartFinancial because the board of directors for Tennessee Bancshares believes that the merger will provide shareholders of Tennessee Bancshares with substantial benefits and will enable the combined company to better serve its customers. A detailed discussion of the background of and reasons for the proposed merger is contained under the headings “The Merger —Background of the Merger,” “The Merger —Tennessee Bancshares’ Reasons for the Merger; Recommendation of the Tennessee Bancshares Board of Directors.” |
| Q: | Why am I receiving this proxy statement/prospectus? |
| A: | Tennessee Bancshares has called a special meeting of its shareholders (whichagreement, which we refer to as the “special meeting”) to approve and adopt the merger agreement. This document serves as a proxy statement for the special meeting and describes the proposals to be presented at the special meeting. This document is also a prospectus that is being delivered to Tennessee Bancshares shareholders because SmartFinancial is offering shares of its common stock to Tennessee Bancshares shareholders in connection with the merger.proposal. |
This proxy statement/prospectus contains important information about the merger, the merger agreement, and the other proposal being voted on at the special meeting, and important information to consider in
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connection with an investment in SmartFinancial common stock. You should read it carefully and in its entirety. The enclosed materials allow you to have your shares voted by proxy without having to attend the special meeting. Your vote is important and we encourage you to submit your proxy as soon as possible.
| Q: | | On what am I being asked to vote? |
| A: | Tennessee BancsharesIn addition, PFG is soliciting proxies from its shareholders with respect to the following proposals: |
a proposal to approve one or more adjournments of the PFG special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of such adjournment to approve and adopt the merger agreement (which we refer to as the “merger proposal”); and a proposal to approve one or more adjournments or postponements of the special meeting, if necessary or appropriate, including adjournments or postponements to permit further solicitation of proxies in favor of the merger proposal (which we refer to as the “adjournment proposal”).
| Q: | How does the Tennessee Bancshares board recommend that I vote? |
| A: | The Tennessee Bancshares board of directors unanimously recommends that Tennessee Bancshares shareholders vote “FOR” approval of the merger proposal, and “FOR” approval ofwhich we refer to as the adjournment proposal. |
| Q: | | Are there any voting agreements in relation toThis proxy statement/prospectus contains important information about the merger? |
| A: | The directors of Tennessee Bancshares, who collectively beneficially ownmerger agreement, the merger and have the powerproposals being voted on at the PFG special meeting, and you should read it carefully. This is a proxy statement/prospectus because (1) PFG is soliciting proxies from the PFG shareholders and the proxy statement provides important information about the PFG special meeting to vote approximately 29.4% of Tennessee Bancshares common stock have entered into an agreement with SmartFinancial in which they have agreed, among other things, to vote their shares of Tennessee Bancshares common stock in favor ofon the merger proposal and the adjournment proposal.proposal, and (2) SmartFinancial will issue shares of SmartFinancial common stock to holders of PFG common stock in connection with the merger, and the prospectus provides important information about such shares. The enclosed materials allow PFG shareholders to authorize a proxy to vote their shares without attending the PFG special meeting. |
| Q: | | Your vote is important. We encourage you to authorize your proxy as soon as possible. | | | | Q: | What will Tennessee Bancshares shareholdersI receive in the merger? |
| | | A: | AtIf the merger is completed, each share of PFG common stock issued and outstanding immediately prior to the effective timewill be converted into the right to receive a pro rata portion (which is a ratio equal to one divided by the number of shares of PFG common stock issued and outstanding as of the merger, holdersclosing) of Tennessee Bancshares(1) an aggregate amount of cash equal to $14,595,354.37 minus the amount of certain pre-closing distributions paid by PFG and minus any loss in excess of $250,000 realized by PFG or its applicable subsidiary on sales of certain assets prior to closing, and (2) 1,292,592.556 shares of SmartFinancial common stock will receive 0.8065 shares (which westock. We refer to as the “exchange ratio”)cash and shares of SmartFinancial common stock into which the PFG common stock will convert as the “merger consideration”. Assuming that PFG does not pay any dividends from its accumulated adjustment account prior to the merger, the holders of PFG common stock would receive approximately $704.375 and 62.3808 shares of SmartFinancial common stock (plus cash in lieu of fractional shares) for each share of Tennessee BancsharesPFG common stock owned or held immediately prior tothey own. Based on the merger. closing sale price of SmartFinancial common stock on December 18, 2019 of $23.32 per share, which, represents approximately $2,159.10 in total merger consideration per share of PFG common stock. |
| SmartFinancial will not issue any fractional shares of itsSmartFinancial common stock in the merger and will instead pay to each former shareholder of Tennessee Bancsharesmerger. PFG shareholders who otherwise would be entitled to receive such fractional share an amount in cash, without interest, (rounded to the nearest cent) determined by multiplying (i) the volume weighted average of the closing prices of SmartFinancial common stock on the Nasdaq Capital Market (or such other securities market or stock exchange on which the SmartFinancial common stock then principally trades) for the ten consecutive trading days ending on and including the trading day immediately preceding the closing date of the merger by (ii) the fraction of a share (rounded to the nearest thousandth) of SmartFinancial common stock that such shareholder would otherwise be entitled to a fractional share of SmartFinancial common stock upon the completion of the merger will instead receive pursuantan amount in cash (without interest and rounded to the merger agreement. |
Additionally, the merger agreement provides that Tennessee Bancshares will be entitled to pay, immediately prior to the closing of the merger, a special dividend of up to $0.70 per share (which we refer to as the “special dividend”), subject to the satisfaction of certain conditions.
| Q: | What isnearest whole cent) determined by multiplying the special dividend? |
| A: | The merger agreement provides that Tennessee Bancshares is entitledfractional share interest in SmartFinancial common stock (rounded to pay,the nearest one hundredth of a share) by the average closing price of SmartFinancial’s common stock on the NASDAQ Capital Market over the ten (10) trading days ending on the business days immediately prior to the effective time of the merger, a special dividend of up to $0.70 per share in the event that Southern Community Bank sells certain identified loans (which we refer to as the “special dividend loans”). Southern Community Bank must sell the special dividend loans before the effective time of the merger for a price equal to at least 95% of the then-current balance of such loans. The amount of the special dividend may be less than $0.70 per share if Southern Community Bank sells a participation interest in a portion of the special dividend loans, in which case the special dividend will be proportionally reduced in relation to the aggregate remaining unpaid principal amount of all special dividend loans. For example, if Southern Community Bank sells a participation interest or interests in half of the special dividend loans, Tennessee Bancshares will be eligible to pay a special dividend of $0.35 per share.closing date. |
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There can be no assurance that Tennessee Bancshares will be able to pay the special dividend. Although the Tennessee Bancshares board of directors intends to declare and cause Tennessee Bancshares to pay the special dividend to Tennessee Bancshares shareholders as long as the special dividend loans are sold in accordance with the merger agreement, there is no assurance that the Tennessee Bancshares board of directors will be permitted to pay the special dividend under applicable law. In addition, even if the special dividend is paid, it may be less than $0.70 per share. See “The Merger Agreement—Merger Consideration – Special Dividend” on page 54.
Tennessee Bancshares will provide its shareholders with an update regarding the amount of the special dividend prior to the Tennessee Bancshares special meeting.
| | | Q: | Will the value of the stockmerger consideration change between the date of this proxy statement/prospectus and the effective time of the merger?merger is completed? |
| | | A: | Because the number of shares of SmartFinancial common stock to be received by Tennessee Bancshares shareholders is fixed,Yes. In all likelihood, the value of the merger consideration received by PFG shareholders receiving SmartFinancial common stock consideration will fluctuate between the date of this proxy statement/prospectus and the completion of the merger based upon the market value forof SmartFinancial common stock. Any fluctuation in the market price of SmartFinancial common stock after the date of this proxy statement/prospectus will change the value of the SmartFinancial common stock consideration. |
| Q: | Whothat PFG shareholders will receive and the stock consideration? |
| A: | If alltotal value of the conditionsconsideration received in the merger. | | | | In addition, PFG shareholders may receive a one-time dividend from PFG, which we refer to as the closing“AAA dividend” in the amount of the merger are satisfied andbalance of its accumulated adjustment account accumulated adjustment account as of December 31, 2019. The AAA dividend will reduce the aggregate amount of the cash consideration paid to PFG’s shareholders in connection with the merger is consummated, record holders of Tennessee Bancshares common stock at the effective time of the merger will receive the stock consideration. See “The Merger Agreement—Exchange of Certificates” on page 54.a dollar-for-dollar basis. |
| | | Q: | Who will receive the special dividend? |
| A: | If the conditions to the payment of the special dividend are satisfied and if all conditions to the closing of the merger are satisfied, the Tennessee Bancshares board of directors will duly convene a meeting, authorize the payment of the special dividend, and declare a record date and payment date for the special dividend. The record date will be prior to the date of the closing of the merger, and the payment date will be on or prior to the date of the closing of the merger. Each record holder of Tennessee Bancshares common stock on the record date for the special dividend will receive their proportionate share of the special dividend on the payment date for the special dividend. |
| Q: | What happens if I sell my shares of Tennessee Bancshares common stock before the effective time? |
| A: | The record date for the special meeting is earlier than the date of the special meeting and the effective time. If you transfer your shares of Tennessee Bancshares common stock after the record date but before the special meeting, you will, unless the transferee requests a proxy from you, retain your right to vote at the special meeting, but you will transfer the right to receive the stock consideration to the person to whom you transfer your shares. If you transfer your shares of Tennessee Bancshares common stock after the special meeting, you will transfer the right to receive the stock consideration to the person to whom you transfer your shares. In order to receive the stock consideration, you must hold your shares of Tennessee Bancshares common stock at the effective time of the merger. |
| Q: | What happens if I sell my Tennessee Bancshares common stock before the record date or payment date of the special dividend? |
| A: | If you sell your shares of Tennessee Bancshares common stock before the record date for the special dividend, you will not be entitled to receive the special dividend. If you hold Tennessee Bancshares common stock on the record date for the special dividend but decide to sell them before payment date for the special dividend, you will still receive the special dividend. In order to receive the special dividend, you must you must hold your shares of Tennessee Bancshares common stock on the record date. |
| Q: | Will the shares of SmartFinancial common stock that I receive as stock consideration in the merger be freely tradable? |
| | | A: | Yes, in most cases. The shares of SmartFinancial common stock to be issued in the mergeras stock consideration will be registered under the Securities Act and listed for trading on Nasdaq.the Nasdaq Capital Market. However, if there are any former shareholders of Tennessee BancsharesPFG who will be deemed to be “affiliates” of SmartFinancial under the Securities Act after the merger (generally, directors and executive officers of SmartFinancial and shareholders holding 10% or more of the outstanding shares of common stock of SmartFinancial), such persons must comply with certain transfer restrictions under the Securities Act. |
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Securities Act after the merger (generally, directors and executive officers of SmartFinancial and shareholders holding 10% or more of the outstanding shares of common stock of SmartFinancial), such persons must comply with certain transfer restrictions under the Securities Act.
| | | Q: | Who canWhat are the dividends that PFG will be permitted to pay prior to the closing? | | | | A: | PFG will be permitted to pay a one-time dividend to its shareholders, which we refer to as the “AAA dividend” in the amount of the balance of its accumulated adjustment account accumulated adjustment account as of December 31, 2019. Additionally, PFG will be permitted to pay: (1) a one-time tax distribution payable on or before February 29, 2020 in an amount that will enable PFG’s shareholders to satisfy their respective tax obligations in connection with their pro rata share of the income of PFG for the tax period ending on December 31, 2019; and (2) a one-time tax distribution payable immediately prior to the closing in an amount sufficient for PFG’s shareholders to satisfy their respective tax obligations in connection with their pro rata share of the income of PFG for the tax period commencing on January 1, 2020 and ending on the closing date. | | | | The AAA dividend will reduce the aggregate amount of the cash consideration paid to PFG’s shareholders in connection with the merger on a dollar-for-dollar basis. However, the distributions paid to enable PFG’s shareholders to satisfy their respective tax obligations for their pro-rata share of PFG’s income will not reduce the merger consideration. | | | | Q: | How does PFG’s board of directors recommend that I vote at the special meeting? |
| | | A: | All shareholdersPFG’s board of record of Tennessee Bancshares common stock as ofdirectors unanimously recommends that you vote “FOR” the close of business on [ ], 2018,merger proposal and “FOR” the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting, or any adjournment or postponement thereof, in accordance with Tennessee law.proposal. |
| | | Q: | When and where is the PFG special meeting? |
| | | A: | The PFG special meeting will be held at the mainPFG’s office of Southern Community Banklocated at 1400500 North JacksonMain Street, Tullahoma,Jamestown, Tennessee, 37388 on [ ], 2018, [ ],January 28, 2020, at [ ] local time.1:00 p.m., Central Time. |
| Q: | What do I need to do now? |
| | | A: | After you have carefully read this proxy statement/prospectus and have decided how you wish to vote your shares, please authorize a proxy to vote your shares by promptly completing and returning the enclosed proxy card so that your shares are represented and voted at the PFG special meeting. If you hold your shares in your name as a shareholder of record, you mustWhen complete, sign, date and mail your proxy card in the enclosed postage-paid return envelope as soon as possible. If you holdSubmitting your proxy by mail or directing your bank or broker to vote your shares in “street name” through a bank, broker or other nominee, youwill ensure that your shares are represented and voted at the PFG special meeting. Your proxy card must direct your bank, broker or other nominee howbe received prior to vote in accordance with the instructions you have received from your bank, broker or other nominee. “Street name” shareholders who wish to vote in person at the special meeting will needon January 28, 2020, in order to obtain a “legal proxy” from the institution that holds their shares.be counted. |
| | | Q: | What constitutes a quorum for the PFG special meeting? |
| | | A: | The presenceHolders representing at the special meeting, in person or by proxy, of holders ofleast a majority of the issued and outstanding shares of Tennessee BancsharesPFG common stock entitled to vote at the PFG special meeting willmust be present, in person or represented by proxy, to constitute a quorum. Abstentions and broker non-votes, if any, will be included in determining the number of shares present at the meeting for the purpose of determining the presence of a quorum. |
| Q: | If mya quorum is not present, the PFG special meeting will be postponed until the holders of the number of shares are held in “street name” by my broker, will my broker vote my shares for me? |
| A: | No. Your broker will not voteof PFG common stock required to constitute a quorum attend. If you submit a properly executed proxy card, even if you abstain from voting, your shares unless you provide instructions on how to vote. If you hold your shares in “street name” through a bank, broker, or other nominee, you should have received access to this proxy statement/prospectus from your bank, broker, or other nominee with instructions on how to instruct the holder of record to vote your shares. Please follow the voting instructions provided by the bank, broker, or other nominee. ThisPFG common stock will not prevent you from voting in person, but it will help to securebe counted for purposes of determining whether a quorum and avoid added solicitation costs. You may not vote shares held in street name by returning a proxy card directly to Tennessee Bancshares or by voting in personis present at the PFG special meeting. If additional votes must be solicited to approve the merger proposal, it is expected that the PFG special meeting unless you provide a “legal proxy,” which you must obtain from your bank, broker, or other nominee. Further, banks, brokers, or other holders of record who hold shares of Tennessee Bancshares common stock on behalf of their customers may not give a proxywill be adjourned to Tennessee Bancshares to vote those shares with respect to any of the proposals without specific instructions from their customers, as banks, brokers, and other holders of record do not have discretionary voting power on these matters. See “Whatsolicit additional proxies. | | | | Q: | What is the vote required to approve each proposal? | | | | A: | The merger proposal requires the affirmative vote of a majority of the issued and outstanding shares of PFG common stock entitled to vote at the PFG special meeting. The adjournment proposal requires the affirmative vote of a majority of the votes cast on the matter. | | | | Q: | What would happen if the adjournment proposal does not get approved by PFG shareholders? | | | | A: | The completion of the merger is not conditioned upon shareholder approval of the adjournment proposal. If a quorum is present at the PFG special meeting and the adjournment proposal is not approved and there are not sufficient votes at the time of the PFG special meeting to approve the merger proposal, then the PFG board of directors will not have the ability to adjourn to solicit additional votes and the merger proposal will not be approved. | | | | Q: | Why is my vote important? | | | | A: | If you do not submit a proxy or vote in person, it may be more difficult for PFG to obtain the necessary quorum to hold the special meeting. In addition, your failure to submit a proxy or vote in person, or failure to instruct your bank or broker how to vote, or abstention will have the same effect as a vote against approval of the merger proposal. The merger proposal must be approved by the affirmative vote of the holders of at least a majority of the outstanding shares of PFG common stock.PFG’s board of directors unanimously recommends that you vote “FOR” the merger proposal. | | | | Q: | How many votes do I have? | | | | A: | PFG shareholders are entitled to one vote on each proposal to be considered at the special meeting?”meeting for each share of PFG common stock owned as of the close of business on December 17, 2019, which is the record date for the PFG special meeting. | | | | Q: | How do I vote? | | | | A: | If you are a shareholder of record, you may have your shares of PFG common stock voted on the matters to be presented at the PFG special meeting in any of the following ways: | | | | · | You may vote by mail. You may vote by mail by completing, signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope. |
| · | You may vote in person at the meeting. You may vote by attending the special meeting and casting your vote in person. | | | | If you are a beneficial owner, please refer to the instructions provided by your bank, brokerage firm or other nominee to see which of the above choices are available to you. Your bank, brokerage firm or other nominee cannot vote your shares without instructions from you. Please note that if you are a beneficial owner and wish to vote in person at the special meeting, you must obtain a legal proxy from your bank, brokerage firm or other nominee. | | | | Q: | Do PFG directors and executive officers have interests in the merger that are different from, or in addition to, my interests? | | | | A: | Yes. In considering the recommendation of the PFG board of directors with respect to the merger agreement, you should be aware that PFG’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of PFG’s shareholders generally. Interests of officers and directors that may be different from or in addition to the interests of PFG’s shareholders include but are not limited to the receipt of continued indemnification and directors’ and officers’ insurance coverage under the merger agreement. | | | | Q: | What if I abstain from voting, fail to authorize a proxy or fail to vote in person? | | | | A: | If you mark “ABSTAIN” on your proxy with respect to the merger proposal, fail to authorize a proxy or fail to vote in person at the PFG special meeting, or fail to instruct your bank or broker how to vote, it will have the same effect as a vote “AGAINST” the merger proposal and no effect on the adjournment proposal. If you sign your proxy but do not indicate your vote, your proxy will be voted “FOR” each proposal. | | | | Q: | Can I attend the special meeting and vote my shares in person? | | | | A: | Yes. All PFG shareholders as of the record date, including shareholders of record and shareholders who hold their shares through any other holder of record, are invited to attend the PFG special meeting. Holders of record of PFG common stock can vote in person at the PFG special meeting. If you are not a shareholder of record, you must obtain a proxy, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote in person at the PFG special meeting. If you plan to attend the PFG special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership. In addition, you must bring a form of personal photo identification with you in order to be admitted. PFG reserves the right to refuse admittance to anyone without proper proof of share ownership or without proper photo identification. The use of cameras, sound recording equipment, communications devices or any similar equipment during the PFG special meeting is prohibited without express written consent. Even if you plan to attend the special meeting, PFG encourages you to vote by proxy through the mail so your vote will be counted if you later decide not to attend the special meeting. | | | | Q: | Can I change my vote? |
| | | A: | Yes. If you are a holder of record of Tennessee BancsharesPFG common stock, you may changerevoke your voteproxy at any time beforeprior to the PFG special meeting by: (1) delivering written notice of revocation to Brandon Smith, Corporate Secretary, Progressive Financial Group Inc., 500 North Main Street, Jamestown, Tennessee 38556, (2) by returning a duly executed proxy card bearing a later date than the date with which your shares are votedoriginal proxy card was dated, or (3) by attending the PFG special meeting and voting in person. Your attendance at the PFG special meeting will not constitute automatic revocation of the proxy unless you deliver your ballot in person at the special meeting by: (1) signing and returning a proxy card with a later date, (2) deliveringor deliver a written revocation letter to Tennessee Bancshares’ President, or (3) attending the special meeting in person, notifyingPFG Corporate Secretary prior to the Presidentvoting of Tennessee Bancshares and voting by ballot at the special meeting. Attendance at the special meeting will not automatically revoke yoursuch proxy. A revocation or later-dated proxy received by Tennessee Bancshares after the vote will not affect the vote. Tennessee |
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Bancshares’ President’s mailing address is: Tennessee Bancshares, Inc., Attention: William Yoder, P.O. Box 850, Tullahoma, Tennessee 37388. If you hold your shares in “street name” through a bank, broker or other nominee, you should contact your bank, broker or other nominee to change your vote.
| | | Q: | Will Tennessee BancsharesPFG be required to submit the merger proposal to its shareholders even if Tennessee Bancshares’PFG’s board of directors has withdrawn, modified or qualified its recommendation regarding how to vote with respect to the merger proposal?recommendation? |
| | | A: | Yes. Unless the merger agreement is terminated before the PFG special meeting, the merger agreement requires that Tennessee BancsharesPFG is required to submit the merger proposal to its shareholders even if the Tennessee BancsharesPFG’s board of directors has withdrawn, modified or qualified its recommendation regarding how to vote with respect to the merger proposal.recommendation. |
| Q: | What are the United Statesmaterial U.S. federal income tax consequences of the pre-closing distributions to U.S. holders of shares of PFG common stock? | | | | A: | Generally, distributions to a shareholder from a corporation taxed under Subchapter S of the Internal Revenue Code are not taxable to the extent of a shareholder’s adjusted tax basis in the S corporation stock, with any distribution in excess of adjusted tax basis being treated as gain from the sale or exchange of property. To the extent that AAA dividend or the distributions to the PFG shareholders intended to cover their tax obligations in respect of their pro rata portion of PFG’s income are not taxable due to a U.S. holder’s tax basis prior to the distributions exceeding the amount received, the holder’s adjusted tax basis in its PFG common stock would decrease by the amount of the distributions paid and affect the amount of the holder’s gain or loss, if any, in the merger as well as the holder’s tax basis in the SmartFinancial common stock received in exchange for PFG common stock in the merger. For further information, see “The Merger—Material U.S. Federal Income Tax Consequences.” | | | | Q: | What are the material U.S. federal income tax consequences of the merger to Tennessee Bancshares shareholders?U.S. holders of shares of PFG common stock? |
| | | A: | TheEach of SmartFinancial and PFG expects the merger willto qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (which we refer(the “Code”), and that the merger agreement will constitute a “plan or reorganization” as such term is used in Sections 354 and 361 of the Code. Accordingly, a U.S. holder (as defined below) of PFG common stock generally would not recognize gain or loss on the exchange of PFG common stock for SmartFinancial common stock in the merger. However, holders of PFG common stock will be subject to tax on cash consideration received as the “Internal Revenue Code”). It iswell as cash received in lieu of a condition to the obligationfractional share of SmartFinancial common stock. | | | | For further information, see “The Merger—Material U.S. Federal Income Tax Consequences.” | | | | The U.S. federal income tax consequences described above may not apply to effect the merger that SmartFinancial receiveall holders of PFG common stock. Your particular tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your independent tax advisor for a written opinion from Butler Snow LLP, or Butler Snow, counsel to SmartFinancial, dated asfull understanding of the closing dateparticular tax consequences of the merger to the effect that for United States federal income tax purposes, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code.you. |
A United States holder (as defined below in the section entitled “Material United StatesFederal Income Tax Consequences of the Merger”) of Tennessee Bancshares common stock will not recognize any gain or loss for United States federal income tax purposes upon the exchange of the holder’s shares of Tennessee Bancshares common stock solely for shares of SmartFinancial common stock in the merger. However, if any United States holder of Tennessee Bancshares common stock receives the special dividend or cash in lieu of a fractional share of SmartFinancial common stock, such receipt of cash generally will be treated as a taxable transaction causing such Tennessee Bancshares shareholder to recognize gain or loss.
Please carefully review the information set forth in the section entitled “Material United StatesFederal Income Tax Consequences of the Merger” beginning on page 45 for a description of the material United States federal income tax consequences of the merger.
The United States federal income tax consequences described above may not apply to all holders of Tennessee Bancshares common stock. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your tax advisor for a full understanding of the particular tax consequences of the merger to you.
| | | Q: | Are Tennessee BancsharesPFG shareholders entitled to exercise dissenters’ rights? |
| | | A: | Yes. If you are a holderUnder Tennessee law, record holders of shares of Tennessee BancsharesPFG common stock and if youhave the right to demand in writing to receive a payment in cash for the “fair value” of their shares as determined by an appraisal process. To exercise those dissenters’ rights, a PFG shareholder must follow exactly the procedures prescribed byspecified under Tennessee law. These procedures are summarized in this proxy statement/prospectus. In addition, the text of the applicable provisions of Tennessee law youis included asAnnex C to this document. Failure to strictly comply with these provisions may dissent fromresult in the merger proposal and have the fairloss of dissenters’ rights. The value of your Tennessee Bancshares common stock paid to you in cash. If you follow these procedures, you will not receive the merger consideration. The fair value of your Tennessee Bancshares common stock, determined in the manner prescribed by Tennessee law, will be paid to you in cash. That amount couldappraisal process may be more or less than the value a PFG shareholder would receive in the merger consideration orunder the market value of SmartFinancial common stock as of the closing date of the merger. For a more complete description of these dissenters’ rights, see “The Merger —Dissenters’ Rights” beginning on page 44 and Appendix B to this proxy statement/prospectus which includes the full text of those sections of the Tennessee Business Corporation Act applicable to dissenters’ rights. A dissenting shareholder will be entitled to payment only if written notice of intent to demand payment is delivered to Tennessee Bancshares before the vote is taken and the shareholder does not vote in favorterms of the merger proposal.agreement.Failure to strictly comply with the applicable Tennessee law provisions will result in the loss of the right of appraisal. For further information, see “The Merger—Dissenters’ Rights.” |
| Q: | | If I am a Tennessee Bancshares shareholder, shouldPursuant to the merger agreement, the merger may not be completed if dissenters’ rights are properly asserted with respect to 7.5% or more of the outstanding shares of PFG common stock. | | | | Q: | Should I send in my Tennessee BancsharesPFG stock certificate(s) now?certificates with my proxy card for the PFG special meeting? |
| | | A: | No. Please do notYou shouldNOT send in your Tennessee BancsharesPFG stock certificates with your proxy. After the merger, anproxy card. SmartFinancial, through its appointed exchange agent, will send you a letter of transmittal that will containPFG shareholders separate instructions for exchanging your |
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Tennessee BancsharesPFG stock certificates and PFG common stock certificates for the stock consideration. If you have certificates evidencing your shares of Tennessee Bancshares common stock, you will need to complete and return the letter of transmittal and follow the instructions in the letter of transmittal for delivery of the certificates with their completed forms to the exchange agent. See “The Merger Agreement—Exchange of Certificates” on page 54.
| Q: | What should I do if I hold my shares of Tennessee Bancshares common stock in book-entry form? |
| A: | If the merger occurs, an exchange agent will send you a letter of transmittal that you will need to complete and return in order to complete the exchange of your shares of Tennessee Bancshares common stock that are held in book-entry form for the merger consideration. | | | | Q: | What happens if I sell or transfer ownership of shares of PFG common stock after the record date for the PFG special meeting? | | | | A: | The record date for the PFG special meeting is earlier than the expected date of completion of the merger. Therefore, if you sell or transfer ownership of your shares of PFG common stock after the record date for the PFG special meeting, but prior to completion of the merger, you will retain the right to vote at the PFG special meeting, but the right to receive the merger consideration will transfer with the shares of PFG common stock. |
| Q: | Whom may I contact if I cannot locate my PFG stock certificate(s)? | | | | A: | If you are unable to locate your original PFG stock certificate(s), you should contact Ottis H. Phillips, President and any cashCEO, at (931) 752-2178 . Generally, merger consideration for lost certificates cannot be delivered except upon the making of an affidavit claiming such certificate to be paidlost, stolen or destroyed and the posting of a bond in exchange for fractional shares in the merger. See “The Merger Agreement—Exchange of Certificates” on page 54. |
| Q: | Who is the exchange agent for the merger? |
| A: | [ ] is the exchange agent for the merger. |
| Q: | If I’ve lost my Tennessee Bancshares stock certificate(s), can I receive the stock consideration? |
| A: | Yes. However,such amount as will be detailed in the letter of transmittal delivered to you by the exchange agent, you will have to provide an affidavit attesting to the fact that you lost your Tennessee Bancshares stock certificate(s). Additionally, you may have to give SmartFinancial or the exchange agent a bond in an amount determined by SmartFinancial or the exchange agent in order to indemnify SmartFinancialmay determine is reasonably necessary as indemnity against a loss in the event someone finds or has your lost certificate(s) and is able to transfer such certificate(s). To avoid these measures, you should do everything you can to find your lost certificate(s) before the time comes to send it in. You may also contact Tennessee Bancshares’ President, William Yoder, at (931) 461-8507. |
| Q: | Do any of Tennessee Bancshares’ directors or executive officers have interests in the mergerclaim that may differ from those of other Tennessee Bancshares shareholders? |
| A: | Yes. Tennessee Bancshares’ directors and executive officers have interests in the merger that are different from, or in addition to, those of Tennessee Bancshares shareholders generally. The members of Tennessee Bancshares’ board of directors were aware of and considered these interests, among other matters, in evaluating the merger agreement and the merger, and in recommending that Tennessee Bancshares shareholders approve and adopt the merger agreement. For a description of these interests, refer to the section entitled “The Merger – Interests of Officers and Directors of Tennessee Bancshares in the Merger” beginning on page 49 of this proxy statement/prospectus. |
| Q: | What is the vote required to approve each proposal at the special meeting? |
| A: | The merger proposal: Approval of the merger proposal requires the affirmative vote of a majority of all the votes entitled to be cast by the holders of outstanding shares of Tennessee Bancshares common stock. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the special meeting, or fail to instruct your bank, broker, or other nominee how to votemade with respect to the merger proposal, it will have the same effect as a vote “AGAINST” the proposal.such lost certificate. |
The adjournment proposal: Whether or not a quorum is present, approval of the adjournment proposal requires that the votes cast in favor of the proposal at the special meeting exceed the votes cast opposing the proposal at the special meeting. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the special meeting, or fail to instruct your bank, broker or other nominee how to vote with respect to the adjournment proposal, it will have no effect on the proposal.
| | | Q: | Why is my vote important? |
| A: | If you do not vote, it will be more difficult for Tennessee Bancshares to obtain the necessary quorum to hold the special meeting. In addition, your abstention or your failure to submit a proxy, instruct your bank, broker, or other nominees how to vote or vote in person will have the same effect as a vote “AGAINST” the merger proposal. |
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| Q: | When do you expect to complete the merger? |
| | | A: | We presentlySmartFinancial and PFG expect to complete the merger duringin the secondfirst quarter of 2018.2020. However, we cannotneither SmartFinancial nor PFG can assure you when or if the merger will occur. WeSmartFinancial and PFG must first obtain the approval of PFG shareholders for the merger proposal and any necessary regulatory approvals, the approval of the merger proposal by the shareholders of Tennessee Bancshares, and satisfy other closing conditions contained in the merger agreement. |
| Q: | What should I do if I receive more than one set of voting materials? |
| A: | Tennessee Bancshares shareholders may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. If you are a holder of record of Tennessee Bancshares common stock and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date, and return each proxy card and voting instruction card that you receive or otherwise follow the voting instructions set forth in this proxy statement/prospectus to ensure that you vote every share of Tennessee Bancshares common stock that you own. |
| Q: | What are the conditions to completion of the merger? |
| A: | In addition to the approval of the merger proposal by Tennessee Bancshares shareholders, as described above, completion of the merger is subject towell as the satisfaction of a number of other conditions including the receipt of all required regulatory approvals and expiration or termination of all statutory waiting periods in respect thereof, the accuracy of representations and warranties under the merger agreement (subject to the materiality standards set forth in the merger agreement), SmartFinancial’s and Tennessee Bancshares’ performance of their respective obligations under the merger agreement in all material respects and each of SmartFinancial’s and Tennessee Bancshares’ receipt of a tax opinion to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. For a more complete summary of the conditions that must be satisfied or waived prior to completion of the merger, see the section entitled “The Merger Agreement—Conditions to Consummation of the Merger” beginning on page 65 of this proxy statement/prospectus.closing. |
| | | Q: | What happens if the merger is not completed? |
| | | A: | If the merger is not completed, holders of Tennessee BancsharesPFG common stock will not receive any merger consideration for their shares of PFG common stock that otherwise would have been received in connection with the merger. Instead, Tennessee BancsharesPFG will remain an independent private company. In addition, ifIf the merger agreement is terminated in certain circumstances, a termination fee may be requiredcompleted but, for any reason, the bank merger is not completed, it will have no impact on the consideration to be paidreceived by Tennessee Bancshares. See “The Merger Agreement—Terminationholders of the Merger Agreement” beginning on page 67 for a discussion of the circumstances under which termination fees will be required to be paid.PFG common stock. |
| | | Q: | Whom should I call with questions about the merger?questions? |
| | | A: | If you have any questions concerning the merger agreement, the merger or this proxy statement/prospectus, would like additional copies of this proxy statement/prospectus are unable to locate your Tennessee Bancshares stock certificate(s), or need help voting your shares of Tennessee BancsharesPFG common stock, please contact William Yoder, thecontact: Ottis H. Phillips, President and CEO, at (931) 461-8507.752-2178. |
| Q:5 | Are there risks associated with the merger that I should consider in deciding how to vote? |
| A: | Yes. There are a number of risks related to the merger and the other transactions contemplated by the merger agreement that are discussed in this proxy statement/prospectus, in the appendices to and the documents incorporated by reference or referred to in this proxy statement/prospectus. Please read with particular care the detailed description of the risks described in “Risk Factors” beginning on page 20 and in SmartFinancial’s SEC filings incorporated by reference herein and referred to in “Where You Can Find More Information” beginning on page 87. |
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SUMMARY
This summary highlights materialselected information regarding the merger and the special meeting contained later in from this proxy statement/prospectus. This summary doesIt may not contain all of the information that may beis important to you and weyou. We urge you to read carefully read thisthe entire document,proxy statement/prospectus, including the appendicesannexes, and enclosures,the other documents to better which we refer in order to fully understand the merger and its potential impact on you before deciding how to vote.merger. See “Where You Can Find More Information.” Each item in this summary includes a page reference directing you to a more complete discussion of the item. The Partiesrefers to the Merger (pages 70 and 84)page of this proxy statement/prospectus on which that subject is discussed in more detail.
The Companies (page 70) SmartFinancial, SmartFinancial, Inc.
SmartBank
5401 Kingston Pike Suite 600
Knoxville, Tennessee 3791937319
(865) 868-0613
SmartFinancial is a Knoxville, Tennessee-based corporation and bank holding company registered under the Bank Holding Company Act of 1956, as amended (which we refer to as the “Bank Holding Company Act”). SmartFinancial is the publicly traded bank holding company for SmartBank, which operates offices across East Tennessee, Tuscaloosa, and Southwest Alabama, and the Florida Panhandle. As of September 30, 2019, SmartFinancial had total assets of approximately $1.7 billion and operates 22 branches and three loan production offices.$2.39 billion. Shares of SmartFinancial common stock are traded on the Nasdaq Capital Market under the symbol “SMBK.” Additional information about SmartFinancial and its subsidiaries can be found in documents incorporated by reference into this proxy statement/prospectus. For more information, see “Where You Can Find More Informationunder the heading “SmartFinancial, Inc.” beginning on page 87.70. Tennessee Bancshares Parties
Tennessee Bancshares,Progressive Financial Group Inc.
Southern Community Bank
1400 N. Jackson St.
Tullahoma,500 North Main Street
Jamestown, TN 37388
38556 (931) 461-8507752-2178 Tennessee Bancshares
PFG is a Tennessee-based corporation and bank holding company registered under the Bank Holding Company Act. Tennessee BancsharesPFG is the bank holding company for Southern CommunityProgressive Savings Bank, a Tennessee chartered commercial bank headquartered in Tullahoma,Jamestown, Tennessee, with five (5) branches in Cookeville, Crossville, and Wartburg, Tennessee. Southern Community Bank has offices in Tullahoma, Murfreesboro, Chattanooga, Tennessee, and Huntsville, Alabama. As of December 31, 2017, Tennessee Bancshares on a consolidated basisSeptember 30, 2019, Progressive Savings Bank had total assets of approximately $245.3$296 million, total deposits of $216.0$258 million, and total shareholders’ equity of approximately $23.4$30 million.
Additional information about PFG and its subsidiaries is included below under “The Companies” beginning on page 70. The Merger The Merger Agreement (page 52) SmartFinancial and PFG entered into an Agreement and Plan of Merger, dated as of October 29, 2019, which we refer to as the merger agreement. The merger agreement governs the merger. The merger agreement is included in this proxy statement/prospectus asAnnex A. All descriptions in this summary and elsewhere in this proxy statement/prospectus of the terms and conditions of the merger are qualified by reference to the merger agreement. Please read the merger agreement carefully for a more complete understanding of the merger. The Merger (page 32)31) Pursuant to the merger agreement, Tennessee BancsharesPFG will merge with and into SmartFinancial, subject to and upon the terms and conditions set forth in the merger agreement, with SmartFinancial as the surviving corporation.company, which we refer to as the merger. Immediately followingafter the merger, Southern CommunityProgressive Savings Bank, a wholly owned bank subsidiary of PFG, will merge with and into SmartBank subject to and upon the terms and conditions set forth in an agreement and plan of merger entered into by Southern Community Bank andSmartFinancial’s wholly owned bank subsidiary, SmartBank, with SmartBank as the surviving bank. The merger agreement is attachedbank, which we refer to as Appendix A and is incorporated into this proxy statement/prospectus by reference. We encourage you to read the merger agreement carefully as it is the legal document that governs thebank merger. We expect to complete the merger during the second quarter of 2018. However, neither SmartFinancial nor Tennessee Bancshares can assure you of when or if the merger will be completed. Tennessee Bancshares must obtain the approval of shareholders for the merger proposal at the special meeting. SmartFinancial and Tennessee Bancshares must also satisfy certain other closing conditions, including receiving certain required regulatory approvals. If the merger has not been completed by September 30, 2018, either SmartFinancial or Tennessee Bancshares may terminate the merger agreement so long as the party electing to terminate has not caused the failure of the merger to occur by failing to comply with its obligations under the merger agreement.
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What Tennessee Bancshares Shareholders Will Receive in the
The Merger Consideration (page 53)53) At the effective time of the merger, holderseach share of Tennessee BancsharesPFG common stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.8065a pro rata portion (which is a ratio equal to one divided by the number of shares of PFG common stock issued and outstanding as of the closing) of (1) an aggregate amount of cash equal to $14,595,354.37 minus the amount of any pre-closing dividend paid by PFG and any loss in excess of $250,000 realized by PFG or its applicable subsidiary on sales of certain assets prior to closing, and (2) 1,292,592.556 shares of SmartFinancial common stock. We refer to the cash and shares of SmartFinancial common stock into which the PFG common stock will convert as the “merger consideration”. Assuming that PFG does not pay any dividends from its accumulated adjustment account prior to the merger, the holders of PFG common stock would receive approximately $704.375 and 62.3808 shares of SmartFinancial common stock (plus cash in lieu of fractional shares) for each share of Tennessee BancsharesPFG common stock owned or held immediately priorthey own. Based on the closing sale price of SmartFinancial common stock on December 18, 2019 of $23.32 per share, which, represents approximately $2,159.10 in total merger consideration per share of PFG common stock. On October 28, 2019, the last full trading day before the public announcement of the merger agreement, the last reported sale price of SmartFinancial common stock was $20.72 per share, which represented $26,782,518 in value for all shares of PFG common stock to be converted into SmartFinancial common stock. Based on the merger. most recent reported closing sale price of SmartFinancial common stock on December 18, 2019 of $23.32 per share, the exchange of stock would represent approximately $30,143,258.41 in total value for all shares of PFG common stock to be converted into SmartFinancial common stock. SmartFinancial will not issue any fractional shares of itsSmartFinancial common stock in the merger and will instead pay to each former shareholder of Tennessee Bancsharesmerger. PFG shareholders who would otherwise would be entitled to receive sucha fractional share of SmartFinancial common stock upon the completion of the merger will instead receive an amount in cash without(without interest and rounded to the nearest cent,whole cent) determined by multiplying (i) the volume weightedfractional share interest in SmartFinancial common stock (rounded to the nearest one hundredth of a share) by the average closing price of the closing prices of SmartFinancialSmartFinancial’s common stock on the NasdaqNASDAQ Capital Market forover the ten consecutive(10) trading days ending on and including the trading daybusiness days immediately precedingprior to the closing date. Exchange Procedures (page 53) Promptly after the effective date by (ii)time of the fractionmerger, SmartFinancial’s exchange agent will mail to each holder of a sharerecord of SmartFinancialPFG common stock that is converted into the right to receive the merger consideration a letter of transmittal and instructions for the surrender of the holder’s PFG stock certificate(s) for the merger consideration (including cash in lieu of any fractional PFG shares), and any dividends or distributions to which such shareholder would otherwise beholder is entitled to receive pursuant to the merger agreement. Additionally, Tennessee Bancshares will be entitled
Please do not send in your certificates until you receive these instructions. Ancillary Agreements Voting Agreements (page 68) As a condition to pay, immediately prior toSmartFinancial entering into the effective time, a one-time, special dividendmerger agreement, all directors of up to $0.70 per share, if certain conditions are satisfied. Special Dividend (page 54)
PursuantPFG and Progressive Bank who have voting power over shares of PFG common stock and holders of 10% or more of PFG’s issued and outstanding shares of common stock entered into voting agreements in the form attached as Exhibit A to the merger agreement Tennessee Bancshares is entitledattached asAnnex A to paythis document, pursuant to which each such person agreed, among other things, to vote the shares of PFG common stock held of record by such person (1) to approve the merger agreement and the merger (or any adjournment or postponement necessary to solicit additional proxies to approve the merger agreement and the merger) and (2) against any acquisition proposals or any actions that would result in a pre-closing special dividend to Tennessee Bancshares shareholdersbreach of up to $0.70 per shareany covenant, representation or warranty of PFG in the eventmerger agreement.
Non-Competition and Non-Disclosure Agreements (page 68) In addition, as a condition to SmartFinancial entering into the merger agreement, each director of PFG and Progressive Bank, entered into non-competition and non-disclosure agreements with SmartFinancial in the form attached as Exhibit C to the merger agreement attached asAnnex A to this document, pursuant to which each such person agreed to, among other things, (1) not disclose or use any confidential information or trade secrets of PFG for any purpose for so long as such information remains confidential information or a trade secret, (2) for a period of two years following the closing of the merger, not engage in certain competitive activities with SmartFinancial, including not soliciting employees and customers of PFG (provided that Southern Communityone director will only be bound to a covenant regarding non-solicitation of employees and customers), and (3) for a period of two years following the closing of the merger, not serve as a director or management official of another financial institution in the counties in Tennessee in which Progressive Bank sellsoperates a banking office as of the special dividend loans beforeclosing of the effectivemerger and each county contiguous to each of such counties (subject to exceptions for directorships already held by one member of PFG’s board of directors). Claims Letters (page 69) At the time of the merger. In order for Tennessee Bancsharesexecution of the merger agreement, each director of PFG and Progressive Bank executed a letter agreement with SmartFinancial in the form attached as Exhibit D to pay the special dividend, Southern Community Bank must sellmerger agreement attached asAnnex A to this document, pursuant to which each such director released and discharged, effective upon the special dividend loans beforeconsummation of the merger, PFG and its subsidiaries, their respective directors and officers (in their capacities as such), and their respective successors and assigns (including SmartFinancial and SmartBank), from any and all liabilities or claims that the director has or claims to have as of the effective time of the merger, for a price equal to at least 95% of the then-current balance of such loans. The amount of the special dividend may be less than $0.70 per share if Southern Community Bank sells a participation interest in a portion of the special dividend loans, in which case the special dividend will be proportionally reduced in relationwith certain exceptions. Risk Factors Related to the aggregate remaining unpaid principal amount ofMerger (page 20) Before voting at the PFG special meeting, you should carefully consider all special dividend loans. For example, if Southern Community Bank sells a participation interestthe information contained in or interests in half of the special dividend loans, Tennessee Bancshares will be eligible to pay a special dividend of $0.35 per share. There can be no assurance that Tennessee Bancshares will be able to pay the special dividend. Although the Tennessee Bancshares board of directors intends to declare and cause Tennessee Bancshares to pay the special dividend to Tennessee Bancshares shareholders as long as the special dividend loans are sold in accordance with the merger agreement, there is no assurance that the Tennessee Bancshares board of directors will be permitted to pay the special dividend under applicable law. In addition, even if the special dividend is paid it may be less than $0.70 per share. See “The Merger Agreement—Merger Consideration—Special Dividend.”
Tennessee Bancshares will provide its shareholders with an update regarding the amount of the special dividend prior to the Tennessee Bancshares special meeting.
Issued Shares of SmartFinancial Common Stock Will be Eligible for Trading (page 52)
The shares of SmartFinancial common stock to be issued to Tennessee Bancshares shareholders upon consummation of the merger will, subject to official notice of issuance, be authorized for listing and eligible for trading on the Nasdaq Capital Market under the symbol “SMBK.”
Voting Agreements (page 49)
The directors of Tennessee Bancshares who collectively beneficially own and have the power to vote approximately 29.4% of Tennessee Bancshares common stock have enteredincorporated by reference into agreements with SmartFinancial in which they have agreed, among other things, to vote their shares of Tennessee Bancshares common stock in favor of the merger proposal and the adjournment proposal. The voting agreements automatically terminate upon the earlier to occur of (a) the approval by Tennessee Bancshares’ shareholders of the merger proposal or (b) the termination of the merger agreement. As of the record date, the directors and executive officers of Tennessee Bancshares and their affiliates collectively beneficially owned and were entitled to vote 537,487 shares of Tennessee Bancshares common stock, representing approximately 29.7% of the outstanding shares of Tennessee Bancshares common stock.
Regulatory Approvals (page 52)
Subject to the terms of the merger agreement, both SmartFinancial and the Tennessee Bancshares parties have agreed to use their reasonable best efforts to obtain all regulatory approvals necessary or advisable to complete the transactions contemplated by the merger agreement. These approvals include, among others, approval from
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the Board of Governors of the Federal Reserve System, or the Federal Reserve, and the Tennessee Department of Financial Institutions, or the TDFI. SmartFinancial and SmartBank have filed an interagency bank merger act application with the Federal Reserve and with the TDFI. As of the date of this proxy statement/prospectus SmartFinancial and SmartBank have not received any ofin deciding how to vote for the required regulatory approvals.proposals presented in the proxy statement/prospectus.
Although neither SmartFinancial nor Tennessee Bancshares knows of any reason why these regulatory approvals cannot be obtained in a timely manner, SmartFinancial and Tennessee Bancshares cannot be certain when or if they will be obtained.
Completion of the Merger is Subject to Customary Conditions (page 65)
The completion of the merger is subject to a number of customary conditions being met, including the approval of the merger proposal by the requisite vote of Tennessee Bancshares shareholders, as well as receipt of all required regulatory approvals. Where the law permits, a party to the merger agreement could elect to waive a condition to its obligation to complete the merger, even if that condition has not been satisfied. Neither SmartFinancial nor Tennessee Bancshares can be certain when (or if) the conditions to the merger will be satisfied or waived by the applicable party or that the merger will be completed. Tennessee BancsharesPFG Special Meeting (page 28)27)
The special meeting will be held on [ ], 2018January 28, 2020 at [ ] a. m.1 p.m., central time,Central Time, at the main office of Southern CommunityProgressive Savings Bank at 1400 North Jackson500 N. Main Street Tullahoma,Jamestown, Tennessee 37388.38556. At the special meeting, Tennessee BancsharesPFG shareholders will be asked to: approve the merger proposal; and
approve the adjournment proposal.
| · | approve the merger proposal; and |
| · | approve the adjournment proposal. |
All shareholders of record of Tennessee BancsharesPFG common stock as of the close of business on [ ], 2018,December 17, 2019, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting, or any adjournment or postponement thereof, in accordance with Tennessee law. The presence at the special meeting, in person or by proxy, of holders of a majority of the outstanding shares of Tennessee BancsharesPFG common stock entitled to vote at the special meeting will constitute a quorum. Abstentions, if any, will be included in determining the number of shares present at the meeting for the purpose of determining the presence of a quorum. Special Meeting Proposals: Required Vote; Treatment of Abstentions and Failure to Vote (page 28)
Themerger proposal: ApprovalRecommendation of the merger proposal requires the affirmative vote of a majority of all the votes entitled to be cast by the holders of outstanding shares of Tennessee Bancshares common stock. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the special meeting, or fail to instruct your bank, broker or other nominee how to vote with respect to the merger proposal, it will have the same effect as a vote “AGAINST” the proposal.PFG Board (page 28)
The adjournment proposal: Whether or not a quorum is present, approval of the adjournment proposal requires that the votes cast in favor of the proposal at the special meeting exceed the votes cast opposing the proposal at the special meeting. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the special meeting, or fail to instruct your bank, broker or other nominee how to vote with respect to the adjournment proposal, it will have no effect on the proposal.
Tennessee Bancshares’ Board of Directors Recommends that Tennessee Bancshares Shareholders Vote “FOR” the Merger Proposal and “FOR” the Adjournment Proposal (page 30)
The Tennessee BancsharesPFG board of directors has determined unanimously that the merger agreement and the other transactions contemplated by the merger agreement are advisable and in the best interests of Tennessee BancsharesPFG and its shareholders and has approved and adopted unanimously the merger agreement. The Tennessee BancsharesPFG board of directors unanimously recommends that holders of shares of Tennessee BancsharesPFG common stock vote “FOR”“FOR” the merger proposal and “FOR”“FOR” the adjournment proposal. For the factors considered by the Tennessee BancsharesPFG board of directors in reaching its decision to approve and adopt the merger agreement, see “The Merger—Tennessee Bancshares’Merger — PFG’s Reasons for the Merger; Recommendation of the Tennessee Bancshares Board of DirectorsMerger.” Board Composition and Management of SmartFinancial after the Merger (page 42) Each of the officers and directors of SmartFinancial immediately prior to the effective time of the merger will be the officers and directors of the surviving company from and after the effective time of the merger, until their respective successors have been duly elected, appointed or qualified or until their earlier death, resignation or removal in accordance with the charter and bylaws of SmartFinancial. Following the effective time of the merger, the board of directors of the surviving company will also be expanded by one member, and the new vacancy will be filled by Ottis H. Phillips, who will remain a member of the board of directors of the surviving corporation until his successor has been duly elected, appointed or qualified or until their earlier death, resignation or removal in accordance with the charter and bylaws of SmartFinancial TABLE OF CONTENTS
Tennessee Bancshares’
Interests of PFG Directors and Executive Officers and Directors Have Financial Interests in the Merger that are Different From or in Addition to the Interests of Other Tennessee Bancshares Shareholders (page 49)42) In considering the recommendation of the Tennessee BancsharesPFG board of directors, shareholders should be aware that the directors and executive officers of Tennessee BancsharesPFG have certain interests in the merger that may be different from, or in addition to, the interests of Tennessee BancsharesPFG shareholders generally. The Tennessee BancsharesPFG board of directors was aware of these interests and considered them, among other matters, in making its recommendation that Tennessee BancsharesPFG shareholders vote to approve the merger proposal. These interests are described in further detail below. These interests include: William Yoder,Pursuant to the President and Chief Executive Officerterms of Tennessee Bancshares and Southern Community Bank, has entered into an employment agreement with SmartBank, which will become effective at the effective time of the merger, pursuant to which he will serve as Chief Banking and Deposit Officer of SmartBank. Robert Stahl, Southern Community Bank’s Community President, Chattanooga Market, has entered into an employment agreement with SmartBank, which will become effective at the effective time of the merger, pursuant to which he will serve as Senior Vice-President, Chattanooga Corporate Banker of SmartBank. Gerald Player, Executive Vice President and Chief Lending Officer of Southern Community Bank, has entered into an employment agreement with SmartBank, which will become effective at the effective time of the merger, pursuant to which he will serve as Executive Market Leader of the Tullahoma market for SmartBank following the bank merger. The employment agreements for Mr. Yoder, Mr. Player, and Mr. Stahl each provide for certain severance benefits upon a subsequent qualifying termination of employment. Mr. Yoder will receive a one-time payment of $100,000 from Southern Community Bank in connection with the closing of the merger, and Mr. Stahl will receive a one-time payment of $50,000 from Southern Community Bank in connection with the closing of the merger.
Clifton Miller, a current director of Tennessee Bancshares and Southern Community Bank, will become a member of the board of directors of both SmartFinancial and SmartBank at the effective time of the merger.
Under his current employment agreement with Southern Community Bank, in the event that Jason Redd, Chief Financial Officer of Southern Community Bank, is terminated following consummation of the merger, he shall be entitled to receive, in lieu of any other payments under his employment agreement, a lump sum payment in the amount of his then-current annual base salary, in addition to continuation of coverage of certain insurance benefits for 12 months.
Tennessee Bancshares’ directors and executive officers are entitled to continued indemnification and insurance coverage under the merger agreement, for a period of six years.
years from and after the effective time, SmartFinancial must indemnify certain persons, including PFG’s directors and executive officers. In addition, the merger agreement requires that for a period of six years from the effective time, subject to a cap on the amount of premiums, SmartFinancial must maintain an insurance policy for the benefit of certain persons, including PFG’s directors and executive officers. For additional information, see “The Merger Agreement — Covenants and Agreements; Indemnification and Insurance.” | · | Some members of the Progressive Bank management team will continue to receive employment benefits that are consistent with those of other similarly situated SmartBank employees after the closing of the merger. |
| · | Ottis H. Phillips will be appointed to the board of directors of SmartFinancial and SmartBank. |
| · | All participants in the Jo Ann Rains Employee Stock Ownership Plan and the Progressive Savings Bank F.S.B. 401(k) Plan, including any directors or executive officers participating in such plans, will become 100% vested as of each plan’s termination date (the day of the merger and the day immediately prior to the merger, respectively). |
| · | PFG’s directors and executive officers are entitled to continued indemnification and insurance coverage under the merger agreement for a period of six years. |
For a more complete description of these interests, see “The Merger—“The Merger — Interests of OfficersPFG Directors and Directors of Tennessee BancsharesExecutive Officers in the Merger.” SmartFinancial and SmartBank Boards of Directors after
Dissenters’ Rights in the Merger (page 49)50) Effective as of or immediately following the effective time, Clifton N. Miller, who currently serves as a director of Tennessee Bancshares and Southern Community Bank, will be elected to the boards of directors of SmartFinancial and SmartBank.
Most Tennessee Bancshares Shareholders May Resell SmartFinancial Common Stock (pages5 and 52)
The shares of SmartFinancial common stock to be issued to the shareholders of Tennessee Bancshares in connection with the merger will be freely tradable by such shareholders, except that if any Tennessee Bancshares shareholders are deemed to be “affiliates” of SmartFinancial, they must abide by certain transfer restrictions under the Securities Act.
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The Merger Generally Will Be Tax-Deferred to Holders of Tennessee Bancshares Common Stock to the Extent They Receive SmartFinancial Common Stock But Will Be Taxable With Respect to Any Cash Received (page 45)
The merger will qualify as a “reorganization” under Section 368(a) of the Internal Revenue Code. It is a condition that SmartFinancial receive a legal opinion from Butler Snow to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, for United States federal income tax purposes. The opinion will not bind the Internal Revenue Service or any court, which could view the merger differently.
Generally, for United States federal income tax purposes, United States holders (as defined in the section entitled “Material United States Federal Income Tax Consequences of the Merger”) will not recognize gain or loss as a result of the exchange of their Tennessee Bancshares common stock solely for shares of SmartFinancial common stock pursuant to the merger agreement. However, if any Tennessee Bancshares shareholder receives the special dividend or cash in lieu of a fractional share of SmartFinancial common stock, such receipt of cash generally will be treated as a taxable transaction causing such Tennessee Bancshares shareholder to recognize gain or loss. Holders of SmartFinancial common stock should have no direct income tax consequences as a result of the merger.
You should read “Material United States Federal Income Tax Consequences of the Merger” beginning on page 45 for a more complete discussion of the United States federal income tax consequences of the merger. Tax matters can be complicated and the tax consequences of the merger to you will depend on your particular tax situation. You are encouraged to consult your tax advisor to fully understand the tax consequences of the merger to you.
Comparative Rights of Shareholders (page 76)
The rights of Tennessee Bancshares’ shareholders are currently governed by Tennessee Bancshares’ charter and bylaws. The rights of SmartFinancial’s shareholders are currently governed by SmartFinancial’s charter and bylaws. Additionally, Tennessee corporate law governs the rights of the shareholders of both SmartFinancial and Tennessee Bancshares. Upon consummation of the merger, the shareholders of Tennessee Bancshares will become shareholders of SmartFinancial, and the charter and bylaws of SmartFinancial will govern their rights. SmartFinancial’s charter and bylaws differ somewhat from those of Tennessee Bancshares with respect to certain matters. The different shareholder rights are explained more fully in “Comparative Rights of Shareholders” on page 76.
Termination of the Merger Agreement and Termination Fee (page 67)
Tennessee Bancshares and SmartFinancial may jointly agree to terminate the merger agreement at any time. Additionally, the merger agreement may be terminated:
by SmartFinancial or the Tennessee Bancshares parties, in the event that Tennessee Bancshares’ shareholders do not approve the merger proposal, provided that in the case of termination by the Tennessee Bancshares parties, Tennessee Bancshares and its board of director have complied with their obligations to call and hold the special meeting and to recommend and solicit approval of the merger agreement by Tennessee Bancshares’ shareholders;
by SmartFinancial or the Tennessee Bancshares parties, in the event that any consent, approval, or waiver from the Federal Reserve, the TDFI, the United States Department of Justice, or any other governmental agency required in connection with the consummation of the transactions contemplated by the merger agreement has been denied by final and non-appealable action of such governmental authorities or any application for any such consent, approval, or waiver has been permanently withdrawn at the request of any such governmental authority, provided the denial or withdrawal is not due to the failure of the terminating parties to perform or observe their obligations under the merger agreement;
by SmartFinancial or the Tennessee Bancshares parties, in the event that any court or other governmental authority of competent jurisdiction has issued a final, non-appealable order enjoining or otherwise prohibiting the consummation of any of the transactions contemplated by the merger agreement, provided that the action of such governmental authority is not due to the failure of the terminating parties to perform or observe their obligations under the merger agreement;
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by SmartFinancial or the Tennessee Bancshares parties, in the event the merger is not consummated by September 30, 2018, provided that the failure to consummate the merger by such date is not due to the failure of the terminating parties to perform or observe their obligations under the merger agreement;
by SmartFinancial: (a) in the event of a breach of the merger agreement by Tennessee Bancshares or Southern Community Bank, if the breach (individually or in the aggregate with all other breaches) would, if occurring or continuing on the closing date for the merger, result in any of the conditions to the merger not being satisfied and is not cured by the earlier of September 30, 2018, and 30 days after written notice to the breaching party of the breach (provided that SmartFinancial is not in material breach of the merger agreement) (which we refer to as a “SmartFinancial material breach termination”); (b) in the event that, (i) the Tennessee Bancshares parties materially breach their obligations under the merger agreement relative to acquisition proposals or calling and holding the special meeting and recommending and soliciting approval of the merger agreement by Tennessee Bancshares’ shareholders or (ii) the Tennessee Bancshares board of directors does not recommend in this proxy statement/prospectus the approval of the merger agreement and the transactions contemplated thereby by Tennessee Bancshares’ shareholders or, after having made such recommendation, subsequently makes a Tennessee Bancshares change of recommendation; or (c) in the event of a third-party tender or exchange offer for 10% or more of the outstanding shares of Tennessee Bancshares stock is commenced and Tennessee Bancshares’ board of directors recommends that Tennessee Bancshares shareholders tender their shares in such tender or exchange offer or otherwise fails to recommend that Tennessee Bancshares shareholders reject the tender or exchange offer within the 10 business day period specified in Rule 14e-2(a) under the Exchange Act;
by the Tennessee Bancshares parties: (a) in the event of a breach of the merger agreement by SmartFinancial if the breach (individually or in the aggregate with all other breaches) would, if occurring or continuing on the closing date for the merger, result in any of the conditions to the merger not being satisfied and is not cured by the earlier of September 30, 2018, and 30 days after written notice to the breaching party of the breach (provided that the Tennessee Bancshares parties are not in material breach of the merger agreement); or (b) at any time prior to approval of the merger agreement by the Tennessee Bancshares shareholders, for the purpose of entering into an agreement with regard to a superior proposal, provided that the Tennessee Bancshares parties have not materially breached their obligations under the merger agreement relative to acquisition proposals or calling and holding the special meeting and recommending and soliciting approval of the merger agreement by Tennessee Bancshares’ shareholders;
The Tennessee Bancshares parties will be required to pay SmartFinancial a termination fee of $1,300,000:
| • | in the event of a SmartFinancial material breach termination, if at or before the special meeting the Tennessee Bancshares Parties receive a bona fide acquisition proposal that is not withdrawn prior to the date of termination of the merger agreement and within 12 months of the date of termination Tennessee Bancshares enters into a definitive agreement with respect to or consummates an acquisition proposal, whether or not the same acquisition proposal first mentioned above; |
in the event the SmartFinancial parties terminate the merger agreement because, prior to the approval of the merger agreement by Tennessee Bancshares’ shareholders, (i) the Tennessee Bancshares parties materially breach their obligations under the merger agreement relative to acquisition proposals or calling and holding the special meeting and recommending and soliciting approval of the merger agreement by Tennessee Bancshares’ shareholders or (ii) the Tennessee Bancshares board of directors does not recommend in this proxy statement/prospectus the approval of the merger agreement and the transactions contemplated thereby by Tennessee Bancshares’ shareholders or, after having made such recommendation, subsequently makes a Tennessee Bancshares change of recommendation;
in the event the SmartFinancial parties terminate the merger agreement because Tennessee Bancshares’ board of directors recommends that Tennessee Bancshares shareholders tender their shares in a third-party tender or exchange offer for 10% or more of any class or series of outstanding shares of Tennessee Bancshares stock or otherwise fails to recommend that Tennessee Bancshares shareholders reject the tender or exchange offer within the 10 business day period specified in Rule 14e-2(a) under the Exchange Act; or
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in the event the Tennessee Bancshares parties terminate the merger agreement for the purpose of entering into an agreement with regard to a superior proposal.
The above-described termination fee payable by the Tennessee Bancshares parties could discourage other companies from seeking to acquire or merge with the Tennessee Bancshares parties prior to completion of the merger and could cause the Tennessee Bancshares parties to reject any acquisition proposal from a third party which does not take into account the termination fee.
Tennessee Bancshares Shareholders Have Dissenters’ Rights (page 44)
Tennessee law permits holders of Tennessee BancsharesPFG common stock to dissent from the merger and to have the fair value of their Tennessee BancsharesPFG common stock paid in cash. To do this, a Tennessee BancsharesPFG shareholder must follow certain procedures, including filing certain notices with Tennessee BancsharesPFG and refraining from voting the shareholder’s shares of Tennessee BancsharesPFG common stock in favor of the merger proposal. If a Tennessee BancsharesPFG shareholder properly dissents from the merger proposal, that shareholder’s shares of Tennessee BancsharesPFG common stock will not be exchanged for shares of SmartFinancial common stock in the merger consideration, but rather, that shareholder’s only right will be to receive the appraised value of the shareholder’s shares in cash. For a complete description of these dissenters’ rights, see page 4450 and Appendix BAnnex C to this proxy statement/prospectus where the full text of those sections of the Tennessee Business Corporation Act applicable to dissenters’ rights is set out. A dissenting shareholder will be entitled to payment only if written notice of intent to demand payment is delivered to Tennessee BancsharesPFG before the vote is taken and the shareholder does not vote in favor of merger proposal. Conditions to Completion of the Merger (page 64) Currently, SmartFinancial and PFG expect to complete the merger in the first quarter of 2020. As more fully described in this proxy statement/prospectus and in the merger agreement, the completion of the merger depends on a number of conditions being satisfied or, where legally permissible, waived. These conditions include: | · | approval of the merger agreement by the holders of at least a majority of the outstanding shares of PFG common stock entitled to vote at the PFG special meeting; |
| · | the receipt of all required regulatory approvals for the merger, without the imposition of any burdensome condition, and the expiration of all regulatory waiting periods; |
| · | the absence of any legal restraint (such as an injunction or restraining order) that would prevent the consummation of the merger; |
| · | the effectiveness of the registration statement of which this proxy statement/prospectus forms a part; |
| · | each party’s receipt of a U.S. federal income tax opinion from its outside legal counsel, dated the closing date of the merger, confirming that the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code; |
| · | the approval of the listing of the shares of SmartFinancial common to be issued as merger consideration on the NASDAQ; |
| · | the Plan of Bank Merger in the form attached as Exhibit B to the merger agreement attached asAnnex A to this document being executed and delivered; |
| · | the absence of 7.5% or more of the outstanding shares of PFG’s common stock exercising their dissenters’ rights; |
| · | the accuracy, subject to varying degrees of materiality, of SmartFinancial’s and PFG’s respective representations and warranties in the merger agreement on the date of the merger agreement and as of the effective time of the merger (or such other date specified in the merger agreement); |
| · | the receipt of any consents or approvals necessary to effect the Merger; |
| · | the entry of certain employees of PFG or is subsidiaries into new employment agreements with PFG and / or SmartFinancial (or their respective subsidiaries, as applicable); |
| · | performance in all material respects by SmartFinancial and PFG of their respective obligations under the merger agreement; |
| · | the sale by PFG of its equity holdings in Upper Cumberland Bancshares, Inc. (which occurred on November 19, 2019), and |
| · | the absence of the occurrence of a material adverse effect on PFG or SmartFinancial. |
Neither SmartFinancial nor PFG can be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed. Regulatory Approvals Required for the Merger (page 45) Both SmartFinancial and PFG have agreed to use their reasonable best efforts to obtain all regulatory approvals (or waivers) required or advisable to complete the transactions contemplated by the merger agreement. These approvals include, among others, approval from the Board of Governors of the Federal Reserve System, or the Federal Reserve Board, the Tennessee Department of Financial Institutions, or the TDFI, and various securities and other regulatory authorities. The U.S. Department of Justice may also review the impact of the merger on competition. SmartFinancial and PFG have submitted all applications, waiver requests and notifications to obtain the required regulatory approvals. Although neither SmartFinancial nor PFG knows of any reason why these regulatory approvals cannot be obtained, SmartFinancial and PFG cannot be certain when or if they will be obtained, as the length of the review process may vary based on, among other things, requests by regulators for additional information or materials. No Solicitation (page 62) Under the merger agreement, PFG has agreed that it will not, and will cause its representatives not to, directly or indirectly, (1) initiate, solicit, induce or knowingly encourage, or take any action to facilitate the making of, any inquiry, offer or proposal which constitutes, or could reasonably be expected to lead to, an acquisition proposal, (2) participate in any discussions or negotiations regarding any acquisition proposal or furnish, or otherwise afford access, to any person (other than SmartFinancial) any information or data with respect to PFG or any of its subsidiaries or otherwise relating to an acquisition proposal, (3) release any person from, waive any provisions of, or fail to enforce any confidentiality agreement or standstill agreement to which PFG is a party, or (4) enter into any agreement, confidentiality agreement, agreement in principle or letter of intent with respect to any acquisition proposal or approve or resolve to approve any acquisition proposal or any agreement, agreement in principle or letter of intent relating to an acquisition proposal. However, prior to obtaining PFG’s required shareholder approval, PFG may, under certain specified circumstances, participate in negotiations or discussions with any third-party acquiring proposal and provide confidential information to such third party (subject to a confidentiality agreement). PFG must notify SmartFinancial promptly (but in no event later than one business day) after the receipt of such acquisition proposal. Additionally, prior to obtaining PFG’s required shareholder approval, PFG may, under certain specified circumstances, withdraw its recommendation to its shareholders with respect to the merger and/or terminate the merger agreement in order to enter into an acquisition agreement with respect to a superior acquisition proposal if it determines in good faith, after consultation with and having considered the advice of outside legal counsel and financial advisors, that such acquisition proposal is a superior proposal and that failure to take such actions more likely than not would cause it to violate its fiduciary duties to PFG’s shareholders under applicable law. However, PFG cannot take any of those actions in response to a superior proposal unless it provides SmartFinancial with a five-business day period to negotiate in good faith to enable SmartFinancial to adjust the terms and conditions of the merger agreement such that it would cause the superior proposal to no longer constitute a superior proposal. Termination of the Merger Agreement (page 65) The merger agreement can be terminated at any time prior to completion of the merger by mutual consent, or by either party in the following circumstances: | · | if the merger is not consummated on or before June 30, 2020, subject to automatic extension to September 30, 2020 if the only outstanding condition to closing is the receipt of regulatory approvals; |
| · | if any regulatory approval required for consummation of the transactions contemplated by the merger agreement has been denied by final non-appealable action by the relevant governmental authority or any application for such regulatory approval shall have been permanently withdrawn at the request of a governmental authority; |
| · | in the event that approval by the shareholders of PFG is not obtained at a meeting at which a vote was taken; or |
| · | in the event of a material breach by the other party of any representation, warranty or covenant contained in the merger agreement and such breach is not cured within 30 days. |
In addition, SmartFinancial may terminate the merger agreement in the following circumstances: | · | if PFG fails to comply in all material respects with its obligations pursuant to the non-solicitation covenants; |
| · | if PFG withdraws, qualifies, amends, modifies or withholds its recommendation to its shareholders to approve the merger and the merger agreement, or makes any statement, filing or release, in connection with the shareholder meeting or otherwise, inconsistent with its recommendation (it being understood that taking a neutral position or no position with respect to an acquisition proposal shall be considered an adverse modification of its recommendation); |
| · | if PFG materially breaches its obligation to call, give notice of, and commence a meeting of shareholders to vote on the merger agreement; |
| · | if PFG approves or recommends an acquisition proposal (other than the merger agreement proposal); |
| · | if PFG fails to publicly recommend against a publicly announced acquisition proposal within three business days of being requested to do so by SmartFinancial or fails to publicly reconfirm its recommendation to its shareholders within three business days of being requested to do so by SmartFinancial; or |
| · | if PFG resolves or otherwise determines to take, or announces an intention to take, any of the foregoing actions. |
In addition, PFG may terminate the merger agreement if PFG’s board of directors determines to enter into a definitive agreement with respect to a superior proposal in accordance with the terms of the merger agreement but only if PFG pays to SmartFinancial a $2,000,000 termination fee. Termination Fee (page 66) If the merger agreement is terminated under certain circumstances, including circumstances involving a change in recommendation by PFG’s board of directors, PFG may be required to pay SmartFinancial a termination fee of $2,000,000. The termination fee could discourage other companies from seeking to acquire or merge with PFG. Expenses (page 67) Each party will bear all expenses incurred in connection with the merger and the transactions contemplated by the merger agreement. Material U.S. Federal Income Tax Consequences (page 46) The merger is expected to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to the respective obligations of SmartFinancial and PFG to complete the merger that each of SmartFinancial and PFG receives a tax opinion from its respective outside legal counsel, dated the closing date of the merger, to that effect. Based upon the qualification of the merger as a “reorganization” within the meaning of Section 368(a) of the Code, a U.S. holder (as defined below) of PFG common stock will not recognize gain or loss with respect to the receipt of SmartFinancial common stock in the merger. However, holders of PFG common stock will be subject to tax on the receipt of cash consideration received as well as cash received in lieu of a fractional share of SmartFinancial common stock. For further information, see “The Merger—Material U.S. Federal Income Tax Consequences.” The U.S. federal income tax consequences described above may not apply to all holders of PFG common stock. Your particular tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your independent tax advisor for a full understanding of the particular tax consequences of the merger to you. Accounting Treatment of the Merger (page 46) SmartFinancial will account for the merger under the acquisition method of accounting for business combinations under U.S. generally accepted accounting principles, or GAAP. The Rights of Holders of PFG Common Stock Will Change as a Result of the Merger (see page 77) The rights of holders of PFG common stock are governed by Tennessee law, as well as PFG’s Charter (which we refer to as the PFG Charter), and PFG’s Bylaws, as amended (which we refer to as the PFG Bylaws). After completion of the merger, the rights of former PFG shareholders will be governed by Tennessee law and by SmartFinancial’s Amended and Restated Charter, as amended (which we refer to as the SmartFinancial Charter), and SmartFinancial’s Amended and Restated Bylaws (which we refer to as the SmartFinancial Bylaws). There are differences between the rights of shareholders of PFG and shareholders of SmartFinancial, including differences regarding restrictions on transfer of shares and limitations on the liability of directors and executive officers.The differences between the organizational documents and the rights of shareholders of PFG and shareholders of SmartFinancial are explained in more detail under the section “Comparison of Rights of SmartFinancial Shareholders and PFG Shareholders” beginning on page 77. Opinion of PFG’s Financial Advisor to Tennessee Bancshares (page 35 andAnnex B)38 and Appendix C) Olsen Palmer LLC or Olsen Palmer, has(which we refer to as “Olsen Palmer”), PFG’s financial advisor, delivered a writtenits opinion, dated October 29, 2019, to thePFG’s board of directors of Tennessee Bancshares,to the effect that, as of December 12, 2017, based uponthe date of the opinion and subject to certain matters statedfactors, qualifications, limitations and assumptions set forth in the opinion, that the merger consideration is fair, from a financial point of view, to Tennessee Bancshares. This opinion is attached to this proxy statement/prospectus as Appendix C. PFG. The full text of the written opinion of Olsen Palmer, which sets forth the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Olsen Palmer in connection with its opinion, is attached asAnnex B to this proxy statement/prospectus. Olsen Palmer’s opinion was for the information of, and directed to, PFG’s board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. Olsen Palmer’s opinion is not a recommendation to any shareholder of Tennessee Bancshares as to how toany holder of PFG’s common stock should vote onwith respect to the proposal to approve the merger agreement or any other matter. It does not address the underlying business decision of PFG to engage in the merger, the relative merits of the merger as compared to any other alternative business strategies that might exist for PFG or the issuanceeffect of any other transaction in which PFG might engage. For further information, please see the section entitled “The Merger—Opinion of PFG’s Financial Advisor” beginning on page 35. Closing and Effective Time of the Merger (see page 52) The closing date is currently expected to occur in the first quarter of 2020. Simultaneously with the closing of the merger, SmartFinancial will file the articles of merger with the Secretary of State of the State of Tennessee. The merger will become effective at the later of the time the articles of merger are filed, or such other time as may be specified in the articles of merger. Neither SmartFinancial nor PFG can predict, however, the actual date on which the merger will be completed because it is subject to factors beyond each company’s control, including whether or when the required regulatory approvals and PFG’s shareholder approvals will be received and whether or when the other conditions to closing are satisfied. Market Prices and Share Information (see page17) SmartFinancial common stock is listed on the NASDAQ Capital Market under the symbol “SMBK.” The following table sets forth the closing sale prices of SmartFinancial common stock as reported on the NASDAQ Capital Market on October 28, 2019, the last full trading day before the public announcement of the merger agreement, and on December 18, 2019, the latest practicable trading date before the date of this proxy statement/prospectus. | | | SmartFinancial
Common
Stock | | | Implied Value of
One Share of
PFG
Common Stock to
be Converted
to Merger Consideration1 | | | October 28, 2019 | | $ | 20.72 | | | $ | 1,996.91 | | | December 18, 2019 | | $ | 23.32 | | | $ | 2,159.10 | |
1 Based on 20,721 shares of PFG common stock outstanding and assuming the maximum amount of the cash component of the Merger Consideration is paid to PFG shareholders. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS Some of the statements contained or incorporated by reference in this proxy statement/prospectus contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements about the financial condition, results of operations, earnings outlook and business plans, goals, expectations and prospects of SmartFinancial, PFG and the combined company following the proposed merger and statements for the period after the merger. Words such as “anticipate,” “believe,” “feel,” “expect,” “estimate,” “indicate,” “seek,” “strive,” “plan,” “intend,” “outlook,” “forecast,” “project,” “position,” “target,” “mission,” “contemplate,” “assume,” “achievable,” “potential,” “strategy,” “goal,” “aspiration,” “outcome,” “continue,” “remain,” “maintain,” “trend,” “objective” and variations of such words and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions, as they relate to SmartFinancial, PFG, the proposed merger or the combined company following the merger often identify forward-looking statements, although not all forward-looking statements contain such words. These forward-looking statements are predicated on the beliefs and assumptions of management based on information known to management as of the date of this proxy statement/prospectus and do not purport to speak as of any other date. Forward-looking statements may include descriptions of the expected benefits and costs of the transaction; forecasts of revenue, earnings or other measures of economic performance, including statements of profitability, business segments and subsidiaries; management plans relating to the shareholdersmerger; the expected timing of Tennessee Bancsharesthe completion of the merger; the ability to complete the merger; the ability to obtain any required regulatory, shareholder or other approvals; any statements of the plans and objectives of management for future or past operations, including the execution of integration plans; any statements of expectation or belief and any statements of assumptions underlying any of the foregoing. The forward-looking statements contained or incorporated by reference in this proxy statement/prospectus reflect the merger. Youview of management as of this date with respect to future events and are subject to risks and uncertainties. Should one or more of these risks materialize or should readunderlying beliefs or assumptions prove incorrect, actual results could differ materially from those anticipated by the forward-looking statements or historical results. Such risks and uncertainties include, among others, the following possibilities: | · | the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, including a termination of the merger agreement under circumstances that could require PFG to pay a termination fee to SmartFinancial; |
| · | the inability to complete the merger contemplated by the merger agreement due to the failure to satisfy conditions necessary to close the merger, including the receipt of the requisite approvals of PFG shareholders; |
| · | the risk that a regulatory approval that may be required for the merger is not obtained or is obtained subject to conditions that are not anticipated; |
| · | risks associated with the timing of the completion of the merger; |
| · | management time and effort may be diverted to the resolution of merger-related issues; |
| · | the risk that the businesses of SmartFinancial and PFG will not be integrated successfully, or such integration may be more difficult, time-consuming or costly than expected; |
| · | SmartFinancial’s ability to achieve the synergies and value creation contemplated by the proposed merger with PFG; |
| · | the expected growth opportunities or costs savings from the merger with PFG may not be fully realized or may take longer to realize than expected; |
| · | revenues following the transaction may be lower than expected as a result of losses of customers or other reasons; |
| · | potential deposit attrition, higher than expected costs, customer loss and business disruption associated with SmartFinancial’s integration of PFG, including, without limitation, potential difficulties in maintaining relationships with key personnel; |
| · | the outcome of any legal proceedings that may be instituted against SmartFinancial or PFG or their respective boards of directors; |
| · | general economic conditions, either globally, nationally, in the State of Tennessee, or in the specific markets in which SmartFinancial or PFG operate; |
| · | limitations placed on the ability of SmartFinancial and PFG to operate their respective businesses by the merger agreement; |
| · | the effect of the announcement of the merger on SmartFinancial’s and PFG’s business relationships, employees, customers, suppliers, vendors, other partners, standing with regulators, operating results and businesses generally; |
| · | customer acceptance of the combined company’s products and services; |
| · | the amount of any costs, fees, expenses, impairments and charges related to the merger; |
| · | fluctuations in the market price of SmartFinancial common stock and the related effect on the market value of the merger consideration that PFG shareholders will receive upon completion of the merger; |
| · | the introduction, withdrawal, success and timing of business initiatives; |
| · | significant increases in competition in the banking and financial services industry; |
| · | legislation, regulatory changes or changes in monetary or fiscal policy that adversely affect the businesses in which SmartFinancial or PFG are engaged, including potential changes resulting from currently proposed legislation; |
| · | credit risk of borrowers, including any increase in those risks due to changing economic conditions; |
| · | changes in consumer spending, borrowing, and savings habits; |
| · | competition among depository and other financial institutions; |
| · | liquidity risk affecting SmartFinancial’s or PFG’s ability to meet their respective obligations when they become due; |
| · | interest rate risk involving the effect of a change in interest rates; |
| · | compliance risk resulting from violations of, or nonconformance with, laws, rules, regulations, prescribed practices or ethical standards; |
| · | strategic risk resulting from adverse business decisions or improper implementation of business decisions; |
| · | reputational risk that adversely affects earnings or capital arising from negative public opinion; |
| · | terrorist activities risk that results in loss of consumer confidence and economic disruptions; and |
| · | other risks and uncertainties detailed from time to time in SmartFinancial’s SEC filings. |
Any forward-looking statements made in this opinion completely to understand the procedures followed, matters considered and limitations on the reviews undertaken by Olsen Palmerproxy statement/prospectus or in providing its opinion. For further information, see “The Merger—Opinion of Tennessee Bancshares’ Financial Advisor.” Risk Factors (page 20)
You should consider all the information contained in orany documents incorporated by reference into this proxy statement/prospectus, are subject to the protection of the safe harbor for forward-looking statements contained in deciding howthe Private Securities Litigation Reform Act of 1995. You are cautioned not to vote forplace undue reliance on these statements, which speak only as of the proposals presenteddate of this proxy statement/prospectus or the date of any document incorporated by reference in this proxy statement/prospectus. In particular, you should considerSmartFinancial and PFG do not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the factors described under “Risk Factors.”date the forward-looking statements are made, unless and only to the extent otherwise required by law. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement/prospectus and attributable to SmartFinancial, PFG or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this proxy statement/prospectus.
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COMPARATIVE PER SHARE MARKET PRICEPRICES AND DIVIDEND INFORMATIONDIVIDENDS SmartFinancial SmartFinancial common stock is tradedlisted on the NasdaqNASDAQ Capital Market under the symbol “SMBK.” There is no established public trading market for Tennessee BancsharesPFG common stock and shares of Tennessee BancsharesPFG common stock are traded solely in individually-arranged transactions between buyers and sellers. The following table presents As of December 18, 2019, the closing sale pricelatest practicable date prior to this proxy statement/prospectus, there were 14,002,68 shares of SmartFinancial common stock on December 12, 2017,outstanding (inclusive of 34,000 unvested shares of restricted stock having voting rights), which were held by approximately 1,063 holders of record. As of the record date for the PFG special meeting, there were 20,721 shares of PFG common stock outstanding, which were held by approximately 36 holders of record. The following table sets forth the high and low reported intra-day sales prices per share of SmartFinancial common stock, and the cash dividends declared per share for the periods indicated.
| | | SmartFinancial Common Stock | | | | | Sales Price | | | Dividends
Declared Per | | | | | High | | | Low | | | Share | | | 2017 | | | | | | | | | | | | | | First Quarter | | $ | 23.20 | | | $ | 17.17 | | | $ | 0.00 | | | Second Quarter | | $ | 26.26 | | | $ | 20.35 | | | $ | 0.00 | | | Third Quarter | | $ | 25.95 | | | $ | 22.31 | | | $ | 0.00 | | | Fourth Quarter | | $ | 24.98 | | | $ | 21.10 | | | $ | 0.00 | | | | | | | | | | | | | | | | | 2018 | | | | | | | | | | | | | | First Quarter | | $ | 23.90 | | | $ | 20.50 | | | $ | 0.00 | | | Second Quarter | | $ | 27.50 | | | $ | 22.94 | | | $ | 0.00 | | | Third Quarter | | $ | 27.69 | | | $ | 19.49 | | | $ | 0.00 | | | Fourth Quarter | | $ | 23.99 | | | $ | 16.17 | | | $ | 0.00 | | | | | | | | | | | | | | | | | 2019 | | | | | | | | | | | | | | First Quarter | | $ | 20.49 | | | $ | 17.15 | | | $ | 0.00 | | | Second Quarter | | $ | 21.91 | | | $ | 18.99 | | | $ | 0.00 | | | Third Quarter | | $ | 22.75 | | | $ | 18.73 | | | $ | 0.00 | | | Fourth Quarter (through December 18, 2019) | | $ | 23.99 | | | $ | 19.73 | | | $ | 0.05 | |
On October 28, 2019, the last full trading day before the date of the public announcement of the merger agreement, the closing sale price per share of SmartFinancial common stock was $20.72, and [ ], 2018,on December 18, 2019, the lastlatest practicable date before the date of this proxy statement/prospectus. The table also presents the equivalent value of the stock consideration per share of Tennessee Bancshares common stock on that date, calculated by multiplyingprospectus, the closing sale price of SmartFinancial common stock on those dates by the exchange ratio (0.8065). The following table shows only historical comparisons. No assurance can be given as to what the market price of the SmartFinancial common stock will be when the merger is completed or any time thereafter. Because the market value of SmartFinancial common stock will fluctuate after the date of this proxy statement/prospectus, no assurance can be given as to the value aper share of SmartFinancial common stock will have when received by a Tennessee Bancshares shareholder. Tennessee Bancshares shareholders and SmartFinancialwas $23.32.
PFG shareholders are advised to obtain current market quotations for Tennessee Bancshares common stock and SmartFinancial common stock and to review carefully the other information contained in this proxy statement/prospectus or incorporated by reference into this proxy statement/prospectus in considering whether to approve the proposals contained in this proxy statement/prospectus. Date | SmartFinancial
common stock | Equivalent Tennessee
Bancshares share price(1) | December 12, 2017 | $ | 21.82 | | $ | 17.60 | | [ ], 2018 | $ | [ ] | | $ | [ ] | |
| (1) | Equivalent per share price does not give effect to the pre-closing special dividend of up to $0.70 per share. See “The Merger Agreement –Merger Consideration—Special Dividend” on page 54 for more information. |
The following table sets forth, for the periods indicated, the high and low sales prices of SmartFinancial common stock and cash dividends paid per share of SmartFinancial common stock for the periods indicated.
| High | Low | Cash Dividends Paid
Per Share | 2018
| | | | | | | | | | First Quarter (through February 27, 2018) | $ | 23.15 | | $ | 20.50 | | | — | | 2017
| | | | | | | | | | First Quarter | $ | 23.20 | | $ | 17.17 | | | — | | Second Quarter | $ | 26.26 | | $ | 20.35 | | | — | | Third Quarter | $ | 25.95 | | $ | 22.31 | | | — | | Fourth Quarter | $ | 24.98 | | $ | 21.10 | | | — | | 2016
| | | | | | | | | | First Quarter | $ | 18.50 | | $ | 14.75 | | | — | | Second Quarter | $ | 18.75 | | $ | 14.21 | | | — | | Third Quarter | $ | 16.79 | | $ | 14.41 | | | — | | Fourth Quarter | $ | 20.58 | | $ | 16.14 | | | — | |
As of [ ], 2018, the last practicable date prior to the date of this proxy statement/prospectus, there were [ ] shares of SmartFinancial common stock issued and outstanding and approximately [ ] shareholders of record.
SmartFinancial has not paid dividends to its common shareholders during the last three years. As a holding company, SmartFinancial is ultimately dependent upon its bank subsidiary, SmartBank, to provide funding for SmartFinancial’s operating expenses, debt service, and dividends. Various banking laws and regulations applicable to SmartBank limit the payment of dividends and other distributions by SmartBank to SmartFinancial,
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and these laws and regulations may limit SmartFinancial’s ability to pay dividends to its shareholders. Additionally, bank regulatory authorities could impose administratively stricter limitations on the ability of SmartBank to pay dividends to SmartFinancial if such limits were deemed appropriate to preserve certain capital adequacy requirements. Accordingly, there can be no assurance that SmartFinancial will pay dividends to its shareholders in the future. See “Bank holding company dividends” in our annual report on Form 10-K, and “Bank dividends” in our annual report on Form 10-K for the fiscal year ended December 31, 2016, which is incorporated by reference into this proxy statement/prospectus, for additional information about limitations on SmartFinancial’s and SmartBank’s ability to declare and pay dividends. See “Where You Can Find More Information” beginning on page 87.
Tennessee Bancshares
There is no established public trading market for Tennessee Bancshares’ common stock, and shares of Tennessee Bancshares common stock are thinly traded in private transactions. A Tennessee Bancshares common stock shareholder who desires to sell his or her common stock must privately locate one or more willing buyers. Additionally, a seller in this private transaction may ultimately be motivated to sell for reasons that are different from a seller of shares with an established public market. Recent trades of Tennessee Bancshares’ common stock are not necessarily indicative of the potential value of Tennessee Bancshares’ common stock if it were actually traded in a public market. The price per share for trades among Tennessee Bancshares’ common shareholders are not necessarily reported to Tennessee Bancshares’ management, and trades known to Tennessee Bancshares management are not necessarily the only trades of Tennessee Bancshares’ common stock. To the best knowledge of Tennessee Bancshares’ management, the most recent trades were an aggregate of 1,200 shares at a price of $13.74 per share on November 3, 2017.
Payment of dividends by Tennessee Bancshares is subject to certain regulations that may limit or prevent the payment of dividends and is further subject to the discretion of Tennessee Bancshares’ board of directors. In December 2015, Tennessee Bancshares paid a dividend of $0.15 per share to its shareholders; and in December 2016, Tennessee Bancshares paid a dividend of $0.25 per share to its shareholders. Additionally, under and subject to the terms of the merger agreement, Tennessee Bancshares may be eligible to pay a one-time special dividend of up to $0.70 per share, subject to the satisfaction of certain conditions, immediately prior to the closing of the merger.
As of [ ], 2018, the last practicable date prior to the date of this proxy statement/prospectus, there were [ ] shares of Tennessee Bancshares common stock issued and outstanding and approximately [ ] shareholders of record.
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UNAUDITED COMPARATIVE PER SHARE DATA
Presented below are unaudited per share basic and diluted earnings, cash dividends and book value for SmartFinancial and Tennessee Bancshares on a historical basis, and for Tennessee Bancshares on a pro forma equivalent basis, in each case for the fiscal year ended December 31, 2017. The information presented below should be read together with the historical consolidated financial statements of SmartFinancial, including the related notes, incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information.”
The unaudited pro forma adjustments are based upon available information and certain assumptions that SmartFinancial and Tennessee Bancshares management believe are reasonable. The unaudited pro forma data, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the impact of factors that may result as a consequence of the merger or consider any potential impacts of current market conditions nor the impact of possible business model changes. As a result, unaudited pro forma data is presented for illustrative purposes only and does not represent an attempt to predict or suggest future results. Upon completion of the merger, the operating results of Tennessee Bancshares will be reflected in the consolidated financial statements of SmartFinancial on a prospective basis.
The equivalent pro forma net income available to common shareholders, per share basic and diluted and the equity common per share is based upon the pro forma combined net income and equity of SmartFinancial divided by the pro forma number of average shares–basic, average shares–diluted, and outstanding shares, respectively, of the combined companies as of December 31, 2017. The merger equivalent book value per share of Tennessee Bancshares is based on the 1,459,186 shares of SmartFinancial common stock into which the 1,809,282 shares of Tennessee Bancshares common stock outstanding as of December 31, 2017 will be converted in the merger.
Unaudited Comparative Per Share Data
For The Year Ended December 31, 2017
| SmartFinancial
Historical | Tennessee
Bancshares
Historical | Equivalent
Pro Forma(1) | Net income available to common shareholders, per share:
| | | | | | | | | | Basic | $ | 0.56 | | $ | 1.40 | | $ | 0.73 | | Diluted | | 0.55 | | | 1.40 | | | 0.72 | | | | | | | | | | | | Cash dividends per common share | | — | | | — | | | — | | Equity per common share | $ | 18.46 | | $ | 12.94 | | $ | 18.18 | |
| (1) | The unaudited pro forma equivalent per share amount is calculated by multiplying the pro forma combined per share amount by the exchange ratio of 0.8065. |
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RISK FACTORS
If the merger is consummated, Tennessee Bancshares shareholders will receive shares of SmartFinancial common stock in exchange for their shares of Tennessee Bancshares common stock. An investment in SmartFinancial common stock is subject to a number of risks and uncertainties, many of which also apply to your existing investment in Tennessee Bancshares common stock. Risks and uncertainties relating to general economic conditions are not summarized below. Those risks, among others, are highlighted on page 26 under the heading “Cautionary Statement Regarding Forward-Looking Statements.” However, there are a number of other risks and uncertainties relating to SmartFinancial that you should consider in deciding how to vote at the special meeting, in addition to the risks and uncertainties associated with financial institutions generally. Many of these risks and uncertainties could affect SmartFinancial’s future financial results and may cause SmartFinancial’s future earnings and financial condition to be less favorable than SmartFinancial’s expectations. There are also a number of risks related to the merger that shareholders of Tennessee Bancshares should consider in deciding how to vote on the merger proposal. This section summarizes many of those risks.
In addition, SmartFinancial’s business is subject to numerous risks and uncertainties, including the risks and uncertainties described in SmartFinancial’s annual report on Form 10-K for the year ended December 31, 2016, in addition to other filings that SmartFinancial has made with the SEC since the date of its most recently filed annual report on Form 10-K, which is incorporated by reference into this proxy statement/prospectus. Please see “Where You Can Find More Information” beginning on page 87.
Risks Related to the Merger
Because the market price of SmartFinancial common stock will fluctuate between the valuedate of this proxy statement/prospectus and the date of completion of the stock consideration tomerger. No assurance can be received by Tennessee Bancshares shareholders is uncertain.
In connection withgiven concerning the merger, each share of Tennessee Bancshares common stock (except for certain excluded shares and any dissenting shares) will be converted into the right to receive 0.8065 shares of SmartFinancial common stock.
Although the exchange ratio is fixed, the market value of the stock consideration will fluctuate. The market value of the shares of SmartFinancial common stock to be received as stock consideration will vary from the closing price of SmartFinancial common stock onbefore or after the date SmartFinancial and Tennessee Bancshares announced the merger, on the date that this proxy statement/prospectus is mailed to Tennessee Bancshares shareholders, on theeffective date of the special meeting, and on the date the merger is completed and thereafter. Any changemerger. Changes in the market price of SmartFinancial common stock prior to the completion of the merger willmay affect the market value of the stockmerger consideration that Tennessee BancsharesPFG shareholders will receivereceive.
The principal sources of funds to SmartFinancial to pay dividends are the dividends received from SmartBank. Consequently, dividends are dependent upon completionSmartBank’s earnings, capital needs, regulatory policies, as well as statutory and regulatory limitations. Federal and state banking laws and regulations restrict the number of dividends and loans a bank may make to its parent company. Approval by SmartFinancial’s regulators is required if the total of all dividends declared in any calendar year exceed the total of its net income for that year combined with its retained net income of the preceding two years. PFG There is no established public trading market for the shares of PFG common stock, and no market for PFG common stock is expected to develop if the merger does not occur. No registered broker/dealer makes a market in the PFG common stock, and no shares of such stock are listed for trading or quoted on any stock exchange or automated quotation system. PFG acts as the transfer agent and registrar for its own shares. The following table sets forth the known private sales or purchases of PFG’s common stock during 2017, 2018 and 2019: | | | PFG Common Stock | | | | | Shares Sold | | | Purchase
Price Per
Share | | | July 2017 | | | 50 | | | $ | 1,390.45 | | | September 2017 | | | 60 | | | $ | 1,500.00 | | | December 2017 | | | 200 | | | $ | 1,490.86 | | | January 2018 | | | 50 | | | $ | 1,495.44 | | | May 2018 | | | 60 | | | $ | 1,500.00 | | | July 2018 | | | 25 | | | $ | 1,486.72 | | | October 2018 | | | 100 | | | $ | 1,513.70 | | | March 2019 | | | 160 | | | $ | 1,390.45 | |
PFG’s general dividend policy is to pay cash dividends once or twice per year. During 2017, PFG declared dividends of $28.96 per share and paid dividends of $28.96 per share. During 2018, PFG declared dividends of $26.06 per share and paid dividends of $26.06 per share. For the nine months ended September 30, 2019, PFG declared dividends of $44.40 per share and paid dividends of $44.40 per share. Under the terms of the merger agreement, PFG is permitted to pay a dividend to its shareholders on or before February 29, 2020 in an amount that would be sufficient for the PFG shareholders to satisfy their respective tax obligations in connection with their pro rata share of the income of PFG for the 2019 tax year, and therewill also be permitted to make a one-time dividend to its shareholders immediately prior to closing for purposes of satisfying PFG’s shareholders’ tax obligations in connection with their pro rata share of the income of PFG for the 2020 tax year. Additionally, PFG will be nopermitted to pay a one-time dividend immediately prior to closing in the amount of the balance of PFG’s accumulated adjustment account.
The following table sets forth the PFG cash dividends declared per share for the periods indicated. | | | PFG Common Stock | | | | | Dividends Declared
Per Share | | | 2017 | | | | | | First Quarter | | $ | 0.00 | | | Second Quarter | | $ | 0.00 | | | Third Quarter | | $ | 28.96 | | | Fourth Quarter | | $ | 0.00 | | | | | | | | | 2018 | | | | | | First Quarter | | $ | 26.06 | | | Second Quarter | | $ | 0.00 | | | Third Quarter | | $ | 0.00 | | | Fourth Quarter | | $ | 0.00 | | | | | | | | | 2019 | | | | | | First Quarter | | $ | 0.00 | | | Second Quarter | | $ | 44.40 | | | Third Quarter | | $ | 0.00 | | | Fourth Quarter (through December 18, 2019) | | $ | 0.00 | |
RISK FACTORS In addition to general investment risks and the other information contained in or incorporated by reference into this proxy statement/prospectus, including the matters addressed under the section “Cautionary Statement Concerning Forward-Looking Statements,” you should carefully consider the following risk factors in deciding how to vote for the proposals presented in this proxy statement/prospectus. You should also consider the other information in this proxy statement/prospectus and the other documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information.” Risks Related to the Merger Because of the fluctuation of the market price of SmartFinancial common stock, PFG shareholders will not know at the time of the special meeting the market value of the merger consideration they will receive at the effective time of the merger. At the effective time of the merger, each share of PFG common stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive a pro rata portion (which is a ratio equal to one divided by the number of shares of PFG common stock issued and outstanding as of the closing) of (1) an aggregate amount of cash equal to $14,595,354.37 minus the amount of any pre-closing dividend paid by PFG and any loss in excess of $250,000 realized by PFG or its applicable subsidiary on sales of certain assets prior to closing, and (2) 1,292,592.556 shares of SmartFinancial common stock. Assuming that PFG does not pay any dividends from its accumulated adjustment account prior to the merger, the holders of PFG common stock would receive approximately $704.375 and 62.3808 shares of SmartFinancial common stock (plus cash in lieu of fractional shares) for changeseach share of PFG common stock they own. Based on the closing sale price of SmartFinancial common stock on December 18, 2019 of $23.32 per share, which, represents, approximately $2,159.10 in total merger consideration per share of PFG common stock. The market value of the shares of SmartFinancial common stock as merger consideration may vary from the market value on the date PFG and SmartFinancial announced the merger, on the date that this proxy statement/prospectus is mailed, on the date of the PFG special meeting and on the date the merger is completed and thereafter due to fluctuations in the market price of SmartFinancial common stock. Any fluctuation in the market price of SmartFinancial common stock after the date of this proxy statement/prospectus will change the value of the shares of SmartFinancial common stock.stock that PFG shareholders may receive. Stock price changes may result from a variety of factors that are beyond the control of SmartFinancial and PFG, including but not limited to general market and economic conditions, changes in SmartFinancial’s business,their respective businesses, operations and prospects and regulatory considerations. Therefore, at the time of the PFG special meeting, youPFG shareholders will not know the precise market value of the stockmerger consideration Tennessee Bancshares shareholders willthey may receive at the effective time of the merger. YouIn addition, PFG shareholders will not know the exact exchange ratio at the time of the PFG special meeting, as it may be adjusted as a result of the measurement price. PFG shareholders should obtain current market quotationssale prices for shares of SmartFinancial common stock.stock and PFG common stock before voting their shares at the PFG special meeting. Tennessee Bancshares may not be able to pay the special dividend, and if Tennessee Bancshares pays the special dividend, it may be less than $0.70 per share.
The merger agreement provides that if certain identified loans currently heldand related transactions are subject to approval by Southern Community Bank are sold or paid in full for at least 95% of the then-current unpaid principal balance on such loans, the Tennessee Bancshares board of directors may declare a pre-closing special dividend of up to $0.70 per share on shares of Tennessee Bancshares common stock. There is no assurance that Tennessee Bancshares will be able to pay the dividend, and even if the special dividend is paid, it may be less than $0.70 per share. See “PFG shareholders. The Merger Agreement—Merger Consideration—Special Dividend.” Tennessee Bancshares will provide its shareholders with an update regarding the amount of the special dividend prior to the Tennessee Bancshares special meeting. The market price for SmartFinancial common stock may be affected by factors different from those that historically have affected Tennessee Bancshares.
Upon completion of the merger holders of Tennessee Bancshares common stock will become holders of SmartFinancial common stock. SmartFinancial’s business differs from that of Tennessee Bancshares, and
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accordingly, the results of operations of SmartFinancial will be affected by some factors that are different from those currently affecting the results of operations of Tennessee Bancshares. For a discussion of the businesses of SmartFinancial and Tennessee Bancshares and of some important factors to consider in connection with those businesses, see the section entitled “Where You Can Find More Information” beginning on page 87, including, in particular, in the section entitled “Risk Factors” in SmartFinancial’s annual report on Form 10-K for the year ended December 31, 2016.
Integrating Southern Community Bank into SmartBank’s operations may be more difficult, costly, or time-consuming than anticipated.
SmartBank and Southern Community Bank have operated and, until the bank merger is completed, will continue to operate, independently. Accordingly, the process of integrating Southern Community Bank’s operations into SmartBank’s operations could result in the disruption of operations or the loss of Southern Community Bank customers and employees, and could make it more difficult to achieve the intended benefits of the merger. Inconsistencies between the standards, controls, procedures, and policies of SmartBank and those of Southern Community Bank could adversely affect SmartBank’s ability to maintain relationships with current customers and employees of Southern Community Bank if and when the bank merger is completed.
As with any merger of banking institutions, business disruptions may occur that may cause SmartBank to lose customers or may cause Southern Community Bank’s customers to withdraw their deposits from Southern Community Bank prior to the bank merger’s consummation and from SmartBank thereafter. The realization of the anticipated benefits of the merger may depend in large part on the successful integration of Southern Community Bank’s operations into SmartBank’s operations, and to address differences in business models and cultures. If the operations of Tennessee Bancshares and Southern Community Bank are not successfully integrated into SmartFinancial’s and SmartBank’s operations and on a timely basis, some or all of the expected benefits of the merger and the bank merger may not be realized. Difficulties encountered with respect to such matters could result in an adverse effect on the financial condition, results of operations, capital, liquidity, or cash flows of SmartBank and SmartFinancial.
In addition, the integration of Capstone and SmartFinancial following the completion of the Capstone merger on November 1, 2017 is ongoing. It remains a priority for SmartFinancial and continues to utilize human and capital resources. The risk of a diversion of management attention away from ongoing business concerns may be increased by two merger integration processes which are relatively close in time. These integration matters could have an adverse effect on SmartFinancial during this transition period and for an undetermined period after completion of the merger on the combined company. In addition, the actual cost savings of the merger could be less than anticipated.
Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.
Beforecompleted unless the transactions contemplated inPFG shareholders approve the merger agreement may be completed, approval of our applications and notices filed withby the Federal Reserve Board and the TDFI must be obtained. These governmental entities and regulatory agencies may impose conditions, limitations or costs, or place restrictions on the conduct of SmartFinancial after the completionaffirmative vote of the merger asholders of at least a condition to the granting of such approvals or require changes to the terms of the merger or the bank merger. Although SmartFinancial and Tennessee Bancshares do not currently expect that any material conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the transactions contemplated in the merger agreement or imposing additional costs on or limiting the combined company’s revenues, any of which might have a material adverse effect on SmartFinancial following the merger and the bank merger. There can be no assurance as to whether the required regulatory approvals will be received, the timing of those approvals, or whether any conditions will be imposed. See “The Merger Agreement—Conditions to Consummation of the Merger” beginning on page 65 for a discussion of the conditions to the completion of the merger and for a description of the regulatory approvals that must be received in connection with the merger and the bank merger.
SmartFinancial may fail to realize the benefits and cost savings anticipated from the merger.
Although SmartFinancial anticipates that it will realize certain benefits and cost savings as to the operations of Tennessee Bancshares and Southern Community Bank and otherwise from the merger if and when the operations of Tennessee Bancshares and Southern Community Bank are fully integrated into SmartFinancial’s and
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SmartBank’s operations, it is possible that SmartFinancial may not realize all of the benefits and cost savings that it has estimated to be realized from the merger and the bank merger. For example, SmartFinancial may be required to continue to operate or maintain functions that are currently expected to be combined or reduced as a result of the merger. The realization of the estimated benefits and cost savings also will depend on our ability to combine the operations of SmartFinancial and SmartBank with the operations of Tennessee Bancshares and Southern Community Bank in a manner that permits those benefits and costs savings to be realized. If SmartFinancial is not able to integrate the operations of Tennessee Bancshares and Southern Community Bank into SmartFinancial’s and SmartBank’s operations successfully and to reduce the combined costs of conducting the integrated operations of the two banks, the anticipated benefits and cost savings may not be fully realized, if at all, or may take longer to realize than expected. The failure to realize those benefits and cost savings could materially adversely affect the combined company’s financial condition, results of operations, capital, liquidity, or cash flows.
The combined company will incur significant transaction and merger-related costs in connection with the merger.
SmartFinancial expects to incur significant costs associated with combining the operations of Tennessee Bancshares and Southern Community Bank with the operations of SmartFinancial and SmartBank. SmartFinancial recently began collecting information in order to formulate detailed integration plans to deliver anticipated cost savings. Additional unanticipated costs may be incurred in the integration of the businesses of SmartFinancial and Tennessee Bancshares. Although SmartFinancial expects that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.
Whether or not the merger is consummated, each of SmartFinancial and Tennessee Bancshares will incur substantial expenses, such as legal, accounting, and financial advisory fees, in pursuing the merger which will adversely impact each company’s earnings.
The termination fee and the restrictions on negotiation contained in the merger agreement may discourage other companies from trying to acquire Tennessee Bancshares.
Until the consummation of the merger, with some exceptions, Tennessee Bancshares is prohibited from soliciting, initiating, knowingly facilitating or encouraging, or participating in any discussion, negotiation, or activity regarding an acquisition proposal, such as a merger or other business combination transaction, with any person or entity other than SmartFinancial. In addition, Tennessee Bancshares has agreed to pay a termination fee of $1.3 million to SmartFinancial if the merger agreement is terminated under certain circumstances, including a change of recommendation of the Tennessee Bancshares board of directors. See “The Merger Agreement—Termination of the Merger Agreement” beginning on page 67. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Tennessee Bancshares from considering or proposing such an acquisition that might result in greater value to Tennessee Bancshares’ shareholders than the merger, or may result in a potential competing acquirer proposing to pay a lower per share price to acquire Tennessee Bancshares than it might otherwise have proposed to pay.
Certain executive officers and directors of Tennessee Bancshares have interests in the merger different from, or in addition to, the interests of Tennessee Bancshares shareholders.
Certain of Tennessee Bancshares’ existing directors and executive officers have interests in the merger that are different from, or in addition to, the interests of Tennessee Bancshares’ shareholders generally. For example, a director of Tennessee Bancshares will be elected to the boards of directors of SmartFinancial and SmartBank immediately following the consummation of the merger, and certain Tennessee Bancshares executive officers have entered into employment agreements with SmartBank which will take effect following the consummation of the merger. The Tennessee Bancshares board of directors was aware of these interests when it approved and adopted the merger agreement. See “The Merger—Interests of Officers and Directors of Tennessee Bancshares in the Merger” beginning on page 49.
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The opinion delivered to the board of directors of Tennessee Bancshares by its financial advisor prior to the signing of the merger agreement does not reflect any changes in circumstances since the date of the opinion.
Olsen Palmer, the financial advisor to Tennessee Bancshares, delivered its written opinion to the board of directors of Tennessee Bancshares on December 12, 2017. Changes in the operations and prospects of Tennessee Bancshares, Southern Community Bank, SmartFinancial, or SmartBank, general market and economic conditions, and other factors that may be beyond the control of Tennessee Bancshares, Southern Community Bank, SmartFinancial, and SmartBank, may alter the value of Tennessee Bancshares, Southern Community Bank, SmartFinancial, or SmartBank, or the value of shares of Tennessee Bancshares common stock or SmartFinancial common stock by the time the merger is completed. The opinion does not speak as of the date of this document, at the time the merger is completed or as of any date other than the date of the opinion. The opinion is attached as Appendix C to this proxy statement/prospectus. For a description of the opinion, see “The Merger—Opinion of Tennessee Bancshares’ FinancialAdvisor.”
Holders of Tennessee Bancshares common stock will have a reduced ownership and voting interest after the merger and will exercise less influence over management.
Holders of Tennessee Bancshares common stock currently have the right to vote in the election of the board of directors and on other matters affecting Tennessee Bancshares. Upon the completion of the merger, each Tennessee Bancshares shareholder who receives shares of SmartFinancial common stock as stock consideration will become a shareholder of SmartFinancial with a percentage ownership of SmartFinancial that is smaller than such shareholder’s percentage ownership of Tennessee Bancshares. It is currently expected that the former shareholders of Tennessee Bancshares as a group will receive shares of SmartFinancial common stock constituting approximately 11.50%majority of the outstanding shares of SmartFinancialPFG’s common stock immediately afterentitled to vote at the effective time of the merger. Because of this, Tennessee Bancshares shareholders may have less influence on the management and policies of SmartFinancial than they now have on the management and policies of Tennessee Bancshares, and current SmartFinancial shareholders may have less influence than they now have on the management and policies of SmartFinancial.PFG special meeting.
The shares of SmartFinancial common stock to be received by Tennessee Bancshares shareholders as consideration for the merger will have different rights from the shares of Tennessee Bancshares common stock.
Upon completion of the merger, Tennessee Bancshares shareholders will become SmartFinancial shareholders and their rights as shareholders will continue to be governed by Tennessee corporate law, and will additionally be governed by the SmartFinancial charter and bylaws. The rights associated with Tennessee Bancshares common stock are different from the rights associated with SmartFinancial common stock. For example, under Tennessee law, dissenters’ rights are not available to holders of a class of stock that is traded on a national securities exchange, such as SmartFinancial common stock, whereas generally under Tennessee, law dissenters’ rights are available to holders of a class of stock that is not traded on a national securities exchange, such as Tennessee Bancshares common stock. Please see “Comparative Rights of SmartFinancial and Tennessee Bancshares Shareholders” beginning on page 76 for a further discussion of the different rights associated with SmartFinancial common stock.
The merger will not be completed unless important conditions are satisfied.
Specified conditions set forth in the merger agreement must be satisfied or waivedFailure to complete the merger. Ifmerger could negatively affect the conditions are not satisfied or waived, the merger will not occur or will be delayed and each of SmartFinancial and Tennessee Bancshares may lose some or allvalue of the intended benefitsshares and cost savingsthe future business and financial results of the merger. See “The Merger Agreement — Conditions to Consummation of the Merger.”PFG.
Termination of the merger agreement could negatively impact Tennessee Bancshares.
If the merger agreement is terminated before closing, Tennessee Bancshares may suffer various consequences. For example, Tennessee Bancshares’not completed, the ongoing business may have been impactedof PFG could be adversely byaffected and PFG will be subject to a variety of risks associated with the failure to pursue other beneficial opportunities due to the focus of management oncomplete the merger, without realizing any ofincluding the anticipated benefits and cost savings of completing the merger. Also, Tennessee Bancshares will have incurred substantial expenses in connection with the proposed merger without realizing the benefits and cost savings of the merger. Iffollowing: | · | PFG being required, under certain circumstances, to pay to SmartFinancial a termination fee equal to $2,000,000; |
| · | substantial costs incurred by PFG in connection with the proposed merger, such as legal, accounting, financial advisor, printing and mailing fees; |
| · | the loss of key employees and customers; |
| · | the disruption of operations and business; |
| · | deposit attrition, customer loss and revenue loss; |
| · | unexpected problems with costs, operations, personnel, technology and credit; |
23
| · | diversion of management focus and resources from operational matters and other strategic opportunities while working to implement the merger; and |
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| · | reputational harm due to the adverse perception of any failure to successfully complete the merger. |
If the merger agreement is terminatednot completed, these risks could materially affect the business, financial results and the Tennessee Bancshares boardvalue of directors seeks another merger or business combination, Tennessee Bancshares shareholders cannot be certain that Tennessee Bancshares will be able to find a party willing to pay the equivalent or greater consideration than that which SmartFinancial has agreed to pay in the merger. In addition, if the merger agreement is terminated under certain circumstances, Tennessee Bancshares may be required to pay SmartFinancial a termination fee or liquidated damages. See “The Merger Agreement—Termination of the Merger Agreement.”PFG common stock. SmartFinancial and Tennessee Bancshares
PFG will be subject to business uncertainties and Tennessee Bancshares will be subject to contractual restrictions while the merger is pending. Uncertainty about the effect of the merger on employees and customers may have an adverse effect on SmartFinancial or Tennessee Bancshares.PFG. These uncertainties may impair thePFG’s ability of SmartFinancial or Tennessee Bancshares to attract, retain and motivate strategickey personnel until the merger is consummated,completed, and could cause customers and others that deal with Tennessee Bancshares or SmartFinancialPFG to seek to change existing business relationships. Experiencedrelationships with PFG. Retention of certain employees inby PFG may be challenging while the financial services industry are in high demand, and competition for their talents can be intense. Employees of Tennessee Bancsharesmerger is pending, as certain employees may experience uncertainty about their future roleroles with the surviving corporation until,PFG or even after, strategies with regard to the combined company are announced or executed.SmartFinancial. If any key employees of Tennessee Bancshares or SmartFinancial depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with PFG or SmartFinancial, PFG’s business or the surviving corporation, Tennessee Bancshares’s business prior toassumed by SmartFinancial following the merger closing and SmartFinancial business after the merger closes, could be harmed. In addition, PFG has agreed to certain contractual restrictions on the operation of its business prior to closing. See “The Merger Agreement—Covenants and Agreements” for a description of the restrictive covenants applicable to PFG. The merger agreement limits PFG’s ability to pursue an alternative acquisition proposal and requires PFG to pay a termination fee of $2,000,000 under limited circumstances relating to alternative acquisition proposals. Under the merger agreement, PFG has agreed not to initiate, solicit, induce or knowingly encourage, or take any action to facilitate any alternative business combination transaction or, subject to certain exceptions, Tennessee Bancshares has agreedparticipate in discussions or negotiations regarding, or furnish any non-public information relating to, operate itsany alternative business combination transaction. See “The Merger Agreement—No Solicitation” on page 62. The merger agreement also provides for PFG to pay to SmartFinancial a termination fee in the ordinary course, andamount of $2,000,000 in the event that the merger agreement is terminated for certain reasons. See “The Merger Agreement—Termination Fee” on page 66. These provisions could discourage a potential competing acquirer that might have an interest in acquiring PFG from considering or making a competing acquisition proposal, even if the potential competing acquirer was prepared to complypay consideration with a higher per share cash value than the market value proposed to be received or realized in the merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain other operational restrictions, prior to closingcircumstances under the merger. See “The Merger Agreement—Conduct of Business Pending the Merger.”merger agreement. The merger may distract SmartFinancial’s managementagreement contains provisions granting both PFG and SmartFinancial the right to terminate the merger agreement in certain circumstances. The merger agreement contains certain termination rights, including the right, subject to certain exceptions, of either party to terminate the merger agreement if the merger is not completed on or prior to June 30, 2020 (subject to automatic extension to September 30, 2020 if the only outstanding condition to closing is the receipt of regulatory approvals) and the right of PFG to terminate the merger agreement, subject to certain conditions, to accept a business combination transaction deemed to be superior to the merger by the PFG board of directors. If the merger is not completed, the ongoing business of PFG could be adversely affected and PFG will be subject to several risks, including the risks described elsewhere in this “Risk Factors” section.
The merger is subject to a number of conditions which, if not satisfied or waived in a timely manner, would delay the merger or adversely impact the companies’ ability to complete the transactions. The completion of the merger is subject to certain conditions, including, among others, the (1) approval of the merger agreement by the holders of at least a majority of the outstanding shares of PFG common stock entitled to vote at the PFG special meeting; (2) the receipt of all required regulatory approvals for the merger, without the imposition of any material on-going conditions or restrictions, and the expiration of all regulatory waiting periods; (3) the absence of any legal restraint (such as an injunction or restraining order) that would prevent the consummation of the merger; (4) the effectiveness of the registration statement of which this proxy statement/prospectus forms a part; (5) each party’s receipt of a tax opinion from its respective outside legal counsel, dated the closing date of the merger, confirming the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code; (6) the Plan of Bank Merger in the form attached as Exhibit B to the merger agreement attached asAnnex A to this document being executed and delivered; (7) the absence of 7.5% or more of the outstanding shares of PFG’s common stock exercising their dissenters’ rights; (8) the absence of the occurrence of a material adverse effect on PFG or SmartFinancial; (9) receipt of all consents necessary for the consummation of the merger; (10) entry of certain employees of PFG and its subsidiaries into new employment arrangements; and (11) other responsibilities.customary closing conditions set forth in the merger agreement. See “The Merger Agreement—Conditions to Completion of the Merger” on page 64. While it is currently anticipated that the merger will be completed during the first quarter of 2020, there can be no assurance that such conditions will be satisfied in a timely manner or at all, or that an effect, event, development or change will not transpire that could delay or prevent these conditions from being satisfied. Accordingly, there can be no guarantee with respect to the timing of the closing of the merger, whether the merger will be completed at all and when PFG shareholders will receive the merger consideration, if at all. SmartFinancial and PFG may waive one or more of the conditions to the merger without re-soliciting shareholder approval for the merger. Each of the conditions to the obligations of SmartFinancial and PFG to complete the merger may be waived, in whole or in part, to the extent permitted by applicable law, by agreement of SmartFinancial and PFG, if the condition is a condition to both parties’ obligation to complete the merger, or by the party for which such condition is a condition of its obligation to complete the merger. The boards of directors of SmartFinancial and PFG may evaluate the materiality of any such waiver to determine whether amendment of this proxy statement/prospectus and re-solicitation of proxies are necessary. SmartFinancial and PFG, however, generally do not expect any such waiver to be significant enough to require re-solicitation of shareholders. In the event that any such waiver is not determined to be significant enough to require re-solicitation of shareholders, the companies will have the discretion to complete the merger without seeking further shareholder approval. Regulatory approvals may not be received, may take longer than expected or impose conditions that are not presently anticipated. Before the transactions contemplated by the merger agreement may be completed, approvals or waivers must be obtained from various regulatory authorities, which include the Federal Reserve Board, the TDFI, and other securities and regulatory authorities. These governmental entities may request additional information or materials regarding the regulatory applications and notices submitted by SmartFinancial and PFG or may impose conditions on the granting of such approvals. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying the completion of the merger or of imposing additional costs or limitations on the combined company following the merger. The regulatory approvals may not be received at all, may not be received in a timely fashion, and may contain conditions on the completion of the merger that are not anticipated or cannot be met. There can be no assurance as to whether these and other regulatory approvals will be received, the timing of those approvals, or whether any conditions will be imposed. See “The Merger—Regulatory Approvals Required for the Merger” on page 45. The acquisitiondirectors and executive officers of Tennessee BancsharesPFG have interests in seeing the merger completed that are different from, or in addition to, those of the other PFG shareholders. The directors and executive officers of PFG have arrangements that provide them with interests in the merger that are different from, or in addition to, those of the shareholders of PFG generally. These interests and arrangements may create potential conflicts of interest and may influence or may have influenced the directors and executive officers of PFG to support or approve the merger and the merger agreement. See “The Merger—Interests of PFG’s Directors and Executive Officers in the Merger” beginning on page 42. The opinion of PFG’s financial advisor does not reflect changes in circumstances between the date of such opinion and the completion of the merger. PFG’s board of directors received an opinion from its financial advisor to the effect that, as of October 29, 2019, and subject to the qualifications, assumptions and limitations set forth therein, the exchange ratio was fair, from a financial point of view, to the holders of PFG common stock. Subsequent changes in the operations and prospects of PFG or SmartFinancial, general market and economic conditions and other factors that may be beyond the control of PFG or SmartFinancial, may significantly alter the value of PFG or SmartFinancial or the price of the shares of SmartFinancial common stock by the time the merger is completed. The opinion does not address the fairness of the exchange ratio from a financial point of view at the time the merger is completed, or as of any other date other than the date of such opinion. The opinion of PFG’s financial advisor is attached asAnnex B to this proxy statement/prospectus. For a description of the opinion, see “The Merger—Opinion of PFG’s Financial Advisor” on page 35.
The merger may be completed even if SmartFinancial or PFG experiences adverse changes in its business. In general, either SmartFinancial or PFG may refuse to complete the merger if the other party suffers a material adverse effect on its business prior to the closing of the merger. However, certain types of changes or occurrences with respect to SmartFinancial or PFG would not prevent the merger from going forward, even if the change or occurrence would have adverse effects on SmartFinancial or PFG, including the following: | · | changes in laws and regulations affecting financial institutions and their holding companies generally, or interpretations thereof by courts or governmental entities, if such changes do not have a disproportionate impact on the affected company; |
| · | changes in GAAP or regulatory accounting requirements generally applicable to financial institutions and their holding companies, if such changes do not have a disproportionate impact on the affected company; |
| · | changes in global, national or regional political conditions including the outbreak of war or acts of terrorism, or in economic or market conditions affecting the financial services industry generally, if such changes do not have a disproportionate impact on the affected company; |
| · | changes or effects from the announcement of the merger agreement and the transactions contemplated thereby, and compliance by the parties with the merger agreement on the business, financial condition or results of operations of the parties; |
| · | any failure by PFG of SmartFinancial to meet any internal or published industry analyst projections or forecasts or estimates of revenues or earnings for any period (but not including the underlying causes thereof); |
| · | changes in the trading price or trading volume of SmartFinancial common stock (but not including the underlying causes thereof unless otherwise specifically excluded); and |
| · | the impact of the merger agreement and the transactions contemplated thereby on relationships with customers or employees, including the loss of personnel subsequent to the date of the merger agreement. |
Litigation in transactions of this type are sometimes filed against the board of directors of either party that could cause SmartFinancial’s managementprevent or delay the completion of the merger or result in the payment of damages following completion of the merger. In connection with the merger, it is possible that PFG shareholders may file putative class action lawsuits against the boards of directors of SmartFinancial and/or PFG. Among other remedies, these shareholders could seek to focus itsenjoin the merger. The outcome of any such litigation would be uncertain. If a dismissal is not granted or a settlement is not reached, such potential lawsuits could prevent or delay completion of the merger and result in substantial costs to SmartFinancial and PFG. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger is consummated may adversely affect the combined company’s business, financial condition, results of operations, cash flows and energies on mattersmarket price. Risks Related to the Combined Company Following the Merger The combined company expects to incur substantial expenses related to the acquisition that otherwise would be directedmerger. The combined company expects to incur substantial expenses in connection with completing the merger and integrating the business and operations of PFG and SmartFinancial. Any such distraction on the partAlthough SmartFinancial and PFG have assumed that a certain level of management, if significant,transaction and integration expenses would be incurred, there are a number of factors beyond their control that could affect SmartFinancial’sthe total amount or the timing of their integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. As a result, the transaction and integration expenses associated with the merger could, particularly in the near term, exceed the savings that the combined company expects to achieve from the integration of the businesses following the completion of the merger.
Following the merger, the combined company may be unable to integrate PFG’s business with SmartFinancial successfully and realize the anticipated synergies and other benefits of the merger or do so within the anticipated timeframe. The merger involves the combination of two companies that currently operate as independent companies, as well as the companies’ subsidiaries. Although the combined company is expected to benefit from certain synergies, including cost savings, the combined company may encounter potential difficulties in the integration process, including: | · | the inability to successfully combine PFG’s business with SmartFinancial in a manner that permits the combined company to achieve the cost savings anticipated to result from the merger, which would result in the anticipated benefits of the merger not being realized in the timeframe currently anticipated or at all; |
| · | the risk of not realizing all of the anticipated operational efficiencies or other anticipated strategic and financial benefits of the merger within the expected timeframe or at all; |
| · | potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the merger; and |
| · | performance shortfalls as a result of the diversion of management’s attention caused by completing the merger and integrating the companies’ operations. |
For all these reasons, you should be aware that it is possible that the integration process could result in the distraction of the combined company’s management, the disruption of the combined company’s ongoing business or inconsistencies in the combined company’s operations, any of which could adversely affect the ability of the combined company to maintain relationships with customers and employees or to achieve the anticipated benefits of the merger, or could otherwise adversely affect the business and financial results of the combined company. Following the merger, the combined company may be unable to retain key employees. The success of the combined company after the merger will depend in part upon its ability to service existing businessretain key employees. Key employees may depart either before or after the merger because of issues relating to the uncertainty and develop new business, adversely affect its businessdifficulty of integration or a desire not to remain with the combined company following the merger. Accordingly, no assurance can be given that PFG or SmartFinancial or, following the merger, the combined company will be able to retain key employees. The voting power of PFG shareholders will be diluted by the merger. The merger will result in PFG shareholders having an ownership stake in the combined company that is smaller than their current stake in PFG. Upon completion of the merger of PFG with SmartFinancial, we estimate that PFG shareholders will own approximately 8.45% of the issued and earningsoutstanding shares of common stock of the combined company. Consequently, PFG shareholders, as a general matter, will have less influence over the management and negatively impactpolicies of the trading pricecombined company after the effective time of the merger than they currently exercise over the management and policies of PFG. Future capital needs could result in dilution of shareholder investment. SmartFinancial’s board of directors may determine from time to time there is a need to obtain additional capital through the issuance of additional shares of its common stock or other securities. These issuances would dilute the ownership interests of its shareholders and may dilute the per share book value of SmartFinancial common stock. New investors may also have rights, preferences and privileges senior to SmartFinancial’s shareholders which may adversely impact its shareholders. Risks Related to an Investment in the Combined Company’s Common Stock The market price of the shares of common stock of the combined company may be affected by factors different from those affecting the price of shares of SmartFinancial common stock before the merger. The results of operations of the combined company, as well as the market price of shares of the common stock of the combined company after the merger, may be affected by factors in addition to those currently affecting SmartFinancial’s or PFG’s results of operations and the market prices of shares of SmartFinancial common stock. Accordingly, the historical financial results of SmartFinancial and PFG and the historical market prices of shares of SmartFinancial common stock may not be indicative of these matters for the combined company after the merger. For a discussion of the businesses of SmartFinancial and PFG and certain risks to consider in connection with evaluating the proposals to be considered at the PFG special meeting, see the documents incorporated by reference by SmartFinancial into this proxy statement/prospectus referred to under “Where You Can Find More Information” beginning on page 85.
The market price of the combined company’s common stock may decline as a result of the merger. The market price of SmartFinancialthe combined company’s common stock may decline as a result of the merger if SmartFinancialthe combined company does not achieve the perceived benefits and cost savings of the merger or the effect of the merger on SmartFinancial’sthe combined company’s financial results is not consistent with the expectations of financial or industry analysts. In addition, upon completion of the merger, SmartFinancial and PFG shareholders will own interests in a combined company operating an expanded business with a different mix of assets, risks and liabilities. ShareholdersCurrent SmartFinancial and PFG shareholders may not wish to continue to invest in the combined company, or for other reasons may wish to dispose of some or all of their shares of the combined company. SmartFinancial’s management will have broad discretion as toAfter the use of assets acquired from this merger and may not use these assets effectively.
SmartFinancial’s management will have broad discretion in the application of the assets from this merger and could utilize the assets in ways that do not improve SmartFinancial’s results of operations or enhance the value of its common stock. Tennessee Bancsharesis completed, PFG shareholders will not have the opportunity, as part of their investment decision, to assess whether these acquired assets are being used appropriately. SmartFinancial’s failure to utilize these assets effectively could have a material adverse effect on the combined company, delay the development of products and cause the pricewho receive shares of SmartFinancial common stock to decline.
The special dividend may not be treated as additionalin the merger consideration for U.S. federal income tax purposes and insteadwill have different rights that may be recharacterizedless favorable than their current rights as PFG shareholders.
After the closing of the merger, PFG shareholders who receive shares of SmartFinancial common stock in the merger will have different rights than they currently have as PFG shareholders, which may be less favorable than their current rights as PFG shareholders. For a detailed discussion of the significant differences between the current rights of a shareholder of PFG and the rights of a shareholder of the combined company following the merger, see “Comparison of Rights of SmartFinancial Shareholders and PFG Shareholders” beginning on page 77. Risks Related to Tax The merger may have adverse tax consequences. Each of SmartFinancial and PFG expects the merger to qualify as a distribution under Section 301 of the Internal Revenue Code. SmartFinancial (as the successor to Tennessee Bancshares) intends to report the special dividend as additional merger consideration for U.S. federal income tax purposes. It is possible, however, that the IRS may disagree with the characterization of the special dividend as additional merger consideration paid by SmartFinancial in
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exchange for a portion of a holder’s Tennessee Bancshares common stock and instead recharacterize the special dividend as a distribution by Tennessee Bancshares“reorganization” within the meaning of Section 301368(a) of the Code. It is a condition to the respective obligations of SmartFinancial and PFG to complete the merger that each of SmartFinancial and PFG receives a tax opinion from its respective outside legal counsel, dated the closing date of the merger, to the effect that the merger will so qualify. A legal opinion represents the judgment of counsel rendering the opinion and is not binding on the Internal Revenue Code.Service or the courts. If the IRS recharacterizes the special dividend as Section 301 distribution, it will be treatedmerger were to fail to qualify as a dividend for U.S. federal income tax purposes to the extent paid out of current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) of Tennessee Bancshares. Assuming certain holding period and other requirements are met, the dividends received by a non-corporate United States holder will be subject to tax at the regular U.S. federal income tax rate generally applicable to long-term capital gains. The dividends received by a corporate United States holder may be eligible for a dividends received deduction, subject to applicable limitations. The portion of the special dividend, if any, in excess of the current or accumulated earnings and profits of Tennessee Bancshares generally will constitute a non-taxable return of capital that will be applied against and reduce (but not below zero) the United States holder’s adjusted tax basis in its Tennessee Bancshares common stock. Any remaining excess generally will be treated as capital gain from the sale or other disposition of the Tennessee Bancshares common stock.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus, including the appendixes hereto and information incorporated by reference, contains statements which constitute “forward-looking statements”reorganization within the meaning of Section 27A368(a) of the Securities ActCode, then each holder of 1933 (which we referPFG common stock generally would recognize gain or loss, as applicable, equal to as the “Securities Act”) and Section 21Edifference between (1) the sum of the Securities Exchange Actfair market value of 1934 (which we refer to as the “Exchange Act”). Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future performance, and business of eachshares of SmartFinancial and Tennessee Bancshares, as well as certain information relating to the merger. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. The actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which SmartFinancial and Tennessee Bancshares are unsure, including many factors that are beyond their control. The words “may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “continue,” “contemplate,” “seek,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and “estimate,” as well as similar expressions, are meant to identifycommon stock received by such forward-looking statements. You should note that the discussion of SmartFinancial’s and Tennessee Bancshares’ reasons for the merger contain many forward-looking statements that describe beliefs, assumptions, expectations, and estimates of the board or management of each of SmartFinancial and Tennessee Bancshares and public sources as of the indicated dates and those assumptions, expectations and estimates may have changed as of the date of this proxy statement/prospectus. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Those statements are not guarantees and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results could differ materially and adversely from these forward-looking statements.
The ability to predict results or the actual effects of the combined company’s plans and strategies is inherently uncertain. Some of the factors that may cause actual results to differ materially from those contemplated by the forward-looking statements, include, but are not limited to, those identifiedholder in the section of this proxy statement/prospectus titled “Risk Factors” beginning on page 20 of this proxy statement/prospectus and the following:
expected revenue synergies and cost savings from the combination may not be fully realized or may take longer than anticipated to be realized;
disruption from the merger with customers, suppliers or employees or other business partners’ relationships;
the risk of successful integration of the two companies’ business;
a material adverse change in the financial condition of SmartFinancial or Tennessee Bancshares;
loan losses that exceed the level of allowance for loan losses of the combined company;
lower than expected revenue following the merger;
SmartFinancial’s ability to manage the combined company’s growth;
the risks inherent or associated with a merger or acquisition, like the merger;
ability to obtain governmental approvals of the combination on the proposed terms and schedule;
general economic conditions, either nationally or in certain of the MSAs in which we operate, that are less favorable than expected resulting in, among other things, a deterioration of the quality of the combined company’s loan portfolio and the demand for its products and services;
failure of Tennessee Bancshares’ shareholders to approve the merger agreement and the merger;
the ability to obtain required governmental approvals of the merger and for such approvals to not be revoked;
reputational risk and the risk of adverse reaction of SmartFinancial’s, SmartBank’s, Tennessee Bancshares’ or Southern Community Bank’s customers, suppliers, employees, or other business partners to the merger;
the failure of the closing conditions to be satisfied or any unexpected delay in closing the merger;
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the risk that the integration of SmartFinancial and Tennessee Bancshares’ operations will be materially delayed or will be more costly or difficult than expected;
the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;
the dilution caused by SmartFinancial’s issuance of additional shares of its common stock in the merger or related to the merger;
continuation of the historically low short-term interest rate environment;
rapid fluctuations or unanticipated changes in interest rates on loans or deposits;
the inability to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies and required capital maintenance levels or regulatory agencies in connection with those agencies’ approval of the merger;
credit losses as a result of, among other potential factors, declining real estate values, increasing interest rates, increasing unemployment, or changes in payment behavior or other factors;
the amount of the combined financial institution’s loan portfolio collateralized by real estate and weaknesses in the real estate market;
restrictions or conditions imposed by the combined financial institution’s regulators on its operations;
the adequacy of the level of the combined financial institution’s allowance for loan losses and the amount of loan loss provisions requiredcash received by such U.S. holder in future periods;
examinationsthe merger and (2) its adjusted tax basis in the shares of PFG common stock surrendered in exchange therefor. The consequences of the merger to any particular shareholder will depend on that shareholder’s individual situation.We strongly urge you to consult your own tax advisor to determine the particular tax consequences of the merger to you.The PFG pre-closing distributions may have adverse tax consequences. Each of SmartFinancial and PFG expects the pre-closing distributions by PFG to its shareholders (inclusive of the AAA dividend, the 2019 tax distribution and the 2020 tax distribution) to be respected as distributions and not treated as merger consideration. There can be no assurance that the Internal Revenue Service will not take a different position concerning the tax consequences of the pre-closing distributions or that any such position would not be sustained. If the IRS were to take the position that the pre-closing distributions should be treated as merger consideration then the PFG shareholders will generally recognize capital gain (but not loss) equal to the lesser of (i) the excess, if any, of the amount of cash plus the fair market value of any SmartFinancial common stock received in the merger over the U.S. holder’s tax basis in the shares of PFG common stock surrendered in exchange therefor and (ii) the amount of cash received by the combined financial institution’s regulatory authorities, includingPFG shareholder in the possibilitymerger (other than cash received in lieu of a fractional shares). For further information on the tax consequences of cash received as merger consideration, see “The Merger—Material U.S. Federal Income Tax Consequences beginning on page 46.”
Risks Related to SmartFinancial’s Business There are certain risks relating to SmartFinancial’s business. You should read and consider risk factors specific to SmartFinancial’s business that the regulatory authorities may, among other things, requirewill also affect the combined financial institution to increase its allowance for loan losses or write down assets; changes in political conditions or the legislative or regulatory environment, including governmental initiatives affecting the financial services industry;
general economic conditions resulting in, among other things, a deterioration in credit quality, and other general competitive, political and market conditions;
increased competition with other financial institutions and other changes occurring in business conditions, including inflation.
Additional factors are discussed in the reports filed with the SECdocuments incorporated by SmartFinancial.reference into this proxy statement/prospectus. See “Where“Where You Can Find More Information”Information” on page 87.85 for the location of information incorporated by reference into this proxy statement/prospectus.
The above list
THE PFG SPECIAL MEETING This proxy statement/prospectus is not intendedbeing provided to the holders of PFG common stock as part of a solicitation of proxies by the PFG board of directors for use at the PFG special meeting to be exhaustiveheld at the time and there may be other factors that would preclude us from realizing the predictions made in the forward-looking statements. Because forward-looking statements are subject to assumptionsplace specified below and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Tennessee Bancshares shareholders are cautioned not to place undue reliance on such statements, which speak only as of the date of thisat any properly convened meeting following an adjournment thereof. This proxy statement/prospectus provides the holders of PFG common stock with information they need to know to be able to vote or instruct their vote to be cast at the date of any document incorporated by reference.PFG special meeting. All subsequent written or oral forward-looking statements concerning the merger or other matters addressed in this proxy statement/prospectus and attributable to SmartFinancial, Tennessee Bancshares, or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, SmartFinancial and Tennessee Bancshares undertake no obligation to update such forward-looking statements to reflect events or circumstances after the date of this proxy statement/prospectus or to reflect the occurrence of unanticipated events.
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SPECIAL MEETING OF SHAREHOLDERS
General With respect to Tennessee BancsharesPFG shareholders, this document constitutes a proxy statement of Tennessee BancsharesPFG in connection with its solicitation of proxies from its shareholders for the vote on the merger proposal, on approval and adoption of the merger agreement, and on the adjournment proposal. The proxy statement/prospectus is being mailed to Tennessee BancsharesPFG shareholders of record on or about [ ], 2018,December 26, 2019, together with the notice of the special meeting and a proxy solicited by Tennessee Bancshares’PFG’s board of directors for use at the special meeting and at any adjournments or postponements of the special meeting. Meeting Date, Time and Place
The special meeting will be held on [ ], 2018January 28, 2020 at [ ] a./p.]m.1:00 p.m., central time,Central Time, at the main office of Southern CommunityProgressive Savings Bank at 1400 North Jackson500 N. Main Street, Tullahoma,Jamestown, Tennessee 37388.38556. Matters to be ConsideredPurpose of the PFG Special Meeting
At the special meeting, Tennessee BancsharesPFG shareholders will be asked to: approve the merger proposal; and
approve the adjournment proposal.
| ● | approve the merger proposal; and |
| ● | approve the adjournment proposal. |
Each copy of this proxy statement/prospectus mailed to Tennessee BancsharesPFG shareholders is accompanied by a proxy form for use at the special meeting. Completion of the merger is conditioned on, among other things, the approval of the merger by the PFG shareholders. No other matter can be brought up or voted upon at the PFG special meeting. Proposal One: Merger Proposal PFG is asking its shareholders to approve the merger proposal. After careful consideration, PFG’s board of directors determined that the merger agreement and the transactions contemplated thereby, including the merger, were advisable and in the best interests of PFG and PFG’s shareholders. PFG shareholders should carefully read this document in its entirety, including the annexes and the documents incorporated by reference, for more detailed information concerning the merger agreement and the merger. For a detailed discussion of the merger, including the terms and conditions of the merger agreement, see “The Merger Agreement,” beginning on page 52. In addition, PFG shareholders are directed to the merger agreement, a copy of which is attached asAnnex A to this document and incorporated in this document by reference. Proposal Two: Adjournment Proposal If, at the PFG special meeting, the number of shares of PFG common stock present or represented and voting in favor of the merger proposal is insufficient to approve the merger proposal, PFG may move to adjourn the PFG special meeting in order to enable the PFG board of directors to solicit additional proxies for approval of the merger proposal. In that event, PFG’s shareholders will be asked to vote upon the adjournment proposal and not the merger proposal.
In the adjournment proposal, PFG is asking its shareholders to authorize the holder of any proxy solicited by its board of directors to vote in favor of granting discretionary authority to the PFG board of directors to adjourn the PFG special meeting to another time and place for the purpose of soliciting additional proxies. If PFG’s shareholders approve the adjournment proposal, PFG could adjourn the PFG special meeting and any adjourned session of the PFG special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from PFG shareholders who have previously voted. If a quorum is not present at the meeting, the meeting will not be convened to conduct business and neither the merger proposal nor the adjournment proposal will be considered. In the absence of a quorum, PFG may adjourn the meeting to a later date or time to solicit additional proxies. Recommendation of the PFG Board of Directors The PFG board of directors has determined that transactions contemplated by the merger agreement, including the merger and the bank merger, each on the terms and conditions set forth in the merger agreement, are in the best interests of PFG and its shareholders and has approved and adopted the merger agreement. The PFG board of directors unanimously recommends that PFG shareholders vote “FOR” the merger proposal and “FOR” the adjournment proposal. See “The Merger- PFG’s Reasons for the Merger” for a more detailed discussion of the PFG board of directors’ recommendation. In the course of reaching its decision to approve the merger agreement and the merger, PFG’s board of directors, among other things, consulted with its legal advisors, Baker, Donelson, Bearman, Caldwell, & Berkowitz, a Professional Corporation, or Baker Donelson, regarding the legal terms of the merger agreement, and with its financial advisor, Olsen Palmer, as to the fairness, from a financial point of view and as of the date of the opinion, to the PFG shareholders of the merger consideration. For a discussion of the factors considered by PFG’s board of directors in reaching its conclusion, see “The Merger- PFG’s Reasons for the Merger.” Record Date; QuorumShareholders Entitled to Vote The Tennessee BancsharesPFG board of directors has fixed the close of business on [ ], 2018December 17, 2019 as the record date for determining the Tennessee BancsharesPFG shareholders entitled to receive notice of and to vote at the special meeting. As of the record date, there were 1,809,28220,721 shares of Tennessee BancsharesPFG common stock outstanding and entitled to vote at the special meeting held by approximately [ ]36 holders of record. Each share of Tennessee BancsharesPFG common stock entitles the holder to one vote at the special meeting on each proposal to be considered at the special meeting. The presence at the special meeting, in person or by proxy, of holders of a majority of the outstanding shares of Tennessee BancsharesPFG common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business. All shares of Tennessee BancsharesPFG common stock present in person or represented by proxy, including abstentions and broker non-votes, if any, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the special meeting, including any adjournment thereof (unless a new record date is or must be set for the adjourned meeting). Quorum and Adjournment No business may be transacted at the PFG special meeting unless a quorum is present. Holders representing at least a majority of the issued and outstanding shares of PFG common stock entitled to vote at the PFG special meeting must be present, in person or represented by proxy, to constitute a quorum. Approval of the adjournment proposal requires the affirmative vote of a majority of the votes cast on the matter. No notice of an adjourned PFG special meeting need be given if the new date, time, and place are announced at the special meeting before adjournment, and no new record date is required to be set. If the meeting is adjourned to a date more than four (4) months after the date fixed for the original meeting, a new record date must be set, and a new notice must be given to the shareholders as of the new record date. At any adjourned PFG special meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the PFG special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the adjourned PFG special meeting. All shares of PFG common stock represented at the PFG special meeting, including shares that are represented but that vote to abstain, will be treated as present for purposes of determining the presence or absence of a quorum.
Vote Required; Treatment of Abstentions andRequired for Approval; Abstentions; Failure to Vote The merger proposal: Approval of the merger proposal requires the affirmative vote of a majority of all the votes entitled to be cast by the holders of the outstanding shares of Tennessee BancsharesPFG common stock. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the special meeting, or fail to instruct your bank, broker, or other nominee how to vote with respect to the merger proposal, it will have the same effect as a vote “AGAINST” the proposal. The adjournment proposal: Whether or not a quorum is present, approval of the adjournment proposal requires that the votes cast in favor of the proposal exceed the votes cast opposing the proposal at the special meeting. If you mark “ABSTAIN”“ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the special meeting, or fail to instruct your bank, broker, or other nominee how to vote with respect to the adjournment proposal it will have no effect on the proposal. Voting by PFG Directors and Executive Officers As of the record date, the 10% shareholder (which have signed voting agreements - see below), directors, and executive officers of PFG and their affiliates collectively beneficially owned and were entitled to vote 13,136 shares of PFG common stock, representing approximately 63.39% of the outstanding shares of PFG common stock. In connection with the execution of the merger agreement, directors of PFG and certain family members who collectively beneficially own and have the power to vote approximately 58.8% of PFG common stock have entered into agreements with SMBK in which they have agreed, among other things, to vote their shares of PFG common stock for the approval of the merger proposal. As of the record date, excluding shares held in fiduciary or agency capacity, SMBK and its subsidiaries did not own any shares of PFG common stock. PFG Common Stock Subject to Voting Agreements All directors of PFG who hold shares of PFG common stock and Emily Phillips Rains, solely in their capacity as shareholders of PFG, have entered into voting agreements with SMBK pursuant to which they have agreed to vote their shares of PFG common stock in favor of the approval of the merger proposal and against the approval or adoption of any proposal made in opposition to the merger. As of the PFG record date, 12,177,161 shares of PFG common stock, or approximately 58.8% of the outstanding shares of PFG common stock entitled to vote at the PFG special meeting, are bound by the voting agreements. Voting on Proxies by Holders of Record; Incomplete Proxies Each copy of this proxy statement/prospectus mailed to PFG shareholders is accompanied by a proxy card with instructions for voting. If you hold stock in your name as a shareholder of record, you should complete, sign, date, and return the proxy card accompanying this proxy statement/prospectus, regardless of whether you plan to attend the special meeting. If you hold your stock in “street name” through a bank, broker, or other nominee, you must direct your bank, broker, or nominee how to vote in accordance with the instructions you have received from your bank, broker, or nominee. YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF PFG COMMON STOCK YOU OWN. Accordingly, please sign, date, and return the enclosed proxy card whether or not you plan to attend the special meeting in person. All shares represented by valid proxies that PFG receives through this solicitation, and that are not revoked, will be voted in accordance with your instructions on the proxy card. If you make no specification on your proxy card as to how you want your shares voted before signing and returning it, your proxy will be voted “FOR” the merger proposal and “FOR” the adjournment proposal. No matters other than the matters described in this proxy statement/prospectus are anticipated to be presented for action at the special meeting or at any adjournment or postponement of the special meeting. However, if other business properly comes before the special meeting, the proxy agents will, in their discretion, vote upon such matters in their best judgment. Shares Held in “Street Name”; Broker Non-Votes Under stock exchange rules, banks, brokers, and other nominees who hold shares of stock in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, banks, brokers, and other nominees TABLE OF CONTENTS
are not allowed to exercise their voting discretion with respect to the approval of matters determined to be “non-routine,” without specific instructions from the beneficial owner. Broker non-votes are shares held by a bank, broker, or other nominee that are represented at the special meeting, but with respect to which the bank, broker, or nominee is not instructed by the beneficial owner of such shares to vote on the particular proposal and the bank, broker, or other nominee does not have discretionary voting power on such proposal. If your bank, broker, or other nominee holds your shares of Tennessee BancsharesPFG common stock in “street name,” your bank, broker, or other nominee will vote your shares only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your bank, broker, or other nominee with this proxy statement/prospectus. Tennessee BancsharesPFG believes that all of the proposals to be presented at the special meeting are “non-routine” proposals, and your bank, broker, or other nominee may not vote your shares without your specific voting instructions. Therefore, if you are a Tennessee BancsharesPFG shareholder and you fail to direct your bank, broker, or other nominee to vote your shares, it could have the same effect as voting against the merger proposal and no effect on the adjournment proposal. Shares Held by Officers and Directors
As of the record date, the directors and executive officers of Tennessee Bancshares and their affiliates collectively beneficially owned and were entitled to vote 537,487 shares of Tennessee Bancshares common stock, representing approximately 29.7% of the outstanding shares of Tennessee Bancshares common stock. In connection with the execution of the merger agreement, directors of Tennessee Bancshares who collectively beneficially own and have the power to vote approximately 29.4% of Tennessee Bancshares common stock have entered into agreements with SmartFinancial in which they have agreed, among other things, to vote their shares of Tennessee Bancshares common stock for the approval of the merger proposal. As of the record date, excluding shares held in fiduciary or agency capacity, SmartFinancial and its subsidiaries did not own any shares of Tennessee Bancshares common stock.
Voting of Proxies
Each copy of this proxy statement/prospectus mailed to Tennessee Bancshares shareholders is accompanied by a proxy card with instructions for voting. If you hold stock in your name as a shareholder of record, you should complete, sign, date, and return the proxy card accompanying this proxy statement/prospectus, regardless of whether you plan to attend the special meeting. If you hold your stock in “street name” through a bank, broker or other nominee, you must direct your bank, broker or nominee how to vote in accordance with the instructions you have received from your bank, broker or nominee.
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF TENNESSEE BANCSHARES COMMON STOCK YOU OWN. Accordingly, please sign, date, and return the enclosed proxy card whether or not you plan to attend the special meeting in person.
All shares represented by valid proxies that Tennessee Bancshares receives through this solicitation, and that are not revoked, will be voted in accordance with your instructions on the proxy card. If you make no specification on your proxy card as to how you want your shares voted before signing and returning it, your proxy will be voted “FOR” the merger proposal and “FOR” the adjournment proposal. No matters other than the matters described in this proxy statement/prospectus are anticipated to be presented for action at the special meeting or at any adjournment or postponement of the special meeting. However, if other business properly comes before the special meeting, the proxy agents will, in their discretion, vote upon such matters in their best judgment.
Revocability of Proxies and Changes to an PFG Shareholder’s Vote If you hold your shares of Tennessee BancsharesPFG common stock in your name as a shareholder of record, you may revoke any proxy at any time before it is voted by (1) signing and returning a proxy card with a later date, (2) delivering a written revocation letter to Tennessee Bancshares’PFG’s President, or (3) attending the special meeting in person, notifying the President, and voting by ballot at the special meeting. Any shareholder entitled to vote in person at the special meeting may vote in person regardless of whether a proxy has been previously given, but TABLE OF CONTENTS
the mere presence (without notifying Tennessee Bancshares’PFG’s President) of a shareholder at the special meeting will not constitute revocation of a previously given proxy. Written notices of revocation and other communications about revoking your proxy card should be addressed to: Tennessee Bancshares,
Progressive Financial Group Inc.
Attention: William Yoder,Ottis H. Phillips, President
P.O. Box 850
Tullahoma, and CEO 500 N. Main Street Jamestown, TN 37388-085038556 If your shares of Tennessee BancsharesPFG common stock are held in “street name” by a bank, broker, or other nominee, you should follow the instructions of your bank, broker, or nominee regarding the revocation of proxies. Solicitation of Proxies Tennessee Bancshares,
PFG, on behalf of Tennessee Bancshares’PFG’s board of directors, is soliciting your proxy in connection with the merger. Tennessee BancsharesPFG will pay all of the costs of soliciting proxies in connection with the special meeting. In addition to solicitation of proxies by mail, Tennessee BancsharesPFG will request that banks, brokers, nominees and other record holders send proxies and proxy material to the beneficial owners of Tennessee BancsharesPFG common stock and secure their voting instructions. However, Tennessee Bancshares’PFG’s directors, officers and employees will not be paid any special or extra compensation for soliciting such proxies. No person is authorized to give any information or to make any representation not contained in this proxy statement/prospectus and, if given or made, such information or representation should not be relied upon as having been authorized by SmartFinancial,SMBK, SmartBank, Tennessee Bancshares, Southern CommunityPFG, Progressive Savings Bank or any other person. Recommendation of the Boards of Directors
The Tennessee Bancshares board of directors has determined that transactions contemplated by the merger agreement, including the merger and the bank merger, each on the terms and conditions set forth in the merger agreement, are in the best interests of Tennessee Bancshares and its shareholders and has approved and adopted the merger agreement. The Tennessee Bancshares board of directors unanimously recommends that Tennessee Bancshares shareholders vote “FOR” the merger proposal and “FOR” the adjournment proposal. See “The Merger—Tennessee Bancshares’ Reasons for the Merger; Recommendation of the Tennessee Bancshares Board of Directors” for a more detailed discussion of the Tennessee Bancshares board of directors’ recommendation.
In the course of reaching its decision to approve the merger agreement and the merger, Tennessee Bancshares’ board of directors, among other things, consulted with its legal advisors, Waller Lansden Dortch & Davis, LLP, or Waller Lansden, regarding the legal terms of the merger agreement, and with its financial advisor, Olsen Palmer, as to the fairness, from a financial point of view and as of the date of the opinion, to Tennessee Bancshares of the merger consideration. For a discussion of the factors considered by Tennessee Bancshares’ board of directors in reaching its conclusion, see “—Tennessee Bancshares’ Reasons for the Merger; Recommendation of the Tennessee Bancshares Board of Directors.”
Dissenters’ Rights
Holders of Tennessee Bancshares common stock who comply with the provisions of Chapter 23 of the Tennessee Business Corporation Act are entitled to dissent from the merger and receive payment of the fair value of their shares of Tennessee Bancshares common stock if the merger is consummated. A copy of Chapter 23 of the Tennessee Business Corporation Act is attached as Appendix B to this proxy statement/prospectus. Please see the section entitled “The Merger – Dissenters’ Rights” beginning on page 44 for a summary of the procedures to be followed in asserting dissenters’ rights. A dissenting shareholder will be entitled to payment only if written notice of intent to demand payment is delivered to Tennessee Bancshares before the vote is taken and the shareholder does not vote in favor of merger proposal.
Attending the PFG Special MeetingMeeting; Voting in Person All holders of Tennessee BancsharesPFG common stock, including holders of record and shareholders who hold their shares through banks, brokers, nominees, or any other shareholder of record, are invited to attend the special meeting. Shareholders of record of Tennessee BancsharesPFG common stock can vote in person at the special TABLE OF CONTENTS
meeting. If you are not a shareholder of record, you must obtain a legal proxy executed in your favor from the record holder of your shares, such as a bank, broker, or other nominee, to be able to vote in person at the special meeting. Assistance If you have any questions concerning the merger or this proxy statement/prospectus, would like additional copies of this proxy statement/prospectus, or need help voting your shares of Tennessee BancsharesPFG common stock, please contact William Yoder,Ottis H. Phillips, at (931) 461-8507.752-2178.
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THE MERGER The following discussion contains certain information about the merger. The discussion is a summary of certain termssubject, and conditions of the merger and the merger agreement. You are urgedqualified in its entirety by reference, to read the merger agreement attached asAnnex A to this proxy statement/prospectus. We urge you to read carefully and a copy ofthis entire proxy statement/prospectus, including the merger agreement is attached as AppendixAnnex A to , for a more complete understanding of the merger.this proxy statement/prospectus. Transaction StructureGeneral
Each of the boardSmartFinancial’s and PFG’s respective boards of directors of SmartFinancial and Tennessee Bancshares has unanimously approved the merger agreement whichand the transactions contemplated by the merger agreement. The merger agreement provides for the acquisition of PFG by SmartFinancial pursuant to the merger of Tennessee BancsharesPFG with and into SmartFinancial, with SmartFinancial as the surviving company, which we refer to beas the corporation to survive, upon and subject to the terms and conditions set forth inmerger. Immediately after the merger, agreementProgressive Bank, a wholly owned bank subsidiary of PFG, will be merged with and in accordanceinto SmartBank, a wholly owned bank subsidiary of SmartFinancial, with SmartBank as the Tennessee Business Corporation Act. surviving bank, which we refer to as the bank merger. Purchase Price and Purchase Price Adjustments At the effective time of the merger, the separate corporate existenceeach share of Tennessee Bancshares will ceasePFG common stock issued and SmartFinancial, as the surviving corporation of the merger, will continue as a bank holding company chartered under Tennessee law. Following the merger, the charter and bylaws of SmartFinancial as in effectoutstanding immediately prior to the merger will serve as the charter and bylaws of the surviving corporation, until amended in accordance with applicable law. Immediately following the merger, Southern Community Bank will merge with and into SmartBank, with SmartBank to be the banking corporation to survive the bank merger, upon and subject to the terms and conditions set forth in the bank plan of merger and in accordance with the Tennessee Banking Act and the Tennessee Business Corporation Act. At the effective time of the bankmerger will be converted into the right to receive a pro rata portion (which is a ratio equal to one divided by the number of shares of PFG common stock issued and outstanding as of the closing) of (1) an aggregate amount of cash equal to $14,595,354.37 minus the amount of any pre-closing dividend paid by PFG and any loss in excess of $250,000 realized by PFG or its applicable subsidiary on sales of certain assets prior to closing, and (2) 1,292,592.556 shares of SmartFinancial common stock. Assuming that PFG does not pay any dividends from its accumulated adjustment account prior to the merger, the separate corporate existenceholders of Southern Community BankPFG common stock would receive approximately $704.375 and 62.3808 shares of SmartFinancial common stock (plus cash in lieu of fractional shares) for each share of PFG common stock they own, which, based on the closing sale price of SmartFinancial common stock on December 18, 2019 of $23.32 per share, represents approximately $2,159.10 in total merger consideration per share of PFG common stock.
PFG will ceasebe required to sell its holdings of Upper Cumberland Bancshares, Inc. prior to the closing, and SmartBank, aswill also be required to dissolve four wholly-owned subsidiaries -- The Cove at Little Island, LLC, Horse Creek Holdings LLC, Progressive Funding, Inc., and Cumberland Mountain Preserve/East First Street, LLC – and transfer any assets held by those subsidiaries to Progressive Savings Bank. Additionally, PFG is required to coordinate with SmartFinancial regarding the surviving corporationpotential sale of Progressive Accounting and Tax LLC and Cravens & Company Advisors, LLC. If the transactions described in this paragraph result in losses to PFG or its applicable subsidiaries in excess of $250,000, then the aggregate cash portion of the bankmerger consideration will be reduced by the amount of such excess on a dollar-for-dollar basis. On November 19, 2019, PFG completed the sale of its holdings in Upper Cumberland Bancshares, Inc. common stock, resulting in an aggregate loss of $27,160.00. SmartFinancial will not issue any fractional shares of SmartFinancial common stock in the merger. PFG shareholders who would otherwise be entitled to a fractional share of SmartFinancial common stock upon the completion of the merger will continue asinstead receive an amount in cash (without interest and rounded to the nearest whole cent) determined by multiplying the fractional share interest in SmartFinancial common stock (rounded to the nearest one hundredth of a banking corporation chartered under Tennessee law. The charter and bylawsshare) by the average closing price of SmartBank as in effectSmartFinancial’s common stock on the NASDAQ Capital Market over the ten (10) trading days ending on the business days immediately prior to the merger will serve as the charter and bylaws of the surviving bank, until amended in accordance with applicable law.closing date. Merger Proposal
At the special meeting, holders of Tennessee Bancshares common stock will bePFG shareholders are being asked to vote to approve the merger agreementagreement. See “The Merger Agreement” for additional and more detailed information regarding the legal documents that govern the merger, including information about the conditions to the completion of the merger and the merger. The merger will not be completed unless Tennessee Bancshares’ shareholders adoptprovisions for terminating or amending the merger agreement and approve the proposed merger of Tennessee Bancshares with and into SmartFinancial.agreement.
Background of the Merger As part of
Progressive Bank opened for business in 1980, as a state-chartered savings and loan institution serving Jamestown, Tennessee, and surrounding communities. Through the following years, Progressive Bank experienced good growth and financial performance as it grew to six offices in Cumberland, Fentress, Morgan, and Putnam Counties and over $296 million in total assets. In 2010, the charter was converted to a commercial bank, and in 2016, PFG was formed to be the bank holding company for Progressive Savings Bank. Since its ongoing consideration and evaluation of Tennessee Bancshares’ long-term strategic plan, Tennessee Bancshares’founding, the board of directors of Progressive Bank, and senior management have regularly reviewed and assessed Tennessee Bancshares’ business strategies and objectives, including strategic opportunities and challenges, andlater PFG, has considered various strategic options potentially availablealternatives to enhance and maximize shareholder value. These strategic alternatives have included continuing as an independent institution; acquiring other banks, bank branches, or other financial services related businesses; or a sale or merger.
In late 2017 and early 2018, family members of the Rains and Phillips families, who owned approximately 45% of the outstanding shares of PFG, were approached by at least two other banking organizations to discuss whether PFG might have an interest in selling PFG. One additional financial institution all withreached out in the goalsummer of maximizing value for its shareholders. Previous strategic discussions focused on, among other things, the business environment facing financial institutions in general,2018, so that Ottis H. Phillips, President, and Tennessee BancsharesCEO of PFG and Southern CommunityProgressive Savings Bank, in particular, as well as current conditionsbeing the representative of the Rains and ongoing consolidation withinPhillips families decided to hold meetings with some of the financial services industry. Other possible actions considered included continued organic growth, business combinations involving Southern Community Bankinterested parties who had expressed an interest in a merger. By August 2018, these discussions were narrowed down to one potential acquirer, and a Nondisclosure Agreement was executed with that acquirer so that it could proceed with a due diligence review of the books and records of PFG and its subsidiaries. After discussions with legal counsel about valuation metrics in late August, Mr. Phillips presented the possibility of a merger to the board of directors of PFG in September 2018. He indicated that various parties had expressed an interest, and he was authorized by the board to proceed with further discussions. In October 2018, after further discussions with legal counsel about the merger process and conversations with the potential acquirer identified by Mr. Phillips in August, the potential acquirer presented a letter of interest to acquire PFG. By November 2018, a separate party approached Mr. Phillips about making a capital contribution into PFG and becoming significant shareholders. As a result, Mr. Phillips presented the Board with information about the letter of interest and other financial institutions,discussions, and also asked legal counsel to present to the board the legal process for addressing merger proposals. In December 2018, further discussions were held between the potential acquiror that had presented the letter of interest, and a counter proposal was presented by Mr. Phillips. In the meantime, in January 2019, Christopher Olsen of Olsen Palmer LLC met with Mr. Phillips in Cookeville and agreed to provide him some valuation information to consider in making a decision whether to sell PFG. After additional discussions and counter offers exchanged, in February 2019, the potential acquirer presented a revised letter of interest. Mr. Phillips decided that the terms included in the revised letter of interest would not be acceptable to the board or the majority shareholders of PFG, and this letter of interest was rejected. Over the next few months, Mr. Olsen discussed various alternatives with Mr. Phillips as well as a possible salenumber of Tennessee Bancsharespotential acquirors they might want to contact. In May 2019, Mr. Olsen met with the Billy Carroll, CEO of SmartFinancial, at a conference during which Mr. Olsen and Southern Community BankMr. Carroll discussed SmartFinancial’s strategic priorities and interest in acquisitions. Mr. Carroll provided an update on SmartFinancial’s bank acquisition strategies including markets that may be of interest as well as sizes and types of banking institutions that would meet SmartFinancial’s acquisition criteria. Based on that meeting, Mr. Olsen suggested to Mr. Phillips that a larger financial institution. Duringmeeting be held with the first quartermanagement of 2017, Tennessee Bancshares received presentationsSmartFinancial in order to discuss a potential combination. Such a meeting was held in Knoxville in June 2019, which was attended by various parties from representatives of various investment banking firms, includingboth PFG and SmartFinancial as well as Mr. Olsen. A confidentiality agreement was subsequently executed by SmartFinancial on June 14, 2019, so each party could share further information. From June to August 2019, Mr. Olsen Palmer, regardingand Mr. Phillips continued to discuss strategic alternatives available to the company, valuation in the banking industry in general, and theother potential valuation of Tennessee Bancshares specifically.
On April 8, 2017, the Tennessee Bancshares board of directors held a strategic planning session to discuss in greater detail the strategic options available to the company. These options included, without limitation: (i) continued organic growth as an independent bank; (ii) a stock-for-stock merger with a publicly traded company; (iii) a cash sale to a larger public or private company; or (iv) an acquisition of a smaller bank for stock. Items discussed at the planning session included growth projections for Tennessee Bancshares, potential acquirers, transaction timing, and the impact of such a transaction on the shareholders and employees of the company. The board of directors also received information regarding fiduciary duties in the context of a proposed merger or sale transaction. Following a lengthy discussion, the board of directors instructed management to pursue a potential sale of the company with particular interest in a merger with a publicly traded institution for stock consideration. Also, at this meeting, the board of directors voted to retain Olsen Palmer as Tennessee Bancshares’ financial advisor in connection with a proposed sale of the company.
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Tennessee Bancshares directed Olsen Palmeracquirors to contact, various parties, selected by management after consultation with the board of directors and based on their assessed ability and level of interest in a potential transaction with Tennessee Bancshares, to discuss potential strategic options for Tennessee Bancshares. Following Olsen Palmer’s engagement and as part of that process, various parties, including SmartFinancial, were contacted by Olsen Palmer regarding a potential combination with Tennessee Bancshares.
SmartFinancial’s long-range corporate strategy includes growth through acquisitions within geographic areas complimentary to the company’s existing footprint. Management has also expressed its intention of growing SmartBank to over $2 billion in total assets. The proposed merger with Tennessee Bancshares would allow the combined institution to grow to over $2 billion in total assets, while being accretive to earnings, and providing the opportunity to penetrate banking markets in Middle Tennessee and Huntsville, Alabama.
On July 10, 2017, Tennessee Bancshares entered into a confidentiality and non-disclosure agreement with SmartFinancial in connection with a potential combination of the two entities. SmartFinancial subsequently received certain non-public preliminary diligence material about Tennessee Bancshares, which information was reviewed by SmartFinancial over the following weeks. During this period, Tennessee Bancshares also executed confidentiality agreements with a number of other financial institutions and provided similar non-public information to those institutions.
On August 3, 2017,2019, PFG engaged Olsen Palmer. In August 2019, further meetings also were held between PFG and SmartFinancial representatives, and on August 20, 2019, SmartFinancial submitted a nonbinding indication of interestwritten presentation to Tennessee Bancshares setting forth the proposedMr. Phillips and Mr. Olsen describing potential terms of a merger transaction as well as how the cultures of the organizations would combine including an offer valuing PFG at between $40 - $41 million with shareholders of PFG receiving 30% in cash and 70% in SmartFinancial common stock. After discussions with legal counsel and with Olsen Palmer, Mr. Phillips instructed Mr. Olsen to ask SmartFinancial to revise the two organizations, pursuant to which Tennessee Bancshares would merge into SmartFinancial, for aterms of the proposed offer including increasing the purchase price and increasing the percentage of $18.50 per sharecash consideration, and to make such an offer on a more formal offer basis in the form of Tennessee Bancshares commona nonbinding indication of interest. SmartFinancial submitted such an indication on August 29, 2019, the terms of which included SmartFinancial valuing PFG at between $41.4-42.0 million, based on SmartFinancial’s stock to be paidprice at the time, with shareholders of PFG receiving 35% of the consideration in 100%cash and 65% in SmartFinancial common stock pursuant to a fixed exchange ratio based on the recent trading price of SmartFinancial common stock. Additionally, Tennessee Bancshares received nonbinding indications of interest from other institutions, including a financial institution that we refer to as “Company A.”ratio.
On AugustSeptember 10, 2017, the board of directors of Tennessee Bancshares met with a representative of Olsen Palmer to discuss the indications of interest. At this meeting, Olsen Palmer presented on a variety of topics, including an overview of the marketing process and a review and analysis of proposals received. After a lengthy discussion, the board determined to proceed to negotiate with SmartFinancial and Company A in an effort to obtain the highest possible price for Tennessee Bancshares’ shareholders. On August 18, 2017, SmartFinancial submitted a revised2019, Mr. Phillips formally accepted SmartFinancial's nonbinding indication of interest, (the “revisedsubject to satisfactory completion of the due diligence of both PFG and SmartFinancial, negotiation of a merger agreement, and an exclusivity period of 60 days, among other conditions. Olsen set up an electronic data room so the parties could more easily exchange more detailed information. After submission and review from the document exchange, a draft merger agreement was presented by the attorneys for SmartFinancial to the attorneys for PFG on October 11, 2019. The specific pricing terms were added to the draft on October 18, 2019, reflecting SmartFinancial’s submission of a further-revised indication of interest”)interest which was submitted on the same date, which included the current consideration described in this proxy statement/prospectus. On October 21, 2019, PFG representatives, including representatives from Olsen Palmer and PFG's legal counsel met with an exchange ratio based on $18.75 per sharemanagement of Tennessee Bancshares common stock, and an agreement by SmartFinancial in Knoxville to evaluateinterview SmartFinancial's management about the addition of one legacy Tennessee Bancshares director to the boards of directorsfuture of SmartFinancial and SmartBank.ask questions derived from PFG's due diligence review. Also, additional terms of the merger agreement were negotiated and decided in order to proceed with the execution of the merger agreement.
On October 22, 2019, PFG's board met to discuss the details of the proposed merger of PFG with SmartFinancial. Mr. Olsen and PFG's legal counsel presented valuation and legal information and analysis to the Board, which authorized Mr. Phillips to continue negotiating a final merger agreement to bring back to the board for final review. Over the following week, final negotiations and exchanges of revised drafts of the merger agreement and related documents took place. On August 22, 2017, theOctober 25, 2019, SmartFinancial’s board of directors of Tennessee Bancshares held a specialmet at its regularly scheduled meeting during which a representative of Olsen Palmer reviewedto review and discuss the revised indication of interest. The discussion included the increased price, the mechanism for determining the exchange ratio, the possible addition of one legacy Tennessee Bancshares director to the boards of directors of SmartFinancial and SmartBankproposed merger and the impact of the proposed transaction on current Tennessee Bancshares’ employees. Themerger agreement. At this meeting, SmartFinancial’s board of directors also received information regarding the offer receivedpresentations from Company A, which provided for an all-cash transaction at a lower price than that offered by SmartFinancial. After a detailedits legal counsel, Alston & Bird LLP and its financial advisor, Keefe, Bruyette & Woods. Following this discussion, the board of directors of Tennessee Bancshares voted not to accept the offer from SmartFinancial due to several issues, including price. On August 24, 2017, SmartFinancial and Tennessee Bancshares management discussed SmartFinancial’s revised indication of interest by telephone.
On September 6, 2017, the board of directors of Tennessee Bancshares met with Olsen Palmer to discuss a potential offer from another financial institution, which we refer to as “Company B.” Representatives from Olsen Palmer presented an overview of Company B. On September 7, 2017, Tennessee Bancshares received a verbal offer from Company B. At this time, Tennessee Bancshares entered into a confidentiality and non-disclosure agreement with Company B and provided non-public information regarding Tennessee Bancshares to Company B. Tennessee Bancshares informed SmartFinancial of the offer from Company B.
On September 11, 2017, SmartFinancial provided Tennessee Bancshares with certain supplementary financial analyses that SmartFinancial had performed in connection with its revised indication of interest to Tennessee Bancshares.
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On September 13, 2017, the board of directors of Tennessee Bancshares held a special meeting to revisit the revised indication of interest. Following a review of additional financial analyses and an update concerning employee synergies, the board of directors unanimously voted to acceptapprove the merger agreement and the other transactions contemplated by the merger agreement, including the merger, and authorized SmartFinancial’s executives to execute the merger agreement.
On October 29, 2019, PFG's and Progressive Savings Bank's boards of directors at a jointly held specially called meeting, which was attended by Mr. Olsen of Olsen Palmer and representatives of Baker Donelson, reviewed the proposed merger agreement and related documents; discussed its legal obligations and fiduciary obligations as directors in considering the proposed merger agreement with Baker Donelson; and received Olsen Palmer’s summary analyses and opinion that the merger consideration to be received by the shareholders of PFG was fair, from a financial point of view, which was subsequently confirmed in writing (the full text of which is attached to this joint proxy statement/prospectus asAnnex B). Based upon this review and discussion of the legal terms of the revised indicationmerger agreement, the analyses and opinion of interest,Olsen Palmer, and other relevant factors, including consideration of the factors described under “The Merger — PFG’s Reasons for the Merger,” the PFG board voted unanimously to authorize William Yoder, Presidentapprove the merger with SmartFinancial and Chief Executive Officer, to acceptapprove the revised indication of interest, to negotiate a definitive merger agreement and Progressive Bank board approved a merger agreement to commence the due diligence process.be merged with SmartBank. On September 18, 2017, Mr. Yoder met members of SmartFinancial’s management to discuss the recent decision of the Tennessee Bancshares board of directors to accept SmartFinancial’s revised indication of interest.
Between September 20, 2017 and October 4, 2017, SmartFinancial conducted preliminary diligence with respect to Tennessee Bancshares.
Tennessee Bancshares executed the revised nonbinding indication of interest on October 10, 2017.
On October 12, 2017, Mr. Yoder met with Billy Carroll, President and Chief Executive Officer of SmartFinancial to discuss the timeline of the proposed merger and the expectations of the parties. On October 13, 2017, SmartFinancial engaged BSP Securities, LLC, or Banks Street, to provide financial advisory and investment banking services related to the proposed transaction with Tennessee Bancshares.
Between October 13, 2017, and October 31, 2017, SmartFinancial conducted a comprehensive financial, legal, operational and credit due diligence review of Tennessee Bancshares and Southern Community Bank, including document and loan review. On October 25, 2017, Tennessee Bancshares engaged an independent accounting firm to perform a review of SmartBank’s loan portfolio.
At a meeting of the SmartFinancial board of directors on October 26, 2017, Banks Street presented the strategic opportunities, financial merits, and viability of a potential transaction with Tennessee Bancshares. The SmartFinancial board of directors authorized Mr. Carroll and other members of SmartFinancial management to continue the diligence and negotiations process with respect to a potential transaction with Tennessee Bancshares.
During November, 2017, Tennessee Bancshares and SmartFinancial and their respective financial and legal advisors continued to perform financial and legal due diligence with respect to the other party based on due diligence request lists exchanged between the parties.
On November 15, 2017, legal counsel to SmartFinancial delivered an initial draft of the proposed definitive merger agreement to legal counsel to Tennessee Bancshares based on the terms outlined in the revised nonbinding indication of interest. Over the course of the next several days, negotiations between the parties and their counsel ensued regarding the terms of the definitive merger agreement. The parties negotiated various issues which included the respective representations and warranties of the parties, the respective covenants of the parties pending closing of the transaction, the rights and obligations of the parties in the event29, 2019, the merger agreement is terminated prior toand related documents were executed and delivered by the consummationparties. On the evening of the merger, including negotiations regarding the amount of the termination fee, various employee-related issues, and the new employment agreements proposed by SmartFinancial for Mr. Yoder, Gerald Player, and Robert Stahl .
On November 17, 2017 and December 1, 2017, representatives fromOctober 29, 2019, SmartFinancial and Tennessee Bancshares, together with counsel for each organization, conducted telephonic due diligence calls which coveredPFG jointly issued a variety of topics including financial, legal, and regulatory matters.
On November 21, 2017, counsel to Tennessee Bancshares provided a revised merger agreement to counsel for SmartFinancial.
On November 27, 2017, representatives of SmartFinancial verbally informed Tennessee Bancshares thatpress release announcing the proposed exchange ratio provided for in the merger agreement would be changed to a fixed exchange ratio of 0.7793 shares of SmartFinancial common stock for each share of Tennessee Bancshares common stock, which equated to a price per share of Tennessee Bancshares common stock of $17.37. Additionally, SmartFinancial proposed that Tennessee Bancshares pay its routine annual dividend to shareholders. The proposed revised exchange ratio was based on the results of SmartFinancial’s due diligence of the Tennessee Bancshares’ loan portfolio and projected loan growth.
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On November 28, 2017, the Tennessee Bancshares board of directors held a special meeting to discuss the revised offer from SmartFinancial. Representatives from Olsen Palmer updated the board on the current merger and acquisition environment, and presented an analysis of SmartFinancial common stock. The Tennessee Bancshares board of directors discussed the company’s potential options in connection with the transaction with SmartFinancial.
On November 29, 2017, SmartFinancial and Tennessee Bancshares entered into a mutual confidentiality agreement, which superseded and replaced the confidentiality agreement executed on July 10, 2017.
Between November 28 and December 1, 2017, SmartFinancial and Tennessee Bancshares discussed various issues related to specific loans in Southern Community Bank’s loan portfolio.
On December 1, 2017, SmartFinancial revised its offer to a fixed exchange ratio of 0.8065 shares of SmartFinancial common stock for each share of Tennessee Bancshares common stock, with no payment by Tennessee Bancshares of its routine annual dividend. Additionally, SmartFinancial proposed that the merger agreement provide that Tennessee Bancshares be allowed to pay a special, pre-closing cash dividend in an amount up to $0.70 cents per share if certain loans were sold prior to closing.
On December 4, 2017, the board of directors of Tennessee Bancshares held a special meeting to discuss the status of negotiations with SmartFinancial. Mr. Yoder presented the board with information on the status of discussions concerning SmartFinancial’s review of Southern Community Bank’s loan portfolio, and the revised offer from SmartFinancial, including information on the proposed pre-closing special dividend. The board of directors discussed the revised offer from SmartFinancial, and after discussion, directed Mr. Yoder to finalize the merger agreement with SmartFinancial under the revised terms.
On December 5, 2017, counsel to Tennessee Bancshares provided a revised versionsigning of the merger agreement.
On December 6, 2017,
SmartFinancial’s legal counsel distributed a revised draft ofReasons for the merger agreementMerger In reaching its decision to Tennessee Bancshares’ legal counsel reflecting the revised terms, including the addition of the pre-closing special dividend. On December 6, 2017, the board of directors of Tennessee Bancshares met to consider the proposed transaction with SmartFinancial, after receiving presentations from Tennessee Bancshares’ legal counselapprove and Olsen Palmer and after having had discussions with senior management. At the meeting, Tennessee Bancshares’ legal advisor reviewed with the Tennessee Bancshares directors their fiduciary duty to shareholders under Tennessee law. Tennessee Bancshares’ legal advisor also reviewed with the board of directors the terms and conditions ofadopt the merger agreement, the merger and the various agreements to be signed in connection withother transactions contemplated by the merger agreement. Olsen Palmer reviewedagreement, including the financial aspectsissuance of SmartFinancial common stock as the proposed merger and summarizedconsideration, the financial analysis that was used to render an opinion to the Tennessee BancsharesSmartFinancial board of directors regardingconsidered a number of factors, including the fairnessfollowing material factors:
| · | each of SmartFinancial’s and PFG’s business, operations, financial condition, asset quality, earnings and prospects; |
| · | the strategic fit of the businesses of the two companies, including their complementary markets, business lines and loan and deposit profiles; |
| · | the opportunity to strategically expand in complementary Tennessee markets; |
| · | the anticipated pro forma impact of the transaction on the combined company, including the expected impact on financial metrics including earnings and tangible book value and regulatory capital levels, as well as the potential efficiencies of scale resulting from the increased size of SmartFinancial following the merger; |
| · | its understanding of the current and prospective environment in which SmartFinancial and PFG operate, including national, state and local economic conditions, the competitive environment for financial institutions generally, and the likely effect of these factors on SmartFinancial both with and without the proposed transaction; |
| · | its review and discussions with SmartFinancial’s management concerning the due diligence investigation of PFG, including its review of PFG’s financial condition, results of operation, asset quality, market areas, growth potential (projected potential accretion to earnings per share and the projected payback period of the estimated decrease in tangible book value) and quality of senior management; |
| · | the perceived compatibility of the corporate cultures of the two companies, which management believes should facilitate integration and implementation of the transaction; |
| · | the structure of the transaction as a combination in which the combined company would operate under the SmartFinancial brand and SmartFinancial’s board of directors and management would have substantial participation in the combined company; |
| · | the regulatory and other approvals required in connection with the merger and the expectation that such regulatory approvals will be received in a timely manner and without the imposition of unacceptable conditions; and |
| · | the financial and other terms of the merger agreement, including the merger consideration, expected tax treatment, the deal protection and termination fee provisions, and restrictions on the conduct of PFG’s business between the date of the merger agreement and the date of completion of the merger. |
SmartFinancial’s board of directors also considered potential risks relating to the merger including the following: | · | SmartFinancial management’s attention and SmartFinancial resources may be diverted from the operation of SmartFinancial’s business and towards the completion of the merger; |
| · | SmartFinancial may not realize all of the anticipated benefits of the merger, including cost savings, maintenance of existing customer and employee relationships, and minimal disruption in the integration of PFG’s operations with SmartFinancial; |
| · | the nature and amount of payments and other benefits to be received by PFG management in connection with the merger pursuant to existing PFG plans and compensation arrangements and the merger agreement; |
| · | the substantial costs that SmartFinancial will incur in connection with the merger even if it is not consummated; |
| · | approvals from regulatory authorities could impose conditions that could have the effect of delaying completion of the merger or imposing additional costs; and |
| · | the possibility of litigation in connection with the merger. |
The foregoing discussion of the factors considered by the SmartFinancial board of directors is not intended to be exhaustive, but, rather, includes the material factors considered by the SmartFinancial board of directors. In reaching its decision to approve and adopt the merger agreement, the merger and the other transactions contemplated by the merger agreement, including the issuance of SmartFinancial common stock as the merger consideration, from a financial point of view, to the holders of Tennessee Bancshares common stock. Olsen Palmer verbally informed theSmartFinancial board of directors of Tennessee Bancshares that, assuming no material changes were made otdid not quantify or assign any relative weights to the merger agreement, Olsen Palmer was preparedfactors considered, and individual directors may have given different weights to deliver its written opinion. Following a discussion among members of Tennessee Bancshares’different factors. The SmartFinancial board of directors including consideration ofconsidered all these factors as a whole and overall considered the factors described below under “Tennessee Bancshares’to be favorable to, and to support, its determination. PFG’s Reasons for the Merger; Recommendation of the Tennessee Bancshares Board of Directors,” Tennessee Bancshares’Merger After careful consideration, PFG’s board of directors unanimously determined that the merger agreement and the merger areit was advisable and in the best interests of Tennessee BancsharesPFG and its shareholders and approved and adoptedfor PFG to enter into the merger agreement andwith SmartFinancial. Accordingly, PFG’s board unanimously recommends that PFG’s shareholders vote “FOR” the approval of the merger and recommended that the merger agreement and the merger be submitted to Tennessee Bancshares shareholders for approval. On December 12, 2017, Olsen Palmer delivered its written opinion to theagreement. PFG's board of directors of Tennessee Bancshares. At a special called meeting of the SmartFinancial board of directors on December 12, 2017, the SmartFinancial board of directors met with members of SmartFinancial’s senior management, Banks Street,reviewed and SmartFinancial’s legal advisors. Mr. Carroll and Mr. Welborn reviewed with the SmartFinancial board of directors information regarding SmartFinancial, Tennessee Bancshares, and the terms of the proposed merger. Representatives of Banks Street then reviewed with the SmartFinancial board of directors a range of matters, including the structure of the merger, business and financial information regarding the two companies, valuation methodologies and analyses and other matters. Members of SmartFinancial’s senior management also apprised the board of directors of the results of its due diligence investigations of Tennessee Bancshares. SmartFinancial’s legal advisors discussed with
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the board of directors the legal standards applicable to its decisions and actions with respect to the proposed merger and reviewed the terms of the proposed merger, the merger agreement and the ancillary transaction agreements, including the proposed employment agreements with Messrs. Yoder, Player,management and Stahl.
After considering the proposed terms of the merger agreement and the various presentations of its financial and legal advisors and taking into consideration the matters discussed during that meeting and prior meetings of the SmartFinancial board of directors, including the factors described under “SmartFinancial’s Reasons for the Merger,” the SmartFinancial board of directors unanimously determined that a merger with Tennessee Bancshares was consistent with SmartFinancial’s business strategies and in the best interests of SmartFinancial and SmartFinancial’s shareholders and the directors voted unanimously to approve and adopt the merger agreement and the transactions contemplated thereby.
Subsequently, the merger agreement and related agreements were executed and delivered and the transaction was announced on the evening of December 12, 2017, in a press release issued jointly by SmartFinancial and Tennessee Bancshares.
SmartFinancial’s Reasons for the Merger
In the course of reaching its conclusiondetermining that the proposed merger agreement is in the best interest of SmartFinancial and its shareholders, the SmartFinancial board of directors considered many factors, including the positive and negative factors described elsewhere in this proxy statement/prospectus. In reaching their conclusion, the members of the SmartFinancial board of directors relied on, among other things, their personal knowledge of SmartFinancial, Tennessee Bancshares, and the banking industry, on information provided by executive officers of SmartFinancial, and on advice and information provided by SmartFinancial’s legal and financial advisors.
each of SmartFinancial’s, Tennessee Bancshares’ and the combined entity’s business, operations, financial condition, asset quality, earnings and prospects;
the complementary nature of Southern Community Bank’s geographic footprint, which offers the potential for growth through the expansion into the new and attractive Middle Tennessee and Huntsville, Alabama markets, as well as the opportunity to improve market share in the Chattanooga, Tennessee region;
the potential to grow SmartBank’s brand as a premier community bank in the Southeast specializing in serving the banking needs of consumers and small and middle market businesses across its markets;
SmartFinancial’s management’s review of the business, operations, earnings and financial condition, including capital levels and asset quality, of Tennessee Bancshares;
the similarity of the business models and cultures of the two companies, including with respect to strategic focus, client service, credit cultures and risk profiles, which SmartFinancial management believes should facilitate the successful integration and implementation of the transaction;
potential increased income opportunity derived from the ability to market a larger number of products and services to Southern Community Bank customers that are not presently offered;
the expanded possibilities, including organic growth and future acquisitions, that would be available to the combined company, given its larger size, asset base, capital and footprint;
the potential enhanced economies of scale resulting in improved efficiencies, risk diversification and reduction of marginal cost risk management;
the anticipated pro forma impact of the transaction on the surviving corporation, including the expected impact on financial metrics including earnings and tangible book value and regulatory capital levels;
the board of directors’ understanding of the current and prospective environment in which SmartFinancial and Tennessee Bancshares operate, including national, regional, and local economic conditions, the competitive and regulatory environment for financial institutions generally, and the likely effect of these factors on SmartFinancial in the context of the proposed merger;
the board of directors’ beliefs with respect to the complementary aspects of SmartFinancial’s and Tennessee Bancshares’ businesses, including customer focus, business orientation and compatibility of the companies’ cultures and management and operating styles;
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the belief of SmartFinancial’s senior management that the management teams and employees of SmartFinancial and Tennessee Bancshares possess complementary skills and expertise and the potential advantages of a larger institution when pursuing, or seeking to retain, talent;
the belief of the board of directors that the pro forma increased market capitalization of SmartFinancial could result in higher visibility and exposure in the capital markets, which could have positive valuation implications; and
the beliefs of the board of directors that heightened regulatory scrutiny makes consolidation preferable, as large banks can more easily respond to market changes.
The foregoing information and factors considered by SmartFinancial’s board of directors is not exhaustive, but includes material factors that SmartFinancial’s board of directors considered and discussed in approving and recommending the merger. In view of the wide variety of factors considered and discussed by SmartFinancial’s board of directors in connection with its evaluation of the merger and the complexity of these factors, the board of directors did not consider it practical to, nor did it attempt to, quantify, rank, or otherwise assign any specific or relative weights to the specific factors that it considered in reaching its decision; rather it considered all of the factors as a whole. The board of directors discussed the foregoing factors internally and with SmartFinancial’s management and legal and financial advisors and reached the general consensus that the merger was in the best interests of SmartFinancialPFG and its shareholders. In considering the foregoing factors, individual directors may have assigned different weights to different factors. It should be noted that this explanation of the reasoning of SmartFinancial’s board of directors and other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Statement Regarding Forward-Looking Statements.”
The SmartFinancial board of directors determined that the merger, the merger agreement, and the issuance of SmartFinancial common stock in connection with the merger are in the best interests of SmartFinancial and its shareholders.
Tennessee Bancshares’ Reasons for the Merger; Recommendation of the Tennessee Bancshares Board of Directors
In reaching its decisionconclusion to approve the merger agreement and the other transactions contemplated by the merger agreement and to recommend to its shareholder to approve the merger proposal, the Tennessee BancsharesPFG board of directors consulted with Tennessee Bancshares management, as well as its financial and legal advisors, and considered a number of factors, including the following factors:following:
| · | the Board’s familiarity with PFG’s consolidated business, operations, earnings, and financial conditions; |
| · | the Board’s review, based in part by the presentation by management and PFG's legal and financial advisors, of the proposal, including a review of the business, operations, earnings, financial conditions, and community service and involvement of SmartFinancial, as well as the potential results from a sale to SmartFinancial; |
| · | the Board’s review of possible affiliation partners other than SmartFinancial, the prospects of such other possible affiliation partners, and the likelihood of any such affiliation; |
| · | the Board’s review of alternatives to such a transaction (including the alternatives of remaining independent and growing internally, remaining independent for a period of time and then selling, and remaining independent and growing through future acquisitions); |
each of SmartFinancial’s, Tennessee Bancshares’ and the combined entity’s business, operations, financial condition, asset quality, earnings and prospects;
the anticipated economies of scale for the combined company;
the anticipated pro forma impact | · | the recent business combinations involving financial institutions either announced or completed during the past few years in the State of Tennessee and the southeastern United States, and the effect of such combinations on competitive conditions in the PFG’s market area; |
| · | a comparison of the proposal from SmartFinancial to such recent business combinations involving financial institutions; |
| · | increasing regulatory and statutory burdens (including costs, time commitments, and difficulty executing earnings opportunities) on PFG and its subsidiaries as a community banking organization in general and as a result of the particular status of PFG; |
| · | management succession alternatives for PFG; |
| · | the opportunity for PFG shareholders to exchange their shares of PFG partially for shares of SmartFinancial resulting in the ownership of a publicly traded stock and the liquidity provided; |
| · | the increasing information technology costs and requirements for PFG as well as the costs and risks of cybersecurity; |
| · | enhancing the ability of a merged organization to provide PFG' customers with additional resources and the best banking options available; |
| · | the limited opportunities for PFG to continue to grow organically long term in consideration of capital, regulatory, competitive, and other factors; and |
| · | a fairness opinion presented by Olsen Palmer. |
The discussion of the merger on the combined company, including the expected impact on financial metrics, including earnings, dividends, return on equity, tangible book value, and regulatory capital levels; the current and prospective environment in which Tennessee Bancshares and SmartFinancial operate including national and local economic conditions, the interest rate environment, the competitive and regulatory environments for financial institutions generally, and the likely effect of these factors on Tennessee Bancshares both with and without the merger;
the similarity of the business models and cultures of the two companies, including with respect to strategic focus, client service, credit cultures and risk profiles, which Tennessee Bancshares management believes should facilitate the successful integration and implementation of the transaction;
the expanded possibilities, including organic growth and future acquisitions, that would be available to the combined company, given its larger size, asset base, capital and footprint;
the potential enhanced economies of scale resulting in improved efficiencies, risk diversification and reduction of marginal cost risk management;
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that holders of Tennessee Bancshares common stock will receive merger consideration consisting primarily of shares of SmartFinancial common stock, which stock is publicly traded on the Nasdaq Capital Market;
the ability of SmartFinancial to receive the requisite regulatory approvals in a timely manner;
the expected tax treatment of the merger as a “reorganization” for United States federal income tax purposes;
the complementary nature of the business strategies, customers, and business lines of the two companies which the Tennessee Bancshares board of directors believes should provide the opportunity to mitigate integration risks and increase potential returns including the similar cultures of commitment to customers and the communities served;
the board of directors’ belief that combining the two companies would create a larger and more diversified financial institution that is both better equipped to respond to economic and industry developments and better positioned to develop and build on its existing market position in Tennessee;
the board of directors’ beliefs with respect to the complementary aspects of SmartFinancial’s and Tennessee Bancshares’ businesses, including customer focus, business orientation and compatibility of the companies’ cultures and management and operating styles;
the belief of Tennessee Bancshares’ senior management that the management teams and employees of SmartFinancial and Tennessee Bancshares possess complementary skills and expertise and the potential advantages of a larger institution when pursuing, or seeking to retain, talent;
the belief of the board of directors that the pro forma increased market capitalization of Tennessee Bancshares could result in higher visibility and exposure in the capital markets, which could have positive valuation implications; and
the social and economic effects of the merger on Tennessee Bancshares’ depositors, borrowers, other customers, employees, and creditors, and on the communities in which Tennessee Bancshares operates or is located.
The foregoing information and factors considered by Tennessee Bancshares’the PFG board of directors is not exhaustive but includes material factors that Tennessee Bancshares’ board of directors considered and discussed in approving and recommendingby the merger.PFG board of directors. In view of the wide variety of factors considered and discussed by Tennessee Bancshares’the PFG board of directors in connection with its evaluation of the merger and the complexity of these factors,matters, the board of directors did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign any specific or relative weights to the specific factors that it considered in reaching its decision; rather it considered all of the factors as a whole.decision. The PFG’s board of directors discussedevaluated the foregoing factors internally and with Tennessee Bancshares’described above, including asking questions of management and its legal and financial advisors.advisors, and reached consensus that the merger was in the best interests of PFG and its shareholders. In considering the foregoing factors described above, individual members of the PFG’s board of directors may have assigned different weights to different factors. The PFG board of directors considered these factors as a whole, and overall considered them to be favorable to, and to support its determination. It should be noted that this explanation of the reasoning of Tennessee Bancshares’PFG’s board of directors and other information presented in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Statement Regarding Forward-Looking Statements.Statements.”
For the reasons set forth above, the Tennessee BancsharesPFG’s board of directors determined that the merger, the merger agreement, and the transactions contemplated by the merger agreementthereby are advisable and in the best interests of Tennessee BancsharesPFG and its shareholders, andshareholders. Accordingly, the board of directors unanimously approved the merger agreement and the transactions contemplated thereby. The Tennessee Bancshares board of directorsthereby and unanimously recommends that Tennessee Bancshares’the PFG shareholders vote “FOR” the Tennessee BancsharesPFG merger proposal and “FOR” the Tennessee BancsharesPFG adjournment proposal, if necessary or appropriate to solicit additional proxies. THE PFG BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE MERGER AGREEMENT. Opinion of Tennessee Bancshares’PFG’s Financial Advisor PFG retained Olsen Palmer to render financial advisory and investment banking services and to act as the exclusive financial advisor to PFG in connection with a potential strategic combination. Olsen Palmer is an investment banking firm specializing in community bank mergers and acquisitions. PFG selected Olsen Palmer as its financial advisors on the basis of its experience and expertise in representing community banks in similar transactions and its familiarity with PFG and the Tennessee banking market. Olsen Palmer, as part of its investment banking services, is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions. The board of directors of Tennessee Bancshares engaged
In its capacity as financial advisor, Olsen Palmer to provide financial advisory services in connection with the merger and to issue anprovided a fairness opinion to the board of directors of Tennessee BancsharesPFG in connection with the merger. At the meeting of the PFG board on October 29, 2019, Olsen Palmer provided an oral opinion to the PFG board (which was subsequently confirmed in writing by delivery of Olsen Palmer’s written opinion dated October 29, 2019) that, based upon and subject to the various factors, assumptions and limitations set forth in such opinion, Olsen Palmer representatives’ experience as investment bankers, Olsen Palmer’s work as described in such opinion and other factors Olsen Palmer deemed relevant, as of such date, the merger consideration to be received by PFG shareholders in the proposed merger with SmartFinancial was fair, from a financial point of view, to PFG shareholders. The Olsen Palmer written opinion, dated October 29, 2019, is sometimes referred to as the “Olsen Palmer opinion.” The full text of the Olsen Palmer opinion, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Olsen Palmer in rendering its opinion, is attached to this proxy statement/prospectus as Annex B. The summary of the Olsen Palmer opinion set forth herein is qualified in its entirety by reference to the full text of the opinion. PFG shareholders should read the full text of the opinion carefully and in its entirety. The Olsen Palmer opinion is addressed to the PFG board, is directed only to the fairness, from a financial point of view, to Tennessee Bancshares’ shareholders of the financial terms of the proposed merger (which we refer to as the “opinion”). Olsen Palmer issued its opinion on December 12, 2017. TABLE OF CONTENTS
No limitations were imposed by Tennessee Bancshares’ board of directors on Olsen Palmer with respect to the investigations made or procedures followed in rendering its opinion. Neither Olsen Palmer nor the individuals involved in providing Olsen Palmer’s opinion has any present or contemplated future ownership interest in Tennessee Bancshares. Pursuant to the terms of its engagement with Tennessee Bancshares, Olsen Palmer received a fee for providing the opinion and, upon completion of the merger will receive a success fee for its financial advisory services. In addition, Tennessee Bancshares also agreedconsideration to indemnify Olsen Palmer against certain liabilities arising out of its engagement.
Olsen Palmer has not provided investment banking and financial advisory services to Tennessee Bancshares or SmartFinancial during the two-year period prior to December 12, 2017. Olsen Palmer may provide investment banking, financial advisory and other financial services to Tennessee Bancshares and/or SmartFinancialbe received by PFG shareholders in the future, for which Olsen Palmer may receive compensation.
In connectionmerger with its opinion, Olsen Palmer made such reviews, analysesSmartFinancial, and inquiries as it deemed necessary and appropriate under the circumstances. Among other things, Olsen Palmer reviewed:
A draft dated December 12, 2017 of the merger agreement;
Certain financial statements and other historical financial information of Tennessee Bancshares that Olsen Palmer deemed relevant;
Internal financial projections for Tennessee Bancshares for the years ending December 31, 2017 through December 31, 2021 (the “projections”) as provided by senior management of Tennessee Bancshares;
A comparison of certain financial information for Tennessee Bancshares with similar institutions for which publicly available information is available;
The financial terms of certain recent business combinations in the commercial banking industry, to the extent publicly available;
Certain financial statements and other historical financial information of SmartFinancial that Olsen Palmer deemed relevant;
Publicly available consensus mean analyst earnings per share estimates for SmartFinancial for the years ending December 31, 2017, December 31, 2018 and December 31, 2019;
The publicly reported historical price and trading activity for SmartFinancial common stock, including a comparison of certain stock market information for SmartFinancial common stock and certain stock indices as well as publicly available information for certain other similar companies, the securities of which are publicly traded;
The current market environment generally and the banking industry in particular; and
Such other information, financial studies, analyses and investigations as well as financial, economic and market criteria that Olsen Palmer considered relevant.
Olsen Palmer also discussed with certain members of senior management of Tennessee Bancshares and its representatives the business, financial condition, results of operations, and prospects of Tennessee Bancshares.
In performing its review, and for purposes of rendering its opinion, Olsen Palmer relied upon the accuracy and completeness of all of the financial and other information that was available to it from public sources, that was provided to Olsen Palmer by Tennessee Bancshares or their representatives or that was otherwise reviewed by Olsen Palmer and has assumed, without independent verification, such accuracy and completeness of all such information. Olsen Palmer further relied on the assurances of the management of Tennessee Bancshares that they are not aware of any facts or circumstances that would make any of such information inaccurate or misleading. Olsen Palmer has not been asked to and has not undertaken an independent verification of any of such information and does not assume any responsibility or liability for the accuracy or completeness thereof. With Tennessee Bancshares’ consent, Olsen Palmer relied upon the advice Tennessee Bancshares has received from its legal, accounting, and tax advisors as to all legal, accounting, and tax matters relating to the merger that is contemplated by the merger agreement and Olsen Palmer assumed that all such advice is correct.
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Olsen Palmer’s opinion is necessarily based on financial, economic, market, and other conditions as in effect on, and the information made available to it as of December 12, 2017. Events occurring after the December 12, 2017 could materially affect Olsen Palmer’s opinion. Olsen Palmer has not undertaken to update, revise, reaffirm, or withdraw its opinion or otherwise comment upon events occurring after December 12, 2017.
Olsen Palmer’s opinion does not constitute a recommendation to the board of directors of Tennessee Bancshares or to any shareholder of either Tennessee Bancshares or SmartFinancial as to how any such member of such board or any shareholder should vote ator act on any meeting calledmatters relating to consider and vote upon the merger. Olsen Palmer expressesexpressed no opinion as to the fairness of the merger consideration to the creditors or other constituencies of Tennessee Bancshares.PFG. Olsen Palmer’s opinion is directed only to the fairness, from a financial point of view, of the merger consideration to the shareholders of Tennessee BancsharesPFG and does not address the underlying business decision of Tennessee BancsharesPFG to engage in the merger or the relative merits of the merger as compared to any other alternative business strategies that might exist for Tennessee Bancshares.PFG. Olsen Palmer did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by any officer, director, or employee, or class of such persons, relative to the compensation to be received in the merger by any other shareholder. Olsen Palmer’s opinion should not be construed as creating any fiduciary duty on the part of Olsen Palmer to any party or person. Olsen Palmer’s opinion was not reviewed or issued by a fairness opinion committee. Olsen Palmer has not been requested to opine as to, and theOlsen Palmer’s opinion does not express an opinion as to or otherwise address, among other things: (i) the fairness of any portion or aspect of the merger to any one class or group of Tennessee Bancshares’PFG or any other party’s security holders or other constituents vis-à-vis any other class or group of Tennessee Bancshares’PFG’s or such other party’s security holders or other constituents (including, without limitation, the allocation of any consideration amongst or within such classes or groups of security holders or other constituents), or (ii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the merger, any class of such persons or any other party, relative to the merger consideration or otherwise. Olsen Palmer expressed no opinion as to the actual value of SmartFinancial common stock when issued in the merger or the prices at which PFG common stock or SmartFinancial common stock will trade following announcement of the merger or at any future time.
In performing its review, and for purposes of rendering its opinion, Olsen Palmer relied upon the accuracy and completeness of all of the financial and other information that was available to it from public sources, that was provided to Olsen Palmer by PFG and SmartFinancial or their representatives or that was otherwise reviewed by Olsen Palmer and has assumed, without independent verification, such accuracy and completeness of all such information. Olsen Palmer further relied on the assurances of the management of PFG and SmartFinancial that they are not aware of any facts or circumstances that would make any of such information inaccurate or misleading. Olsen Palmer has not been asked to and has not undertaken an independent verification of any of such information and does not assume any responsibility or liability for the accuracy or completeness thereof. With PFG’s consent, Olsen Palmer relied upon the advice PFG has received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the merger that is contemplated by the merger agreement and Olsen Palmer assumed that all such advice is correct. In connection with its Opinion, Olsen Palmer made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Among other things, Olsen Palmer reviewed: a draft version dated October 25, 2019 of the Agreement; certain financial statements and other historical financial information of PFG and SmartFinancial that Olsen Palmer deemed relevant; publicly available median analyst earnings estimates for SmartFinancial for the years ending December 31, 2019, December 31, 2020 and December 31, 2021; internal financial projections for PFG for the year ending December 31, 2019 and estimated long-term annual earnings and balance sheet growth rates for the years ending December 31, 2020, December 31, 2021, December 31, 2022, December 31, 2023, December 31, 2024, and December 31, 2025 as provided by PFG;
a comparison of certain financial information for PFG with similar institutions for which publicly available information is available; the financial terms of certain recent business combinations in the commercial banking industry, to the extent publicly available; an estimated range of the intrinsic value of PFG based on assumptions relating to transaction expenses, purchase accounting adjustments, cost savings, and future profitability; the current and historical reported prices and trading activity of SmartFinancial Common Stock; the proforma financial impact of the Merger on SmartFinancial based on certain assumptions relating to purchase accounting adjustments, cost savings, transaction expenses and the anticipated regulatory impact of the Merger on SBMK; the current market environment generally and the banking industry in particular; and such other information, financial studies, analyses and investigations and financial, economic and market criteria as Olsen Palmer considered relevant. Olsen Palmer also discussed with certain members of senior management of PFG and its representatives the business, financial condition, results of operations and prospects of PFG. Olsen Palmer held similar discussions with certain members of senior management of SmartFinancial regarding the business, financial condition, results of operations, and prospects of SmartFinancial. Olsen Palmer’s opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of October 29, 2019. Events occurring after October 29, 2019 could materially affect Olsen Palmer’s opinion. Olsen Palmer has not undertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after October 29, 2019. Several analytical methodologies werehave been employed and no one method of analysis should be regarded as critical to the overall conclusion reached by Olsen Palmer. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. The overall conclusions Olsen Palmer reached are based on all the analysis and factors presented, taken as a whole, and also on application of Olsen Palmer’s own experience and judgment. Such conclusions may involve significant elements of subjective judgment and qualitative analysis. Olsen Palmer therefore gives no opinion as to the value or merit standing alone of any one or more parts of the analyses. The following summarizes the material financial analyses that were considered by Olsen Palmer in rendering its opinion. The summary below is not a complete description of the analyses underlying Olsen Palmer’s opinion or the presentation made by Olsen Palmer to PFG’s board of directors, but is a summary of all material analyses performed and presented by Olsen Palmer. No company or transaction used in the analyses described below is identical or directly comparable Tennessee BancsharesPFG, SmartFinancial, or the contemplated merger. Summary of ProposedFinancial Terms of Merger Consideration and Implied Transaction MetricsAgreement Olsen Palmer reviewed the. The financial terms of the merger agreement provide that PFG shareholders shall be entitled to receive in exchange for all shares of PFG common stock, $14,595,354.37 aggregate cash consideration, without interest, and 1,292,592.556 shares of SmartFinancial’s common stock. Based on 20,721 common shares of PFG outstanding as of October 29, 2019 and SmartFinancial’s closing price on October 28, 2019 of $20.72, the implied deal value per share equaled $1,996.91 and the aggregate transaction value approximated $41.4 million. Olsen Palmer calculated that the following impliedaggregate transaction metrics:value of $41.4 million represented:
| Without Special Dividend | With Special Dividend | Merger Consideration / 2016 Net Income | 18.4x | 19.1x | Merger Consideration / Last Twelve Months Net Income Ended June 30, 2017 | 14.4x | 15.0x | Merger Consideration / Tangible Common Equity as of June 30, 2017 | 155% | 161% | Tangible Book Premium / Core Deposits | 6.0% | 6.7% |
125 percent of PFG’s June 30, 2019 tangible book value; 18.0 times PFG’s June 30, 2019 last twelve months earnings; 13.7 percent of PFG’s June 30, 2019 total assets; and 3.4 percent premium to PFG’s June 30, 2019 core deposits.
PFG’s last twelve months earnings adjusted at an assumed 21% tax rate. SmartFinancial Selected Companies Analysis.As part of its analysis, Olsen Palmer analyzedreviewed publicly available information to compare selected financial and market trading information for SmartFinancial and a group of 8 financial institutions which (i) were banks with common stock listed on the relative valuation multiples as calculated by S&P Global Market Intelligence of 32 publicly-traded banks (including banks traded over-the-counter)NASDAQ or NYSE; (ii) were headquartered in U.S. withthe United States; (iii) had total assets as of September 30, 2019 between $200 million$2.0 billion and $300 million and with a$3.0 billion; (iv) had return on average assets over the last 12twelve months ended September 30, 2019 between 0.50% and 1.50%; and (v) nonperforming assets as a percentage of 0.50% to 1.25%, including:total assets as of September 30, 2019 of less than 0.75%. These 8 financial institutions were as follows: AMB Financial Corp.
Americas United Bank
| • | CapStar Financial Holdings, Inc. | • | Peoples Financial Services Corp. | | | | | | • | MutualFirst Financial, Inc. | • | Sierra Bancorp | | | | | | • | Old Second Bancorp, Inc. | • | Southern First Bancshares, Inc. | | | | | | • | Orrstown Financial Services, Inc. | • | West Bancorporation, Inc. |
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ASB Financial Corp.
Central Bank Corporation
Century Financial Corporation
Century Next Financial Corporation
Clarkston Financial Corporation
Community BancorpOlsen Palmer noted the following selected financial measures, in each case as of Santa Maria
Community Bank ofand for the Bay
Cornerstone Community Bancorp
Cullman Bancorp, Inc. (MHC)
Elmer Bancorp, Inc.
Enterprise Bank N.J.
Equitable Financial Corp.
ES Bancshares, Inc.
First Bancshares, Inc.
First Ottawa Bancshares, Inc.
First Resource Bank
Golden Valley Bank
High Country Bancorp, Inc.
Horizon Bancorp, Inc.
Melrose Bancorp, Inc.
Northern California National Bank
Oregon Pacific Bancorp
Ottawa Bancorp, Inc.
Pacific Alliance Bank
Pilgrim Bancshares, Inc.
Pinnacle Bancshares, Inc.
Quaint Oak Bancorp, Inc.
Shore Community Bank
Touchstone Bank
United Tennessee Bankshares, Inc.
relevant period ended September 30, 2019: | | | Total Assets ($billions) | | | Last Twelve
Months Return on
Average Assets | | | Nonperforming
Assets to Total Assets | | | Low | | $ | 2.0 | | | | 0.65 | % | | | 0.02 | % | | High | | $ | 2.6 | | | | 1.47 | % | | | 0.69 | % | | Median | | $ | 2.3 | | | | 1.20 | % | | | 0.45 | % | | Mean | | $ | 2.3 | | | | 1.14 | % | | | 0.43 | % | | SmartFinancial | | $ | 2.4 | | | | 1.15 | % | | | 0.20 | % |
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Olsen Palmer analyzed various financial multiples for each company as calculated by S&P Global Market Intelligence, based on trading prices as of October 28, 2019 and financial metrics for the relevant period ended September 30, 2019, including trading price per share to last 12twelve months’ earnings per share, trading price per share to tangible common equity per share, and the core deposit premium implied by the market capitalization.trading price per share to total assets. Olsen Palmer reviewed the mean, median, high, low, 4025th percentile, and 6075th percentile values for each metric of the selected companies. The results of the selected companies analysis are summarized below: | Price to Last 12
Months Earnings
per Share | Price to Tangible
Common Equity
per Share | Core Deposit
Premium Implied
by Market
Capitalization | Low | | 9.2x | | | 80.1 | % | | -6.0 | % | High | | 32.3x | | | 173.9 | % | | 12.4 | % | Median | | 14.3x | | | 112.2 | % | | 2.0 | % | Mean | | 16.0x | | | 114.3 | % | | 2.5 | % | 40th Percentile | | 14.0x | | | 108.1 | % | | 1.5 | % | 60th Percentile | | 14.7x | | | 116.7 | % | | 2.6 | % |
| | | Price to Last Twelve
Months Earnings
per Share | | | Price to Tangible
Common Equity per
Share | | | Price to Total
Assets | | | Low | | | 9.8 | x | | | 126 | % | | | 10.7 | % | | High | | | 19.5 | x | | | 189 | % | | | 15.9 | % | | Median | | | 13.1 | x | | | 152 | % | | | 14.8 | % | | Mean | | | 13.7 | x | | | 151 | % | | | 14.3 | % | | 25th Percentile | | | 12.1 | x | | | 141 | % | | | 13.7 | % | | 75th Percentile | | | 14.3 | x | | | 156 | % | | | 15.4 | % | | SmartFinancial | | | 11.0 | x | | | 127 | % | | | 12.1 | % |
Selected Companies Analysis. Olsen Palmer analyzed the relative valuation multiples as calculated by S&P Global Market Intelligence of 8 publicly-traded banks (including banks traded over-the-counter) which (i) were headquartered in the U.S.; (ii) had total assets as of June 30, 2019 between $150 million and $500 million; (iii) had a return on average assets over the twelve months ended June 30, 2019 between 0.50% to 1.25%; and (iv) nonperforming assets as a percentage of total assets as of June 30, 219 between 1.50% and 3.00%. These 8 financial institutions were as follows: | • | Citizens Financial Corp. | • | Home Federal Bancorp, Inc. of Louisiana | | | | | | • | Community Investors Bancorp, Inc. | • | Jefferson Security Bank | | | | | | • | First Ottawa Bancshares, Inc. | • | Oxford Bank Corporation | | | | | | • | Harford Bank | • | Peoples Bancorp, Inc. |
Olsen Palmer noted the following selected financial measures, in each case as of and for the relevant period ended June 30, 2019: | | | Total Assets ($millions) | | | Twelve Months
Return on Average
Assets | | | Nonperforming
Assets to Total
Assets | | | Low | | $ | 169 | | | | 0.65 | % | | | 1.52 | % | | High | | $ | 461 | | | | 1.19 | % | | | 2.18 | % | | Median | | $ | 341 | | | | 0.93 | % | | | 1.77 | % | | Mean | | $ | 332 | | | | 0.94 | % | | | 1.78 | % | | PFG (1) | | $ | 301 | | | | 0.77 | % | | | 2.29 | % |
(1) PFG’s twelve months return on average assets adjusted at an assumed 21.0% tax rate.
Olsen Palmer analyzed various financial multiples for each company as calculated by S&P Global Market Intelligence, based on trading prices as of October 28, 2019 and financial metrics for the relevant period ended June 30, 2019, including trading price per share to last twelve months’ earnings per share, trading price per share to tangible common equity per share, trading price per share to total assets, and the core deposit premium implied by the market capitalization. Olsen Palmer reviewed the mean, median, high, low, 25th percentile, and 75th percentile values for each metric of the selected companies. The results of the selected companies analysis are summarized below: | | | Price to Last
Twelve Months
Earnings per
Share | | | Price to Tangible
Common Equity
per Share | | | Price to Total
Assets | | | Core Deposit
Premium Implied
by Market
Capitalization | | | Low | | | 8.9 | x | | | 94.4 | % | | | 7.9 | % | | | -1.8 | % | | High | | | 14.4 | x | | | 121.2 | % | | | 13.8 | % | | | 2.0 | % | | Median | | | 11.6 | x | | | 104.7 | % | | | 10.2 | % | | | 0.4 | % | | Mean | | | 11.7 | x | | | 105.2 | % | | | 10.3 | % | | | 0.2 | % | | 25th Percentile | | | 10.9 | x | | | 98.4 | % | | | 9.0 | % | | | -0.4 | % | | 75th Percentile | | | 12.9 | x | | | 108.7 | % | | | 10.7 | % | | | 0.9 | % |
National Selected Transactions Analysis. Analysis.Olsen Palmer analyzed publicly available information relating to 24 selected8 acquisitions of banks that satisfied the following selected search criteria: transactions which (i) were announced between December 6, 2014January 1, 2015 and December 5, 2017 forOctober 28, 2019; (ii) where targets were headquartered in the Southeast U.S. with(Southeast is defined as the following states: AL, AR, FL, GA, MS, NC, SC, TN, VA, and WV); (iii) where targets had total assets between $175 million and $300 million and with$500 million; (iv) where targets had a return on average assets over the 12twelve months prior to the transaction announcement between 0.25%0.5% and 1.25%1.5%; (v) where targets had nonperforming assets as a percentage of total assets between 1.75% and 3.25%; and (vi) where targets had tangible common equity as a percentage of tangible assets between 9.0% and 12.5%. The selected transactions includedconsisted of the following (buyer / seller):
Community Financial Corporation/ County First Bank
QCR Holdings, Inc./ Guaranty Bank andBancorpSouth Bank/Merchants Trust, Company and certain other assets of Guaranty BanksharesInc.
First Bank/ Bucks County Bank
PiedmontPremier Financial Bancorp, Inc./ Mountain ValleyFirst Bank of Charleston, Inc.
Bay Banks of Virginia, Inc./Virginia BanCorp, Inc. Equity Bancshares, Inc. West Town Bancorp, Inc./ Sound Banking Company
Southern Missouri Bancorp, Inc./ Tammcorp, Inc.
Little Bank, Inc./ Union Banc Corp.
Community First Bancshares, Inc./ Iberville Bank OakStar Bancshares,Summit Financial Group, Inc./ Bancshares of Urbana, Inc.
Wintrust Financial Corporation/ First Community Financial Corporation
Fentura Financial, Inc./ Community Bancorp, Inc.
Independent Bank Corp./ New England Bancorp, Inc.
Lakeland Bancorp, Inc./ Harmony Bank
State Bank Corp./ Country Bank
County Bancorp, Inc./ Fox River Valley Bancorp, Inc.
Fidelity Southern Corporation/ American EnterpriseCentury Bankshares, Inc.
HCBF Holding Company, Inc./ OGS Investments, Inc.
First Capital, Inc./ Peoples Bancorp Inc. of Bullitt County
River Financial Corporation/ Keystone Bancshares, Inc.
Heartland Financial USA, Inc./ Community Bancorporation of New Mexico, Inc.
Seacoast Banking Corporation of Florida/ Grand Bankshares, Inc. TABLE OF CONTENTS
Howard Bancorp, Inc./ Patapsco Bancorp, Inc.
First NBC Bank Holding Company/ State Investors Bancorp, Inc.
IronhorseFloridian Financial Group, Inc.
CenterState Banks, Inc./ Benefit BankHometown of Homestead Banking Company Ameris Bancorp/Merchants & Southern Banks of Florida, Inc.
Olsen Palmer noted the following selected financial measures of the targets, in each case as of prior to the transaction announcement and for PFG as of June 30, 2019: | | | Total Assets ($millions) | | | Twelve Months
Return on Average
Assets | | | Nonperforming
Assets to Total
Assets | | | Tangible
Common Equity
to Tangible
Assets | | | Low | | $ | 189 | | | | 0.51 | % | | | 1.78 | % | | | 9.3 | % | | High | | $ | 484 | | | | 1.45 | % | | | 3.02 | % | | | 12.1 | % | | Median | | $ | 379 | | | | 0.71 | % | | | 2.17 | % | | | 11.2 | % | | Mean | | $ | 359 | | | | 0.85 | % | | | 2.29 | % | | | 10.8 | % | | PFG (1) | | $ | 301 | | | | 0.77 | % | | | 2.29 | % | | | 11.0 | % |
(1) PFG’s twelve months return on average assets adjusted at an assumed 21.0% tax rate. Olsen Palmer analyzed various financial multiples for each transaction as calculated by S&P Global Market Intelligence including deal value to last 12twelve months’ earnings plus cost savings,prior to transaction announcement, deal value to tangible common equity, deal value to total assets, and the core deposit premium implied by the deal value. Olsen Palmer reviewed the mean, median, high, low, 4025th percentile, and 6075th percentile values for each such metric of the selected companies.acquired institution in each such transaction. The results of the selected transactions analysis are summarized below: | Deal Value to Last 12
Months Earnings Plus
Potential Cost Savings | Deal Value to
Tangible Common
Equity | Core Deposit
Premium Implied by
the Deal Value | Low | | 3.0x | | | 98.9 | % | | -0.2 | % | High | | 17.3x | | | 160.4 | % | | 11.2 | % | Median | | 10.7x | | | 132.6 | % | | 4.6 | % | Mean | | 11.1x | | | 129.6 | % | | 4.4 | % | 40th Percentile | | 10.4x | | | 125.1 | % | | 3.7 | % | 60th Percentile | | 11.5x | | | 137.0 | % | | 5.1 | % |
| | | Deal Value to Last
Twelve Months
Earnings | | | Deal Value to
Tangible Common
Equity | | | Deal Value to
Total Assets | | | Core Deposit
Premium Implied
by the Deal Value | | | Low | | | 10.8 | x | | | 90.0 | % | | | 5.3 | % | | | -1.5 | % | | High | | | 33.9 | x | | | 163.9 | % | | | 18.5 | % | | | 11.4 | % | | Median | | | 16.1 | x | | | 129.3 | % | | | 12.3 | % | | | 3.9 | % | | Mean | | | 18.6 | x | | | 129.0 | % | | | 12.6 | % | | | 4.7 | % | | 25th Percentile | | | 12.8 | x | | | 114.4 | % | | | 10.0 | % | | | 2.3 | % | | 75th Percentile | | | 23.0 | x | | | 146.9 | % | | | 15.6 | % | | | 7.4 | % |
Regional Selected Transactions Analysis. Olsen Palmer analyzed publicly available information relating to 12 selected acquisitions of banks announced between December 6, 2012 and December 5, 2017 for targets headquartered in Tennessee and surrounding states with total assets between $200 million and $300 million and with a return on average assets over the 12 months prior to the transaction announcement of 0.50% to 1.25%. The selected transactions used in the analysis included (buyer / seller):
FSB LLC/ First Southern Bancshares, Inc.
Piedmont Bancorp, Inc./ Mountain Valley Bancshares, Inc.
Progress Financial Corporation/ First Partners Financial, Inc.
Little Bank, Inc./ Union Banc Corp.
Trustmark Corporation/ RB Bancorporation
First Capital, Inc./ Peoples Bancorp Inc. of Bullitt County
River Financial Corporation/ Keystone Bancshares, Inc.
ServisFirst Bancshares, Inc./ Metro Bancshares, Inc.
First Citizens Bancshares, Inc./ Southern Heritage Bancshares, Inc.
Southern Missouri Bancorp, Inc./ Peoples Service Company
Franklin Financial Network, Inc./ MidSouth Bank
New Century Bancorp, Inc./ Select Bancorp, Inc.
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Olsen Palmer analyzed various financial multiples for each transaction as calculated by S&P Global Market Intelligence including deal value to last 12 months’ earnings plus cost savings, deal value to tangible common equity, and the core deposit premium implied by the deal value. Olsen Palmer reviewed the mean, median, high, low, 40th percentile, and 60th percentile values for each metric of the selected companies. The results of the selected transactions analysis are summarized below:
| Deal Value to Last 12
Months Earnings Plus
Potential Cost Savings | Deal Value to
Tangible Common
Equity | Core Deposit
Premium Implied by
the Deal Value | Low | | 9.9x | | | 103.3 | % | | 0.5 | % | High | | 12.8x | | | 169.2 | % | | 10.1 | % | Median | | 10.5x | | | 138.6 | % | | 5.7 | % | Mean | | 10.9x | | | 142.4 | % | | 5.6 | % | 40th Percentile | | 10.2x | | | 137.1 | % | | 5.1 | % | 60th Percentile | | 10.8x | | | 147.8 | % | | 6.1 | % |
Discounted Cash Flow Analysis. Olsen Palmer analyzed the discounted present value of Tennessee Bancshares’PFG projected free cash flows for the years ending December 31, 20182019 through December 31, 2023 under two different2025. Olsen Palmer estimated fair value accounting adjustments, cost savings and other acquisition scenarios. Scenario one wasadjustments based on Tennessee Bancshares’discussions with management projections,of PFG and scenario two was based on recent Tennessee Bancshares’ financial performance.SmartFinancial and their representatives. Olsen Palmer estimated cash flows based on dividendable common equity, defined as Tier 1 Capital in excess of a minimum Tier 1 Capital Leverage ratio.ratio of 10.0%. Olsen Palmer applied a range of price to earnings multiplemultiples of 11.0x to Tennessee Bancshares’13.0x, based on review of price/last twelve months earnings multiples for relevant indices of publicly traded bank stocks, to PFG estimated calendar year 20232025 net income to derive a terminal value for each scenario.value. The projected cash flows and terminal values were discounted using an estimated cost of equity capital for Tennessee BancsharesPFG derived by the IbbotsonDuff & Phelps discount rate build-up method consisting of the sum of a risk-free rate, equity risk premium, size premium, and industry risk premium. Olsen Palmer applied a range of discount rates of 12.0% to 14.0%. The resultscalculations resulted in a rage of theimplied values of $1,737.21 to $2,171.92 per PFG share. The discounted cash flow analysis is a widely used valuation methodology that relies on numerous assumptions, including asset growth rates, earnings growth rates, discount rates, and terminal multiples, and the results of such methodology are summarized below:highly dependent on these assumptions. The financial forecasts from 2019 – 2025 were provided by PFG management. | Equity Value ($Total) | Scenario One | $ | 35.4 | | Scenario Two | $ | 29.2 | |
Conclusion.Conclusion. Based upon and subject to the foregoing, and in reliance thereon, it is Olsen Palmer’sour opinion that, as of December 12, 2017,October 29, 2019, the merger consideration to be received by the shareholders of Tennessee BancsharesPFG for all of the shares of Tennessee BancsharesPFG common stock in the merger pursuant to the merger agreement is fair, from a financial point of view, to such holdersholders.
.Olsen Palmer’s Compensation and Other Relationships with PFG and SmartFinancial.
No limitations were imposed by PFG’s board of directors on Olsen Palmer with respect to the investigations made or procedures followed in rendering its opinion. Neither Olsen Palmer nor the individuals involved in providing Olsen Palmer’s opinion has any present or contemplated future ownership interest in PFG. Olsen Palmer is acting as PFG’s financial advisor in connection with the merger and will receive a fee for such advisory services (“advisory fee”) with such fee determined by multiplying a certain percentage by the total merger consideration, with such advisory fee contingent upon the closing of the merger. Given that the merger consideration will fluctuate between the signing of the merger agreement and the effective time, the amount of the advisory fee will likewise fluctuate. At the time of announcement of the transaction, Olsen Palmer’s advisory fee was approximately $517,000. Olsen Palmer also received a $100,000 fee from PFG upon rendering its opinion (“opinion fee”) and a progress fee of $50,000 (“progress fee”) at the time of the signing of the agreement. PFG has also agreed to indemnify Olsen Palmer against certain claims and liabilities arising out of Olsen Palmer’s engagement and to reimburse Olsen Palmer for certain of its out-of-pocket expenses incurred in connection with Olsen Palmer’s engagement. Olsen Palmer has not provided investment banking and financial advisory services to PFG or SmartFinancial during the two-year period prior to October 29, 2019, except with respect to the transaction. Olsen Palmer may provide investment banking, financial advisory and other financial services to PFG and/or SmartFinancial in the future, for which Olsen Palmer may receive compensation. Board Composition and Management of SmartFinancial after the Merger Each of the officers and directors of SmartFinancial immediately prior to the effective time of the merger will be the officers and directors of the surviving company from and after the effective time of the merger, until their respective successors have been duly elected, appointed or qualified or until their earlier death, resignation or removal in accordance with the SmartFinancial Charter and SmartFinancial Bylaws. Additionally, at the effective time of the merger, the board of directors of SmartFinancial will be expanded to add an additional member, and the vacancy caused by such expansion will be filled with Ottis H. Phillips. Ottis Phillips, age 68, is the Chairman of the Board, President, and CEO of PFG and Progressive Savings Bank. He has served on both Boards since 2016 and as President/CEO since 2018. For 20 years, Mr. Phillips was the sole owner and President of SEC Enterprises, Inc., a beverage distribution company, located in Cookeville, Tennessee, which merged in 2013 with RMG, Inc. b/d/a Mid-South Distributing located in Tullahoma, Tennessee, where Mr. Phillips continued as President. In 2016, he sold this company and formed and serves as the managing partner of Phillips Properties Partnership in Cookeville, Tennessee, purchasing several residential rental properties. He has been a volunteer on numerous boards including the Cookeville-Putnam County Chamber of Commerce, the Blue Cross Bowl Steering Committee, the Tennessee Malt Beverage Association, the Tennessee Tech Athletic Hall of Fame selection committee, and the Tennessee Tech University Foundation Board of Directors. Born and raised in the Upper Cumberland, Tennessee, Mr. Phillips graduated from Tennessee Technological University in Cookeville, Tennessee, with a bachelor’s degree in Mechanical Engineering and a master’s degree in Business Administration. Interests of PFG’s Directors and Executive Officers in the Merger In considering the recommendation of the PFG board of directors, shareholders should be aware that the directors and executive officers of PFG have certain interests in the merger that may be different from, or in addition to, the interests of PFG shareholders generally. The PFG board of directors was aware of these interests and considered them, among other matters, in making its recommendation that PFG shareholders vote to approve the merger proposal. These interests are described in further detail below. Appointment to the Board of Directors of SmartFinancial and SmartBank Pursuant to the Merger Agreement, Ottis H. Phillips, President and CEO of PFG, will become a member of the board of directors of each of Smart Financial and SmartBank following the Effective Time. Employment Arrangement Some members of the Progressive Bank management team will continue to receive employment benefits that are consistent with those of other similarly situated SmartBank employees after the closing of the merger.
Other All participants in the Jo Ann Rains Employee Stock Ownership Plan and the Progressive Savings Bank F.S.B. 401(k) Plan, including any directors or executive officers participating in such plans, will become 100% vested as of each plan’s termination date (the day of the merger and the day immediately prior to the merger, respectively. Indemnification; Directors’ and Officers’ Insurance Pursuant to the terms of the merger agreement, for a period of six years from and after the effective time, SmartFinancial must indemnify certain persons, including PFG’s directors and executive officers. In addition, the merger agreement requires that for a period of six years from the effective time, subject to a cap on the amount of premiums, SmartFinancial must maintain an insurance policy for the benefit of certain persons, including PFG’s directors and executive officers. For additional information, see “The Merger Agreement — Covenants and Agreements; Indemnification and Insurance.” Beneficial Ownership of PFG Common Stock by Management and Principal Shareholders of PFG As of the Record Date, PFG had issued and outstanding 20,721 shares of common stock. The following table sets forth information as of the Record Date with respect to the beneficial ownership of PFG common stock by (i) each person who is the beneficial owner of more than 10% of the outstanding shares of PFG common stock, (ii) each director of Progressive Savings Bank and PFG, (iii) each of the executive officers of Progressive Savings Bank, PFG, and their significant subsidiaries, and (iv) all of the above as a group. Management of PFG knows of no other persons, other than those set forth in the following table, who own beneficially more than 10% of the outstanding shares of PFG common stock as of the date of this Proxy Statement/Prospectus. | Name, City, State | | Age | | Office
in Bank | | Office in
PFG | | Principal
Occupation | | Shares and % of
Common Stock1 | | | | | | | | | | | | Matt Daugherty
Crossville, TN | | 54 | | EVP of Retail | | N/A | | Banker | | 0 (0%) | | | | | | | | | | | | Dustin Davis
Jamestown, TN | | 32 | | CFO | | N/A | | Banker | | 2.295 (.01%) | | | | | | | | | | | | Robert Dowell
Knoxville, TN | | 71 | | Director | | Director | | Pharmacist | | 593 (2.86%) | | | | | | | | | | | | T. Scott Edwards
Allardt, TN | | 56 | | Director | | Director | | Manufacturing | | 1,949 (9.41%) | | | | | | | | | | | | Gary L. Hicks2
Jamestown, TN | | 54 | | Director | | Director | | Banker | | 10.946 (0.05%) | | | | | | | | | | | | Mark Justice
Jamestown, TN | | 49 | | EVP | | N/A | | Banker | | 9.83 (0.05%) | | | | | | | | | | | | Mark Norman
Jamestown, TN | | 59 | | EVP | | N/A | | Banker | | 8.955 (0.04%) | | | | | | | | | | | | Ottis H. Phillips
Cookeville, TN | | 68 | | Chairman, CEO, President | | Chairman, CEO, President | | Retired Beverage Distr. | | 935 (4.51%) | | | | | | | | | | | | Mike Porten
Silver Point, TN | | 64 | | EVP, Chief Banking Officer | | N/A | | Banker | | 0 (0%) | | | | | | | | | | | | Emily Phillips Rains3
Cookeville, TN | | 36 | | NA | | NA | | Homemaker | | 8,564.215 (41.33%) | | | | | | | | | | | | Paul Roberts
Cookeville, TN | | 46 | | Director | | Director | | CPA | | 0 (0%) | | | | | | | | | | | | Brandon Smith
Jamestown, TN | | 44 | | Director, Secretary | | Director | | Home centers operations | | 125 (0.60%) | | | | | | | | | | | | | Executives of Other Subsidiaries | | | | | | | | | | | | | | | | | | | | | | Wayne H. Cravens
Cookeville, TN | | | | Financial Services Director of Cravens & Company Advisors, LLC | | | | | | 403.711 (1.95%) | | | | | | | | | | | | G. Sam Sandlin
Cookeville, TN | | | | CPA, Progressive Accounting & Tax LLC | | | | | | 0 (0%) | | | | | | | | | | | | John Cook
Jamestown, TN | | | | President of Rains Agency Inc. | | | | | | 11.657 (0.06%) | | | | | | | | | | | | | 10% Shareholders, Directors, and Executive Officers as a Group | | | | | | | | | | 12,613.609 (60.87%) |
1 20,721 share are outstanding. Share counts include, in some circumstances, shares allocated to each individual through the ESOP. 2 Resigned as President and Chief Executive Officer on September 21, 2018 and as a director but agreed to serve as a until a replacement can be elected. 3 Daughter of Ottis Phillips.
PFG maintains an employee stock ownership plan for the benefit of its employees known as the Jo Ann Rains Employee Stock Ownership Plan (the “ESOP”). Participants and/or beneficiaries of the ESOP are entitled to direct the trustee of the ESOP as to the voting of any voting shares of PFG common stock allocated to their PFG common stock accounts under the ESOP with respect to any vote requirement for the approval or disapproval of any corporate merger. In accordance with instructions from the ESOP plan committee, the trustee shall vote any unallocated shares held by the ESOP trust as well as any allocated shares for which a participant and/or beneficiary has failed to give timely voting direction. Currently, there are 385.769 shares of PFG stock allocated to specific employees under the ESOP, with the remaining 432.231 shares being unallocated. The trustee of the ESOP is Matt Curtis, an employee of Progressive Savings Bank. The ESOP Plan Committee is made up of Terri Buchanan, Brittany Rose, Jessica Parrott, Lisa Wills, John Davis, Karen Cole, Tyler Atkinson, and Jerry Ward, who are also employees of Progressive Savings Bank. Limitation of Director's Liability PFG's charter provides that the personal liability of a director of PFG to PFG or its stockholders for damages for breach of fiduciary duty of the director is limited to the extent permitted by the Tennessee Business Corporation Act and applicable federal law. There is no such limitation with respect to a director's liability for any breach of the director's duty of loyalty to PFG or its stockholders or for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law. In addition, certain provisions are provided in the charter and bylaws of PFG to indemnify officers and directors for certain acts. Such limitation of liability also does not limit a director's liability for violation of, or otherwise relieve PFG or its directors from the necessity of complying with, federal or state securities laws, or affect the availability of equitable remedies such as injunctive relief or rescission. PFG believes this provision will assist in securing the services of directors who are not employees of PFG. As a result of the inclusion of such a provision, stockholders may be unable to recover monetary damages against directors for actions taken by them which constitute negligence or gross negligence or which are in violation of their fiduciary duties, although it may be possible to obtain injunctive or other equitable relief with respect to such actions. If equitable remedies are found not to be available to stockholders for any particular case, stockholders may not have any effective remedy against the challenged conduct. Certain Transactions The officers and directors are required to devote only so much of their time to the business of Progressive Savings Bank and PFG as in their judgment is reasonably required. The officers and directors, and their affiliates, may engage, and are presently engaging, for their own accounts in other business ventures, including management and the formation of other corporations or ventures. Such activities may result in conflicts of interest. Progressive Savings Bank has in the past and will continue to have in the future banking transactions in the ordinary course of business with directors, officers, and 5% stockholders and "related interests" of such persons. As used in this connection, "related interests" includes any entities, such as corporations in which directors have a 10% or greater ownership; corporations in which directors or officers of Progressive Savings Bank also serve as officers; other organizations, partnerships, and entities in which such persons are interested; and certain relatives of directors and officers. It is management's opinion that the direct and indirect extensions of credit described above have been and will continue to be (i) evidenced by a promissory note naming the lender as payee, and contain an annual percentage rate which is reasonably comparable to that normally charged to non-affiliates by other commercial lenders for similar loans made in the lender's locale; (ii) repaid pursuant to appropriate amortization schedules and contain default provisions comparable to those normally used by other commercial lenders for similar loans made in the lender's locale; (iii) made only if credit reports and financial statements, or other reasonable investigation appropriate in light of the nature and terms of the loan and which meet the loan policies normally used by other commercial lenders for similar loans made to non-affiliates in the lender's locale, show the borrower to be collectible and a satisfactory credit risk; and (iv) relative to the purpose of the loan and the disbursement of proceeds, reviewed and monitored in a manner comparable to that normally used by other commercial lenders for similar loans made in the lender's locale on the same terms, including collateral and interest rates, as those prevailing at the time for comparable transactions with unrelated persons and have not, and will not in the future, involve more than normal risk of uncollectibility or present other unfavorable features. At September 30, 2019, direct and indirect loans to officers and directors by Progressive Savings Bank aggregated approximately $2,806,000.
In addition, the directors of PFG and shareholders owning more than 10% of PFG who collectively beneficially own and have the power to vote approximately 58.8% of PFG common stock have entered into agreements with SmartFinancial in which they have agreed, among other things, to vote their shares of PFG common stock in favor of the merger proposal and the adjournment proposal. The voting agreements automatically terminate upon the earlier to occur of (i) the approval by PFG’s stockholders of the merger proposal or (ii) the termination of the merger agreement. Regulatory Approvals Required for the Merger Completion of the merger is subject to prior receipt of all approvals required to be obtained from applicable governmental and regulatory authorities. Subject to the terms and conditions of the merger agreement, PFG and SmartFinancial have agreed to use their reasonable best efforts and cooperate to prepare and file, as promptly as possible, all necessary documentation and to obtain as promptly as practicable all regulatory approvals or waivers required or advisable to complete the transactions contemplated by the merger agreement. These approvals and waivers include, among others, a waiver from the Federal Reserve Board and an approval from the TDFI. SmartFinancial and/or PFG have filed applications, waiver requests and notifications to obtain the required regulatory approvals or waivers. Federal Reserve Board The merger of PFG with SmartFinancial must be approved by the Federal Reserve Board under Section 3 of the Bank Holding Company Act of 1956, or the BHC Act, and its implementing regulations, unless the Federal Reserve Board waives the application requirements of the BHC Act. In considering the approval of a transaction such as the merger, the BHC Act and related laws require the Federal Reserve Board to review, with respect to the parent holding companies and the bank concerned: (1) the competitive impact of the transaction; (2) financial, managerial and other supervisory considerations, including capital positions and managerial resources of the subject entities; (3) the record of the insured depository institution subsidiaries of the bank holding companies under the Community Reinvestment Act and fair lending laws; (4) the extent to which the proposal would result in greater or more concentrated risks to the stability of the U.S. banking or financial system; and (5) additional public benefits of the proposal, such as the benefits to the customers of the subject entities. In connection with its review, the Federal Reserve Board will provide an opportunity for public comment on the application and is authorized to hold a public meeting or other proceeding if it determines that would be appropriate. SmartFinancial filed a written request that the Federal Reserve Board waive the application requirements of the BHC Act with regard to its acquisition of PFG on November 27, 2019. The merger of Progressive Savings Bank with and into SmartBank will be subject to approval by the Federal Reserve Board under Section 18(c) of the Federal Deposit Insurance Act (which we refer to as the “Bank Merger Act”). In evaluating an application filed under the Bank Merger Act, the Federal Reserve Board considers: (1) the competitive impact of the transaction, (2) the financial and managerial resources of the depository institutions party to the bank merger and future prospects of the resulting institution, (3) the convenience and needs of the communities to be served, (4) the depository institutions’ effectiveness in combating money-laundering activities and (5) the risk to the stability of the United States banking and financial system. SmartBank’s establishment and operation of branches at Progressive Savings Bank’s existing branch locations is also subject to approval under Section 9 of the Federal Reserve Act. In considering an application under Bank Merger Act, the Federal Reserve Board also reviews the records of performance of the relevant insured depository institutions under the CRA.
SmartBank filed an application with the Federal Reserve Board under the Bank Merger Act requesting approval of the bank merger on November 27, 2019. Tennessee Department of Financial Institutions The merger of Progressive Savings Bank with and into SmartBank must also be approved by the Tennessee Department of Financial Institutions (the “TDFI”) under Tennessee Code Annotated Section 45-2-1304. In considering an application under Section 45-2-1304, the TDFI reviews certain factors, including the compliance of the resulting state bank with state laws, the adequacy of the capital structure of the surviving bank, the fairness of the transaction, and whether the transaction is contrary to the public interest. SmartBank filed an application with the TDFI pursuant to Tennessee Code Annotated Section 45-2-1304 requesting approval of the bank merger on November 27, 2019. SmartFinancial and PFG believe that the merger does not raise substantial antitrust or other significant regulatory concerns and that we will be able to obtain all requisite regulatory approvals. However, neither SmartFinancial nor PFG can assure you that all of the regulatory approvals described above will be obtained and, if obtained, we cannot assure you as to the timing of any such approvals, our ability to obtain the approvals on satisfactory terms or the absence of any litigation challenging such approvals. The parties have agreed that SmartFinancial will not be required, and PFG and its subsidiaries will not be permitted, to take any action or commit to take any action or agree to any condition or restrictions in connection with the regulatory approvals that, individually or in the aggregate, would have or would be reasonably likely to have a material adverse effect on SmartFinancial and its subsidiaries or PFG and its subsidiaries as of and following the completion of the merger. The parties’ obligation to complete the merger is conditioned upon the receipt of all required regulatory approvals. SmartFinancial and PFG will use their respective commercially reasonable efforts to resolve any objections that may be asserted by any regulatory authority with respect to the merger agreement or the merger or the other transactions contemplated by the merger agreement. Neither SmartFinancial nor PFG is aware of any material governmental approvals or actions that are required for completion of the merger other than those described above. It is presently contemplated that if any such additional governmental approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained. Material U.S. Federal Income Tax Consequences The following is a general discussion of the material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) of PFG common stock that exchange their shares of PFG stock for shares of SmartFinancial common stock and cash in the merger. This discussion is based upon the Code, its legislative history, the Treasury Regulations promulgated under the Code, and court and administrative rulings and decisions, all as in effect on the date of this proxy statement/prospectus, and all of which are subject to change, potentially retroactively, which could affect the accuracy of the statements and conclusions set forth in this discussion. For purposes of this discussion, the term “U.S. holder” means a beneficial owner of PFG common stock that is for U.S. federal income tax purposes: (a) an individual citizen or resident of the United States; (b) a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) organized in or under the laws of the United States or any state thereof or the District of Columbia; (c) a trust if (1) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) such trust has made a valid election to be treated as a U.S. person for U.S. federal income tax purposes; or (d) an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source.
This discussion addresses only those U.S. holders of PFG common stock that hold their shares of PFG common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). Importantly, this discussion does not address all aspects of U.S. federal income taxation that may be relevant to a particular U.S. holder in light of that U.S. holder’s individual circumstances or to a U.S. holder that is subject to special treatment under the U.S. federal income tax laws, including, without limitation, a U.S. holder that is: | · | a bank or other financial institution; |
| · | a tax-exempt organization; |
| · | a regulated investment company; |
| · | a real estate investment trust; |
| · | an S corporation, partnership or other pass-through entity (or an investor in an S corporation, partnership or other pass-through entity); |
| · | a retirement plan, individual retirement account or other tax-deferred account; |
| · | a dealer or broker in stocks and securities, or currencies; |
| · | a trader in securities that elects to use the mark-to-market method of accounting; |
| · | a holder of PFG common stock subject to the alternative minimum tax provisions of the Code; |
| · | a holder of PFG common stock that received PFG common stock through the exercise of an employee stock option, through a tax-qualified retirement plan or otherwise as compensation; |
| · | a holder of PFG common stock that has a functional currency other than the U.S. dollar; |
| · | a holder of PFG common stock that holds such stock as part of a hedge, straddle, constructive sale, conversion or other integrated transaction; |
| · | a person that is not a U.S. holder; or |
| · | a U.S. expatriate or former citizen or resident of the United States. |
If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds PFG common stock, the tax treatment of a partner in the partnership will generally depend on the status of such partner and the activities of the partnership. Partnerships holding PFG common stock and partners in such partnerships should consult their tax advisors. This discussion does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction, or under any U.S. federal laws other than those pertaining to the income tax, nor does it address any considerations in respect of any withholding required pursuant to the Foreign Account Tax Compliance Act of 2010 (including the U.S. Treasury regulations issued thereunder and intergovernmental agreements entered into pursuant thereto).Determining the actual tax consequences of the merger to a U.S. holder is complex and can depend, in part, on the U.S. holder’s specific situation. Each U.S. holder should consult its own independent tax advisor as to the tax consequences of the merger in its particular circumstance, including the applicability and effect of the alternative minimum tax and any state, local, foreign or other tax laws and of changes in those laws. Tax Consequences of the Merger Generally In connection with the filing with the SEC of the registration statement on Form S-4 of which this proxy statement/prospectus is a part, Alston & Bird LLP, tax counsel to SmartFinancial, has rendered its tax opinion to SmartFinancial and Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, tax counsel to PFG, has rendered its tax opinion to PFG, in each case to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Copies of the tax opinions are attached as Exhibits 8.1 and 8.2 to the registration statement on Form S-4. The obligations of the parties to complete the merger are conditioned on, among other things, the receipt by SmartFinancial and PFG of opinions from Alston & Bird LLP and Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, respectively, dated the closing date of the merger, to the effect that for U.S. federal income tax purposes the merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Code. The conditions relating to receipt of such closing opinions may be waived by both SmartFinancial and PFG. Neither SmartFinancial nor PFG currently intends to waive the conditions related to the receipt of the closing opinions. If receipt of the closing opinions were to be waived, the vote of the holders of PFG stock to approve the merger agreement would be resolicited.
These opinions of Alston & Bird LLP and Baker, Donelson, Bearman, Caldwell & Berkowitz, PC provided to SmartFinancial and PFG, respectively, are and will be subject to customary qualifications and assumptions, including assumptions regarding the absence of changes in existing facts and the completion of the merger strictly in accordance with the merger agreement and the registration statement of which this proxy statement/prospectus forms a part. In rendering their legal opinions, Alston & Bird LLP and Baker, Donelson, Bearman, Caldwell & Berkowitz, PC will rely upon representations and covenants of SmartFinancial and PFG, including those representations contained in certificates of officers of SmartFinancial and PFG, reasonably satisfactory in form and substance to each such counsel, and will assume that such representations are true, correct and complete without regard to any knowledge limitation and that such covenants will be complied with. If any of these assumptions or representations are inaccurate in any way, or any of the covenants are not complied with, these opinions could be adversely affected. The opinions represent each counsel’s best legal judgment, but have no binding effect or official status of any kind, and no assurance can be given that contrary positions will not be taken by the Internal Revenue Service or a court considering the issues. In addition, neither PFG nor SmartFinancial has requested nor does either of them intend to request a ruling from the Internal Revenue Service as to the U.S. federal income tax consequences of the merger. Accordingly, there can be no assurances that the Internal Revenue Service will not assert, or that a court will not sustain, a position contrary to any of the tax consequences set forth below or described in the tax opinions. The following discussion assumes that the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code. Tax Consequences to U.S. Holders Subject to the discussion below relating to the receipt of cash in lieu of a fractional share, a U.S. holder that exchanges PFG common stock for a combination of SmartFinancial common stock and cash: | · | will generally recognize capital gain (but not loss) equal to the lesser of (i) the excess, if any, of the amount of cash plus the fair market value of any SmartFinancial common stock received in the merger over the U.S. holder’s tax basis in the shares of PFG common stock surrendered in exchange therefor and (ii) the amount of cash received by the U.S. holder in the merger (other than cash received in lieu of a fractional share); |
| · | will generally have a tax basis in the SmartFinancial common stock received in the merger (including any fractional share deemed received and redeemed for cash as described below) equal to the tax basis of the PFG common stock surrendered in exchange therefor, increased by the amount of taxable gain, if any, recognized by the U.S. holder in the merger (other than with respect to cash received in lieu of a fractional share), and decreased by the amount of cash received by the U.S. holder in the merger (other than cash received in lieu of a fractional share); and |
| · | will generally have a holding period for shares of SmartFinancial common stock received in the merger that includes its holding period for its shares of PFG common stock surrendered in exchange therefor. |
Such capital gain will generally be long-term capital gain if, as of the effective date of the merger, the U.S. holder’s holding period for such shares of PFG common stock exceeds one year. Long-term capital gain of non-corporate taxpayers, including individuals, is generally taxed at preferential rates. In the case of any U.S. holder that acquired different blocks of PFG common stock at different times and at different prices, any realized gain or loss will generally be determined separately for each identifiable block of PFG shares exchanged in the merger. Such U.S. holder should consult its own tax advisor regarding the manner in which gain or loss should be determined for each identifiable block of PFG shares. Treatment of Pre-Closing Distributions Generally, distributions to a shareholder from a corporation taxed under Subchapter S of the Internal Revenue Code are not taxable to the extent of a shareholder’s adjusted tax basis in the S corporation stock, with any distribution in excess of adjusted tax basis being treated as gain from the sale or exchange of property. However, if an S corporation has C corporation earnings and profits from prior C corporation years, distributions by the S corporation to its shareholders may be taxable as dividends under certain limited circumstances.
Pursuant to the Merger Agreement, PFG is permitted to make the following distributions to its shareholders prior to closing: (1) dividend in an amount equal to the balance of PFG’s accumulated adjustment account as of December 31, 2019, less the tax distributions as described below, subject to a maximum of $14,595,354.37, less any adjustments to the aggregate cash consideration pursuant to the merger agreement, (2) a one-time tax distribution payable on or before February 29, 2020 in an amount that will enable PFG’s shareholders to satisfy their respective tax obligations in connection with their pro rata share of the income of PFG for the tax period ending on December 31, 2019; and (3) a one-time tax distribution payable immediately prior to the closing in an amount sufficient for PFG’s shareholders to satisfy their respective tax obligations in connection with their pro rata share of the income of PFG for the tax period commencing on January 1, 2020 and ending on the closing date. We collectively refer to these distributions as the “pre-closing distributions”. U.S. holders generally will not be taxed on the Pre-Closing Distributions to the extent of their tax basis in their PFG common stock immediately prior to the distribution. To the extent that pre-closing distributions are not taxable due to a U.S. holder’s tax basis prior to the distributions exceeding the amount received, the holder’s tax basis in its PFG common stock would decrease (but not below zero) by the amount of the distributions paid. A U.S. holder’s adjusted tax basis in PFG common stock, after taking into account the pre-closing distributions, would affect the amount of the holder’s gain or loss, if any, in the merger as well as the holder’s carryover tax basis in the SmartFinancial common stock received in the merger. As described above, to the extent that any such distribution exceeds the shareholder’s adjusted tax basis in his or her S corporation stock, the excess portion would be taxable as a gain from the sale or exchange of property. That gain generally would be a capital gain and would be long-term capital gain if, at the time that the distribution is made, the holder’s holding period for its PFG common stock exceeds one year. Long-term capital gain of non-corporate taxpayers, including individuals, is generally taxed at preferential rates. Generally, distributions made by corporations before a merger are disregarded in determining whether the merger is treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code and are not treated as cash received in the merger (which could result in the recognition of gain by the shareholders as a result of the merger), unless the source of funds for such distributions can be traced to the acquiring entity. PFG intends to make the pre-closing distributions described above out of its own funds and does not expect that such distributions would cause the merger to fail to be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code or that such distributions would be treated as cash received in the merger, but there can be no assurances that the Internal Revenue Service or a court would not adopt a contrary position. A U.S. holder who recognizes gain to the extent pre-closing distributions exceed the holder’s tax basis in the PFG shares may also be subject to net investment income tax, backup withholding, and reporting in the same manner as described below. Shareholders Exercising Dissenters’ Rights Upon its exercise of dissenters’ rights, a U.S. holder of PFG common stock will exchange all of its PFG common stock for cash. A U.S. holder that receives only cash in exchange for its PFG common stock in the merger will generally recognize gain or loss equal to the difference between the amount of cash received and such U.S. holder’s tax basis in its PFG common stock. This gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if the U.S. holder’s holding period for its shares of PFG common stock surrendered exceeds one year. Long-term capital gain of non-corporate taxpayers, including individuals, is generally taxed at preferential rates. The deductibility of capital losses may be subject to limitations. Cash In Lieu of a Fractional Share If a U.S. holder receives cash in lieu of a fractional share of SmartFinancial common stock, the U.S. holder will generally be treated as having received the fractional share of SmartFinancial common stock in the merger and then as having exchanged the fractional share of SmartFinancial common stock for cash. As a result, the U.S. holder generally will recognize gain or loss equal to the difference between the amount of cash received and the portion of the U.S. holder’s aggregate tax basis allocable to the fractional share of SmartFinancial common stock. This gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if, as of the effective date of the merger, the U.S. holder’s holding period for the PFG common stock deemed surrendered in exchange for the fractional share of SmartFinancial common stock exceeds one year. Long-term capital gain of non-corporate taxpayers, including individuals, is generally taxed at preferential rates. The deductibility of capital losses may be subject to limitations.
Net Investment Income Tax A. non-corporate U.S. holder of PFG common stock is generally subject to a 3.8% tax on the lesser of (i) his or her “net investment income” for the relevant taxable year or (ii) the excess of his or her modified adjusted gross income for the taxable year over a certain threshold which depends on the holder’s U.S. federal income tax filing status. Net investment income generally would include any gain recognized in connection with the merger, as well as, among other items, other interest, dividends, capital gains and rental or royalty income received. U.S. holders of PFG common stock should consult their own tax advisors as to the application of this additional tax to their circumstances. Backup Withholding Backup withholding at the applicable rate (currently 24%) may apply with respect to certain cash payments to holders of PFG common stock unless the holder: | · | furnishes a correct taxpayer identification number, certifies that it is not subject to backup withholding on IRS Form W-9 or successor form included in the letter of transmittal that the U.S. holder will receive, and otherwise complies with all the applicable requirements of the backup withholding rules; or |
| · | provides proof that it is otherwise exempt from backup withholding. |
Any amounts withheld under the backup withholding rules are not an additional tax and will generally be allowed as a refund or credit against the U.S. holder’s U.S. federal income tax liability, provided the U.S. holder timely furnishes the required information to the Internal Revenue Service. Certain Reporting Requirements If a U.S. holder that receives SmartFinancial common stock in the merger is considered a “significant holder,” such U.S. holder will generally be required (a) to file a statement with its U.S. federal income tax return providing certain facts pertinent to the merger, including such U.S. holder’s tax basis in, and the fair market value of, the PFG common stock surrendered by such U.S. holder, and (b) to retain permanent records of these facts relating to the merger. A “significant holder” is any PFG shareholder that, immediately before the merger, (y) owned at least 1% (by vote or value) of the outstanding stock of PFG or (z) owned PFG securities with a tax basis of $1.0 million or more. This discussion of material U.S. federal income tax consequences does not purport to be a complete analysis or discussion of all the potential tax consequences of the merger. It is for general information only purposes and is not tax advice. Holders of PFG common stock are urged to consult their own independent tax advisors as to the U.S. federal income tax consequences, in light of their particular situations, of the merger (or exercise of dissenters’ rights), as well as the applicability of any other U.S. federal tax laws and any state, local, and foreign tax laws. Accounting Treatment The merger will be accounted for under the acquisition method of accounting for business combinations under GAAP. Under this method, PFG’s assets and liabilities as of the date of the merger will be recorded at their respective fair values. Any difference between the purchase price for PFG and the fair value of the identifiable net assets acquired (including core deposit intangibles) will be recorded as goodwill. In accordance with ASC Topic 805, “Business Combinations,” the goodwill resulting from the merger will not be amortized to expense, but instead will be reviewed for impairment at least annually and to the extent goodwill is impaired, its carrying value will be written down to its implied fair value and a charge will be made to earnings. Core deposit and other intangibles with definite useful lives recorded by SmartFinancial in connection with the merger will be amortized to expense in accordance with such rules. The consolidated financial statements of SmartFinancial issued after the merger will reflect the results attributable to the acquired operations of PFG beginning on the date of completion of the merger. Dissenters’ Rights Under Tennessee law, holders of shares of Tennessee BancsharesPFG common stock who deliver written notice of their intent to dissent and do not vote in favor of the merger proposal have the right to dissent and receive the fair value of their Tennessee BancsharesPFG common stock in cash. Tennessee BancsharesPFG shareholders electing to exercise dissenters’ rights must comply with the provisions of Chapter 23 of the Tennessee Business Corporation Act in order to perfect their rights. A copy of Chapter 23 of the Tennessee Business Corporation Act is attached to asAppendix BAnnex C to this proxy statement/prospectus.
The following is intended as a brief summary of the material provisions of the Tennessee statutory procedures required to be followed by a holder of Tennessee BancsharesPFG common stock in order to properly dissent from the merger and perfect the shareholder’s dissenters’ rights. This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Chapter 23 of the Tennessee Business Corporation Act, the full text of which appears asAppendix BAnnex C of this proxy statement/prospectus. TABLE OF CONTENTS
Holders of Tennessee BancsharesPFG common stock who do not vote in favor of (or who abstain from voting on) the merger proposal, and who perfect their dissenters’ rights by complying with the provisions of Chapter 23 of the Tennessee Business Corporation Act, will have the right to receive cash payment for the “fair value” of their Tennessee BancsharesPFG common stock as determined in accordance with Chapter 23 of the Tennessee Business Corporation Act. In order to perfect dissenters’ rights with respect to the merger, a holder of Tennessee BancsharesPFG common stock must (1) deliver to Tennessee Bancshares,PFG, before the vote to approve the merger proposal is taken, written notice of his or her intent to demand payment for his or her shares of Tennessee BancsharesPFG common stock if the merger is consummated; and (2) not vote, or cause or permit to be voted, any of his shares of Tennessee BancsharesPFG common stock in favor of the merger proposal. Within 10 days after consummation of the merger, Tennessee BancsharesPFG must send to each of the Tennessee BancsharesPFG shareholders who has perfected dissenters’ rights in accordance with the steps disclosed above, a written dissenters’ notice and form setting forth instructions for receipt and payment of their shares of Tennessee BancsharesPFG common stock. Upon receipt of such notice and form, dissenting Tennessee BancsharesPFG shareholders will become entitled to receive payment of their shares of Tennessee BancsharesPFG common stock when they: (1) demand payment; (2) certify that they received their shares prior to the date of the first public announcement of SmartFinancial’s and Tennessee Bancshares’PFG’s intention to merge; and (3) deposit with SmartFinancial certificates representing their shares of Tennessee BancsharesPFG common stock in accordance with the instructions set forth in the notice. Any holder of Tennessee BancsharesPFG common stock contemplating the exercise of his or her dissenters’ rights should carefully review Chapter 23 of the Tennessee Business Corporation Act, a copy of which is attached to this proxy statement/prospectus asAppendix BAnnex C. A holder of Tennessee BancsharesPFG common stock who fails to comply with all requirements of such Chapter 23 will forfeit his or her dissenters’ rights and, upon consummation of the merger, that holder’s shares of Tennessee BancsharesPFG common stock will be converted into the right to receive the merger consideration to which the shareholder is entitled under the merger agreement. In general, any dissenting shareholder who perfects his or her right to be paid the “fair value” of the holder’s Tennessee BancsharesPFG common stock in cash will recognize taxable gain or loss for federal income tax purposes upon receipt of any cash. Material United States Federal Income Tax ConsequencesExchange of Shares in the Merger
Subject to the limitations, assumptions and qualifications described herein, it is the opinion
The conversion of Butler Snow that the anticipated material United States federal income tax consequences to “United States holders” (as defined below) of Tennessee BancsharesPFG common stock that exchange their shares of Tennessee Bancshares common stock for shares of SmartFinancial common stock ininto the right to receive the merger are as described below. The tax opinion of Butler Snow is filed as Exhibit 8.1 to the registration statement on Form S-4 of which this proxy statement/prospectus is a part. Such opinion has been rendered on the basis of facts, representations, and assumptions set forth or referred to in such opinion and factual representations contained in certificates of the officers of SmartFinancial and Tennessee Bancshares, all of which must continue to be true and accurate in all material respects as ofconsideration will occur automatically at the effective time of the merger. These opinions, however, will not bind the Internal Revenue Service, or IRS, or the courts and no assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences set forth below. This discussion does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction, or under any United States federal laws other than those pertaining to income tax. This discussion is based upon the Internal Revenue Code, the regulations promulgated thereunder, and court and administrative rulings and decisions, all as in effect on the date of this proxy statement/prospectus. These laws may change, possibly retroactively, and any change could affect the accuracy of the statements and conclusions set forth in this discussion. No advance ruling has been sought or obtained from the IRS regarding the United States federal income tax consequences of the merger. As a result, no assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the United States federal income tax consequences set forth below.
This discussion addresses only those Tennessee Bancshares shareholders that are United States holders (as defined below) and that hold their shares of Tennessee Bancshares common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code (generally, property held for investment). Further, this discussion does not address all aspects of United States federal income taxation that may be relevant to you in
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light of your particular circumstances or that may be applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are:
a bank, thrift or other financial institution;
a tax-exempt organization;
an S corporation, partnership or other pass-through entity (or an investor in an S corporation, partnership or other pass-through entity);
an insurance company;
a mutual fund;
a regulated investment company;
a real estate investment trust;
a retirement plan, individual retirement account or other tax-deferred account;
a dealer or broker in stocks and securities, or currencies;
a trader in securities that elects mark-to-market treatment;
a holder of Tennessee Bancshares common stock subject to the alternative minimum tax provisions of the Internal Revenue Code;
a holder of Tennessee Bancshares common stock that owns (or is deemed to own) 5% or more of the outstanding stock of Tennessee Bancshares;
a holder of Tennessee Bancshares common stock that received Tennessee Bancshares common stock through the exercise of an employee stock option, through a tax qualified retirement plan or otherwise as compensation;
a person that is not a United States holder (as defined below);
a person that has a functional currency other than the United States dollar;
a holder of Tennessee Bancshares common stock that holds Tennessee Bancshares common stock as part of a hedge, straddle, constructive sale, wash sale, conversion or other integrated transaction; or
a United States expatriate.
In addition, this discussion does not address any alternative minimum tax or any state, local or foreign tax consequencesAfter completion of the merger, nor does it address any other United States federal tax consequences (such as gift or estate taxes) including any tax consequences arising under the unearned income Medicare contribution tax pursuant to Section 1411exchange agent will exchange certificates representing shares of the Internal Revenue Code. Determining the actual tax consequences ofPFG common stock for the merger to you may be complex. They will depend on your specific situation and on factors that are not within the control of Tennessee Bancshares or SmartFinancial. You are encouraged to consult with your own tax advisor as to the tax consequences of the merger in your particular circumstances.
For purposes of this discussion, the term “United States holder” means a beneficial owner of Tennessee Bancshares common stock that is for United States federal income tax purposes (i) an individual citizen or resident of the United States; (ii) a corporation, or entity treated as a corporation, organized in or under the laws of the United States or any state thereof or the District of Columbia; (iii) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or (b) such trust has made a valid electionconsideration to be treated as a United States person for United States federal income tax purposes or (iv) an estate, the income of which is includible in gross income for United States federal income tax purposes regardless of its source.
The United States federal income tax consequences to a partner in an entity or arrangement that is treated as a partnership for United States federal income tax purposes and that holds Tennessee Bancshares common stock generally will depend on the status of the partner and the activities of the partnership. Partners in a partnership holding Tennessee Bancshares common stock are encouraged to consult their own tax advisors.
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Tax Consequences of the Merger Generally
Subject to the limitations, assumptions and qualifications described herein, the merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. It is a condition to SmartFinancial’s obligation to complete the merger that SmartFinancial receive an opinion from Butler Snow, dated the closing date of the merger, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. This opinion will be based on representations, covenants and undertakings provided by SmartFinancial and Tennessee Bancshares and on customary factual assumptions. If any of the representations or assumptions upon which the opinions are based are inconsistent with the actual facts, the United States federal income tax consequences of the merger could be adversely affected. The opinion described above will not be binding on the IRS or any court. SmartFinancial and Tennessee Bancshares have not sought and will not seek any ruling from the IRS regarding any matters relating to the merger, and as a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below.
Tax Consequences of the Special Dividend
The merger agreement provides that Tennessee Bancshares is entitled to pay a special pre-closing dividend of up to $0.70 per share in the event that Southern Community Bank sells the special dividend loans before the effective time of the merger for a price equal to at least 95% of the then-current balance of such loans. There is a conflict of legal authorities regarding the characterization of the special dividend for United States federal income tax purposes. Some authorities have characterized a pre-merger distribution as additional merger consideration while other authorities have respected the form of such distribution as a dividend. Here, SmartFinancial proposed the special dividend as a means to address certain loans of concern reflected on Tennessee Bancshares’ balance sheet while also providing the holders of Tennessee Bancshares common stock with an opportunity to receive additional merger consideration if such special dividend loans were sold in their entirety prior to closing. The amount of the special dividend may be less than $0.70 per share if Southern Community Bank sells a participation interest in a portion of the special dividend loans, in which case the special dividend will be proportionally reduced in relation to the aggregate remaining unpaid principal amount of all special dividend loans. Although the tax treatment of the special dividend is unclear, SmartFinancial (as the successor to Tennessee Bancshares) intends to report the special dividend as additional merger consideration for U.S. federal income tax purposes. It is possible, however, that the IRS would disagree with the characterization of the special dividend as additional merger consideration paid by SmartFinancial in exchange for a portion of the holder’s Tennessee Bancshares common stock and instead seek to characterize the special dividend as a distribution by Tennessee Bancshares within the meaning of Section 301 of the Internal Revenue Code. Holders of Tennessee Bancshares common stock are encouraged to consult their tax advisors regarding any alternative characterization of the special dividend.
Tax Consequences to SmartFinancial and Tennessee Bancshares
Each of SmartFinancial and Tennessee Bancshares will be a “party to the reorganization” within the meaning of Section 368(b) of the Internal Revenue Code, and neither SmartFinancial nor Tennessee Bancshares will recognize any gain or loss as a result of the merger.
Tax Consequences to United States Holders of Tennessee Bancshares Common Stock
Subject to the qualifications and limitations set forth above, the material United States federal income tax consequences of the merger to United States holders of Tennessee Bancshares common stock will be as follows:
Receipt of SmartFinancial Common Stock. A United States holder of Tennessee Bancshares common stock will not recognize any gain or loss on the exchange of Tennessee Bancshares common stock solely for shares of SmartFinancial common stock in the merger, except for the special dividend and cash received in lieu of a fractional share of SmartFinancial common stock.
Receipt of SmartFinancial Common Stock and Special Dividend. If Tennessee Bancshares pays the special dividend contemplated by the merger agreement, a United States holder of Tennessee Bancshares common stock will recognize gain (but not loss) on the receipt of the special dividend in a amount equal to the lesser of (i) the amount of cash received by such holder of Tennessee Bancshares common stock (in each case excluding any cash received instead of fractional share interests in
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SmartFinancial), and (ii) the amount by which the sum of the fair market value of the SmartFinancial stock and cash received by a holder of Tennessee Bancshares stock exceeds such holder’s tax basis in its Tennessee Bancshares common stock. This gain generally will be a capital gain and will be a long-term capital gain if the holding period for the shares of Tennessee Bancshares common stock exchanged for cash is more than one year at the completion of the merger.
Receipt of Cash in Lieu of Fractional Share. If a United States holder of Tennessee Bancshares common stock receives cash in lieu of a fractional share of SmartFinancial common stock, such holder will recognize gain or loss, measured by the difference between the amount of cash received and the portion of the tax basis of that holder’s shares of Tennessee Bancshares common stock allocable to that fractional share of SmartFinancial common stock. This gain or loss will be a capital gain or loss, and will be a long-term capital gain or loss, if the holding period for the share of Tennessee Bancshares common stock exchanged for cash is more than one year at the completion of the merger. The deduction of capital losses is subject to limitations.
Tax Basis of SmartFinancial Common Stock Received in the Merger. A United States holder of Tennessee Bancshares common stock will have a tax basis in the SmartFinancial common stock received in the merger equal to the tax basis of the Tennessee Bancshares common stock surrendered by that holder in the merger, reduced by the amount of cash consideration received and increased by the amount of any gain recognized by such holder.
Holding Period of SmartFinancial Common Stock Received in the Merger. The holding period for shares of SmartFinancial common stock received by a United States holder in exchange for shares of Tennessee Bancshares common stock in the merger will include the holding period for the shares of Tennessee Bancshares common stock surrendered in the merger.
In the case of a United States holder of Tennessee Bancshares common stock who holds shares of Tennessee Bancshares common stock with different tax bases and/or holding periods, the preceding rules must be applied to each identifiable block of Tennessee Bancshares common stock.
Reporting Requirements
All holders of Tennessee Bancshares common stock will be required to retain records pertaining to the merger and may be required to file with the holder’s United States federal income tax return for the year in which the merger takes place a statement setting forth certain facts relating to the merger.
Backup Withholding
Holders of Tennessee Bancshares common stock other than certain exempt recipients may be subject to information reporting and backup withholding (currently at a rate of 24%) on payments received pursuant to the special dividend and any cash payments received in lieu of fractional shares of SmartFinancial common stock. Such a holder generally will not be subject to backup withholding, however, if the holder:
furnishes a correct taxpayer identification number, certifies that the holder is not subject to backup withholding on the Form W-9 or successor form included in the election form/letter of transmittal the holder will receive and otherwise complies with all the applicable requirements of the backup withholding rules; or
provides proof that the holder is otherwise exempt from backup withholding.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will generally be allowed as a refund or credit against the holder’s United States federal income tax liability, provided the holder timely furnishes the required information to the IRS.
This summary of material United States federal income tax consequences is for general information only and is not tax advice. Each holder of Tennessee Bancshares common stock is urged to consult the holder’s tax advisor with respect to the application of United States federal income tax laws to the holder’s particular situation as well as any tax consequences arising under the United States federal estate or gift tax rules, or under the laws of any state, local, foreign or other taxing jurisdiction.
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Voting Agreements
The directors of Tennessee Bancshares who collectively beneficially own and have the power to vote approximately 29.4% of Tennessee Bancshares common stock have entered into agreements with SmartFinancial in which they have agreed, among other things, to vote their shares of Tennessee Bancshares common stock in favor of the merger proposal and the adjournment proposal. The voting agreements automatically terminate upon the earlier to occur of (i) the approval by Tennessee Bancshares’ shareholders of the merger proposal or (ii) the termination of the merger agreement.
Accounting Treatment
The merger will be accounted for as a “purchase,” as that term is used under United States generally accepted accounting principles for accounting and financial reporting purposes. Tennessee Bancshares will be treated as the acquired corporation for accounting and financial reporting purposes. Tennessee Bancshares’ assets and liabilities will be adjusted to their estimated fair value on the closing date of the merger and combined with the historical book values of the assets and liabilities of SmartFinancial. Applicable income tax effects of these adjustments will be included as a component of the combined company’s deferred tax assets or liabilities. The difference between the estimated fair value of the assets (including separately identifiable intangible assets, such as core deposit intangibles) and liabilities and the purchase price will be recorded as goodwill.
Interests of Officers and Directors of Tennessee Bancshares in the Merger
In considering the recommendation of the Tennessee Bancshares board of directors, shareholders should be aware that the directors and executive officers of Tennessee Bancshares have certain interests in the merger that may be different from, or in addition to, the interests of Tennessee Bancshares shareholders generally. The Tennessee Bancshares board of directors was aware of these interests and considered them, among other matters, in making its recommendation that Tennessee Bancshares shareholders vote to approve the merger proposal. These interests are described in further detail below.
Executive Officer of SmartBank
As discussed below, following the merger, William Yoder, the President and Chief Executive Officer of Southern Community and Tennessee Bancshares, will become the Chief Banking and Deposit Officer of SmartBank.
Bill Yoder, age 51, has served as a member of the board of directors, President and Chief Executive Officer of Southern Community Bank since its formation in 2005, and he has served a member of the board of directors, President and Chief Executive Officer of Tennessee Bancshares since its formation in 2007. He also serves on the executive committee of the board of directors. Mr. Yoder has 28 years of lending and banking experience. He held numerous positions with First American Bank in Nashville, Tennessee from 1989 until 1996. Mr. Yoder joined TransFinancial Bank in 1996 as the District Manager for Southern Tennessee and remained with this organization as it went through three mergers. He is an honors graduate from the Tennessee School of Banking, as well as a graduate of the Graduate School of Banking at LSU where he was an honors scholarship recipient. Active in the community, Mr. Yoder is a member of the Tullahoma Noon Rotary Club, serves as a trustee for both the Motlow College Foundation and the Tullahoma Education Foundation for Excellence and serves on the Chamber of Commerce Board of Directors. He has also served on the executive board of the South Jackson Civic Center and as a board member for Habitat for Humanity and Board Member of the Coffee County Children’s Advocacy Center. Mr. Yoder has also been active with the Boy Scouts of America. Mr. Yoder graduated for the University of the South in 1988 with a bachelor’s degree in economics. He earned his master’s degree from Owen Business School at Vanderbilt University in 2001.
New Director of SmartFinancial and SmartBank
Following the merger, the boards of both SmartFinancial and SmartBank will be expanded by one member and Tennessee Bancshares board member Clifton N. Miller will be appointed to both boards. The following is information about Mr. Miller:
Clifton N. Miller, age 51, is the managing member of Henry, McCord, Bean, Miller, Gabriel & LaBar, PLLC, where he has practiced law since 1991 with a focus on commercial and business litigation, banking
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law, education law, and construction law. Mr. Miller has served on the board of directors of Southern Community Bank since its formation in 2005, and he has served a member of the Tennessee Bancshares board of directors since its formation in 2007. He has served as president for the Tennessee Council for School Board Attorneys since 2015. Mr. Miller was named a fellow of the American Bar Foundation in 2016, and is a recognized commercial litigator. Active in the community, Mr. Miller is a former member of the Kiwanis Club and Tullahoma Sunrise Rotary Club and a current member of the Tullahoma Noon Rotary and serves as a trustee for the Motlow College Foundations. Mr. Miller is also active in Boy Scouts of America. He graduated from the University of Tennessee in 1988 with a degree in chemistry, and he earned his J.D. from the University of Tennessee College of Law in 1991.
Mr. Miller’s qualifications to serve on the boards of directors of SmartFinancial and SmartBank include his extensive legal and corporate governance experience, as well as his knowledge of the markets in which Southern Community Bank operates. His connection to both Tullahoma and the greater Middle Tennessee area will provide valuable insight into those markets.
SmartBank Employment Agreements
Mr. Yoder has entered into an employment agreement with SmartBank that will become effective at the consummation of the merger, whereby Mr. Yoder will serve as the Chief Banking and Deposit Officer of SmartBank. Under the agreement, Mr. Yoder will receive an initial base salary of $200,000. Additionally, Mr. Yoder will receive a payment equal to one times his then current base salary in the event of a change of control of SmartFinancial of SmartBank. Additionally, Mr. Yoder will receive a severance payment equal to one times his then current base salary in the event SmartBank terminates his employment without cause or Mr. Yoder terminates his employment with cause. Additionally, Mr. Yoder will receive a one-time payment of $100,000 from Southern Community Bank in connection with the closing of the merger.
Following the merger, Gerald Player, the Southern Community Bank Chief Lending Officer, will become the Executive Market Leader of the Tullahoma market for SmartBank. Mr. Player has entered into an employment agreement with SmartBank that will become effective at the consummation of the merger, whereby Mr. Player will serve as Executive Market Leader for SmartBank. Under the agreement, Mr. Player will receive an initial base salary of $165,000. Additionally, Mr. Player will receive a payment equal to one times his then current base salary in the event of a change of control of SmartFinancial of SmartBank. Additionally, Mr. Player will receive a severance payment equal to one times his then current base salary in the event of SmartBank terminates his employment without cause or Mr. Player terminates his employment with cause.
Following the merger, Robert Stahl will serve as a SmartBank Senior Vice-President, Chattanooga Corporate Banker. Mr. Stahl has entered into an employment agreement with SmartBank that will become effective at the consummation of the merger, whereby Mr. Stahl will serve as Senior Vice-President, Chattanooga Corporate Banker of SmartBank. Under the agreement, Mr. Stahl will receive an initial base salary of $135,000. In addition, Mr. Stahl will receive a severance payment equal to one times his then current base salary in the event SmartBank terminates his employment without cause or Mr. Stahl terminates his employment with cause. Additionally, Mr. Stahl will receive a one-time payment of $50,000 from Southern Community Bank in connection with the closing of the merger, and under the terms of his employment agreement with SmartBank, Mr. Stahl is eligible to receive a $50,000 retention bonus in the event his employment agreement is renewed on the third anniversary of the effective date of the merger.
Each of these executives’ employment agreements include non-competition and non-solicitation provisions which prohibit the employee from engaging in any business that is competitive with SmartBank’s business within 50 miles from each SmartBank office in Tennessee, or, subject to certain exceptions, soliciting customers and employees of SmartBank for the year following the termination of the employee’s employment with SmartBank.
Existing Employment Agreements
Upon consummation of the merger agreement, the existing employment agreements between Southern Community Bank and each of Messrs. Yoder and Player will be superseded and replaced by an employment agreement with SmartBank.
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Pursuant to his existing employment agreement with Southern Community Bank, upon consummation of the merger agreement, Jason Redd, the Chief Financial Officer of Southern Community Bank and Tennessee Bancshares, will receive a lump sum cash payment of approximately $120,000, plus continuation of insurance benefits for a period of 12 months.
Indemnification; Directors’ and Officers’ Insurance
Pursuant to the terms of the merger agreement,agreement. For more information regarding the procedures for a periodexchanging your shares of six years from and after the effective time, SmartFinancial must indemnify certain persons, including Tennessee Bancshares’ directors and executive officers. In addition,PFG common stock for the merger agreement requires thatconsideration, see “The Merger Agreement – Procedures for a periodConverting Shares of six years from the effective time, subject to a cap on the amount of premiums, SmartFinancial must maintain an insurance policy for the benefit of certain persons, including Tennessee Bancshares’ directors and executive officers. For additional information, see “ThePFG Common Stock into Merger Agreement—Covenants and Agreements – Indemnification and Insurance.”Consideration” below.
Tennessee Bancshares Executive and Director Compensation
Summary Compensation Table
The following table sets forth a summary of certain information concerning the compensation awarded to or paid to Mr. Yoder by Tennessee Bancshares for services rendered in all capacities during the years ended December 31, 2017 and December 31, 2016.
Name | Year | Salary | Non-Equity
Incentive Plan
Compensation | All Other
Compensation(1) | Total | William L. Yoder | | 2017 | | $ | 176,500 | | $ | 45,000 | | $ | 36,648 | | $ | 258,148 | | President and
Chief Executive Officer of Southern
Community Bank and Tennessee
Bancshares
| | 2016 | | $ | 176,500 | | $ | 42,500 | | $ | 29,468 | | $ | 248,670 | |
| (1) | Details of the amounts reported as All Other Compensation for 2016 are as follows: (i) directors fees of $22,800; (ii) IRA contribution of $7,329; (iii) medical contributions of $4,000; and (iv) club allowances of $2,519. |
Cash Bonus and Equity Plans
Options; Restricted Stock. Mr. Yoder does not hold, and Tennessee Bancshares has never issued to its directors and officers, restricted shares of Tennessee Bancshares common stock, options, or other equity awards. In addition, Mr. Yoder does not hold, and Tennessee Bancshares has never issued to its directors and officers, warrants to purchase shares of Tennessee Bancshares common stock.
Southern Community Bank Executive Bonus Compensation Program. Southern Community Bank instituted an Executive Bonus Compensation Program soon after the bank was opened in 2005. The purpose of the plan was to incentivize executive officers to meet or exceed annual budgetary goals, established by the board of directors, for loan growth, asset growth and earnings. In addition, the board of directors established certain qualitative goals for each plan participant. Cash bonuses are awarded to the plan participants based upon actual performance. The plan was administered by the Executive Committee of the board of directors.
Director Compensation. For Mr. Miller will serve as a directorListing of SmartFinancial following completion of the merger, and the following table presents summary financial information concerning all compensation earned during the year ended December 31, 2017 for his services as a director of Tennessee Bancshares. The table also presents summary financial information concerning all compensation earned during the year ended December 31, 2017 for Mr. Yoder’s services as a director of Tennessee Bancshares:
| Fees Earned | | Name | Paid in
Common Stock | Paid in Cash | Total ($) | Clifton N. Miller | | — | | $ | 22,800 | | $ | 22,800 | | William L. Yoder | | — | | $ | 22,800 | | $ | 22,800 | |
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For 2016, each director of Tennessee Bancshares received an annual retainer of $22,800 for their services as a member of the board. Tennessee Bancshares does not compensate its directors for attendance at committee meetings or for positions of leadership held at the committee level. For 2016, non-employee director compensation was calculated and paid monthly. Although retainer amounts are stated in amounts per annum, a retainer was payable only for such months for which a director holds the position for which the retainer was payable.Common Stock
SmartFinancial’s Dividend Policy
No assurances can be given that any dividends will be paid by SmartFinancial or that dividends, if paid, will not be reduced in future periods. The principal source of SmartFinancial’s cash flow, and any dividends payable to common shareholders, are dividends that SmartBank pays to SmartFinancial as its sole shareholder. The ability of SmartBank to pay dividends, as well as SmartFinancial’s ability to pay dividends to its common shareholders, will continue to be subject to and limited by the results of operations of SmartBank and by certain legal and regulatory restrictions. Further, any lenders making loans to SmartFinancial or SmartBank may impose financial covenants that may be more restrictive than regulatory requirements with respect to SmartFinancial’s payment of dividends to common shareholders.
SmartFinancial’s board of directors may change its dividend policy at any time. For further information on SmartFinancial’s dividend history and restrictions on SmartFinancial’s and SmartBank’s ability to pay dividends, see “Dividend Rights and Limitations on Payment of Dividends” beginning on page 71.
Public Trading Markets
SmartFinancial willhas agreed to use its commercially reasonable efforts to cause the shares of SmartFinancial common stock to be issued as stock considerationissuable in accordanceconnection with the merger agreement to be authorizedapproved for listing on Nasdaq,the NASDAQ Capital Market, subject to official notice of issuance, prior to the closingeffective time of the merger. The shares of SmartFinancial common stock to be issued as stock consideration will be registered under the Securities Act.
Regulatory MattersTHE MERGER AGREEMENT
Tennessee Bancshares and SmartFinancial have agreed to cooperate with one another and use their reasonable best efforts to prepare all documents, to effect all filings, and to obtain all permits, consents, approvals, waivers, and authorizations
The following describes certain aspects of governmental authorities and other third parties (including the Federal Reserve and the TDFI) necessary to consummate the merger. Additionally, each party has agreed to furnish the other parties with all information concerning itself and its subsidiaries, directors, officers, and shareholders as may be necessary in connection with any filing, notice, or application made or given with or to any governmental authority or other third party. In order to consummate the merger, including certain material provisions of Southern Community Bank withthe merger agreement. The following description of the merger agreement is subject to, and into SmartBank, we must obtain approval from bothqualified in its entirety by reference to, the Federal Reservemerger agreement, which is attached to this proxystatement/prospectus as Annex A and the TDFI. SmartFinancial anticipates filing an interagency bank merger act application with the Federal Reserve and with the TDFI shortly after the effective date ofis incorporated by reference into this proxy statement/prospectus. As of the date of this proxy statement/prospectus, neither the Federal Reserve nor the TDFI had granted its approval of the bank merger. Federal Reserve approval or possible approval of the combination: (i) reflects only the view that the transaction does not contravene applicable competitive standards imposed by law and is consistent with regulatory policies relating to safety and soundness; (ii) is not an opinion that the proposed combination is financially favorable to the shareholders or that the Federal Reserve has considered the adequacy of the terms of the transaction; and (iii) is not an endorsement of, or recommendation for, the combination.
Under the applicable rules and regulations of the Federal Reserve, SmartFinancial is not required to file a formal merger application with the Federal Reserve with respect to the merger.
Assistance
IfWe urge you have any questions concerning the merger or this proxy statement/prospectus, would like additional copies of this proxy statement/prospectus, or need help voting your shares of Tennessee Bancshares common stock, please contact William Yoder, at (931) 461-8507.
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THE MERGER AGREEMENT
The following is a summary of certain material terms and provisions of the merger agreement, a copy of which is attached as Appendix A to this proxy statement/prospectus and incorporated herein by reference. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. You are urged to read the merger agreement carefully and in its entirety. Except thatentirety, as it establishes and governsis the legal relations betweendocument governing the merger.
Structure of the Merger The boards of directors of SmartFinancial and the Tennessee Bancshares parties with respect to the merger,PFG have each unanimously approved the merger agreement, is not intended to be a source of factual, business, or operational information about SmartFinancial or the Tennessee Bancshares parties. That kind of information can be found elsewhere in this proxy statement/prospectus and in filings that SmartFinancial has made with the SEC. See “Where You Can Find More Information” beginning on page 87. Structure of the Merger
The merger agreementwhich provides for the merger of Tennessee BancsharesPFG with and into SmartFinancial, subject to and uponwith SmartFinancial as the terms and conditions set forthsurviving company in the merger.
The merger agreement with SmartFinancial to survivealso provides that immediately after the merger. Immediately followingeffective time of the merger Southern Communitybut in effect simultaneously on the date the merger closes, Progressive Bank, which is a direct wholly owned subsidiary of PFG, will merge with and into SmartBank, subject to and upona direct wholly owned subsidiary of SmartFinancial, with SmartBank as the surviving bank of such merger. The terms and conditions of the merger of SmartBank and Progressive Bank are set forth in ana separate merger agreement and plan of merger, entered into by Southern Communityreferred to as the bank merger agreement, the form of which is attached as Exhibit B to the merger agreement. As provided in the bank merger agreement, the merger of SmartBank and Progressive Bank may be abandoned at the election of SmartFinancial at any time, whether before or after filings are made for regulatory approval of such merger. We refer to the merger of SmartBank and SmartBank simultaneouslyProgressive Bank as the bank merger. The merger agreement allows SmartFinancial to change the structure of the merger at any time and without the approval of PFG if and to the extent that SmartFinancial reasonably deems such a change to be necessary;provided, however, that no such change shall (i) alter or change the amount or kind of merger consideration to be provided under the merger agreement, (ii) materially impede or delay consummation of the merger, (iii) adversely affect the federal income tax treatment of PFG shareholders in connection with the parties’ executionmerger, or (iv) require submission to or the approval of PFG shareholders after the merger proposal has already been approved by PFG’s shareholders. Closing and Effective Time of the Merger The closing will take place immediately prior to the effective time of the merger. The effective time of the merger will be the later of (i) the date and time of filing of the articles of merger with the Secretary of State of the State of Tennessee by SmartFinancial or (ii) the date and time when the merger becomes effective as set forth in such articles of merger, which will be no later than three business days after all of the conditions to the closing of the merger have been satisfied or waived in accordance with their terms. We currently expect that the merger will be completed in the first quarter of 2020, subject to obtaining the requisite approvals from the shareholders of PFG, the receipt of all necessary regulatory approvals and the expiration of all regulatory waiting periods and other conditions. However, completion of the merger could be delayed if there is a delay in obtaining the required regulatory approvals or in satisfying any other conditions to the merger. No assurance is made as to whether, or when, SmartFinancial and PFG will obtain the required approvals or complete the merger. See “The Merger Agreement — Conditions to Completion of the Merger.” Organizational Documents of the Surviving Company At the effective time of the merger, the SmartFinancial Charter and the SmartFinancial Bylaws in effect immediately prior to the effective time of the merger will be the charter and bylaws of the surviving company until thereafter amended in accordance with their respective terms and applicable laws. Board Composition and Management of Surviving Company Each of the officers and directors of SmartFinancial immediately prior to the effective time of the merger will be the officers and directors of the surviving company from and after the effective time of the merger, until their respective successors have been duly elected, appointed or qualified or until their earlier death, resignation or removal in accordance with the SmartFinancial Charter and the SmartFinancial Bylaws, provided, however, that the board of directors of SmartFinancial shall be expanded as of the effective time to add one additional seat, which will be filled by Ottis H. Phillips. Merger Consideration Under the terms of the merger agreement, with SmartBank to be the bank to survive the bank merger. Merger Consideration
Stock Consideration
Atat the effective time of the merger, each share of Tennessee BancsharesPFG common stock that is issued and outstanding immediately prior to the effective time of the merger except (a) shares of Tennessee Bancshares common stock that are owned or held, other than in a fiduciary or agency capacity, by SmartFinancial, Tennessee Bancshares, or Southern Community Bank, or any subsidiary of SmartFinancial, Tennessee Bancshares, or Southern Community Bank, including shares of Tennessee Bancshares common stock held by Tennessee Bancshares as treasury stock and (b) shares as to which the holder has perfected his or her right to dissent from the merger pursuant to Chapter 23 of the Tennessee Business Corporation Act) will be converted into and cancelled in exchange for the right to receive 0.8065a pro rata portion (which is a ratio equal to one divided by the number of shares (which weof PFG common stock issued and outstanding as of the closing) of (1) an aggregate amount of cash equal to $14,595,354.37 minus the amount of any pre-closing dividend paid by PFG and any loss in excess of $250,000 realized by PFG or its applicable subsidiary on sales of certain assets prior to closing, and (2) 1,292,592.556 shares of SmartFinancial common stock. We refer to as the “exchange ratio”)cash and shares of SmartFinancial common stock (referred to in this proxy statement/prospectus asinto which the “stock consideration”). After the consummation of the merger, each former holder of shares of Tennessee BancsharesPFG common stock will no longer have any rights with respect to those shares, except forconvert as the right to receive the stock consideration (provided that holders of dissenting shares will have those rights provided for by Chapter 23 of the Tennessee Business Corporation Act)“merger consideration”.
SmartFinancial will not issue any fractional shares of itsSmartFinancial common stock in connection with the merger. Instead, SmartFinancial will pay each former Tennessee Bancshares shareholderPFG shareholders who would otherwise be entitled to a fractional share of SmartFinancial common stock upon the completion of the merger will instead receive an amount in cash without(without interest and rounded to the nearest whole cent) determined by multiplying the fractional share interest in SmartFinancial common stock (rounded to the nearest thousandth) to which the shareholder would otherwise be entitledone hundredth of a share) by the volume weighted average closing price of SmartFinancial’s common stock on Nasdaq for the 10 consecutiveNASDAQ Capital Market over the ten (10) trading days ending on and including the trading day immediately precedingprior to the closing date. If SmartFinancial or PFG change the number of shares of SmartFinancial common stock or PFG common stock outstanding prior to the effective time of the merger as a result of a stock split, reverse stock split, stock combination, stock dividend, recapitalization, reclassification, reorganization or similar transaction with respect to SmartFinancial common stock or PFG common stock and the record date for such corporate action is prior to the effective time of the merger, then the merger consideration shall be appropriately and proportionately adjusted to give PFG shareholders the same economic effect as contemplated by the merger agreement prior to any such event. The value of the shares of SmartFinancial common stock to be issued to PFG shareholders in the merger will fluctuate between now and the closing date of the merger. We make no assurances as to whether or when the merger will be completed, and you are advised to obtain current sale prices for the SmartFinancial common stock. Procedures for Converting Shares of PFG Common Stock into Merger Consideration Exchange Agent SmartFinancial will designate a third party to act as the exchange agent in connection with the merger. The exchange agent shall also act as the agent for PFG shareholders for the purpose of receiving their PFG stock certificates and shall obtain no rights or interests in the shares represented thereby. Prior to the effective time of the merger, SmartFinancial will deposit, or cause to be deposited, with the exchange agent the aggregate merger consideration and, to the extent then determinable, any cash payable in lieu of fractional shares, necessary to satisfy the aggregate merger consideration payable. Transmittal Materials and Procedures Promptly (but not more than three business days) after the effective time of the merger, SmartFinancial will cause the exchange agent to send transmittal materials, which will include the appropriate form of letter of transmittal, to holders of record of shares of PFG common stock (other than excluded shares) providing instructions on how to effect the delivery of certificates or book-entry shares of PFG common stock in exchange for the merger consideration. After the effective time of the merger, when a PFG shareholder surrenders his or her stock certificates or book-entry shares, accompanied by a properly executed letter of transmittal and any other documents as may reasonably be required by the exchange agent, the holder of shares of PFG common stock will be entitled to receive, (i) the merger consideration and (ii) any cash in lieu of fractional shares to which the holder is entitled. Surrender of PFG Stock Certificates The exchange agent will mail to each holder of record of PFG common stock the letter of transmittal along with instructions for completing the letter of transmittal and delivering to the exchange agent the completed letter of transmittal along with the stock certificates or book-entry shares representing the shares of PFG common stock held by the shareholder. Following the effective time of the merger, upon the surrender to the exchange agent of the certificate(s) or book-entry shares representing his or her shares of PFG common stock, accompanied by a properly completed letter of transmittal, a PFG shareholder will be entitled to receive the merger consideration promptly after the effective time of the merger (including any cash in lieu of fractional shares). Until surrendered, each such certificate or book-entry share will represent after the effective time of the merger, for all purposes, only the right to receive the merger consideration, without interest (including any cash in lieu of fractional shares), and any dividends to which such holder is entitled pursuant to the merger agreement. No dividends or other distributions with respect to SmartFinancial common stock after completion of the merger will be paid to the holder of any unsurrendered PFG stock certificates or book-entry shares with respect to the shares of PFG common stock represented by those certificates until those certificates or book-entry shares have been properly surrendered. Subject to applicable abandoned property, escheat or similar laws, following the proper surrender of any such previously unsurrendered PFG stock certificate or book-entry shares, the holder of the certificate or book-entry shares will be entitled to receive, without interest: (i) the amount of unpaid dividends or other distributions with a record date after the effective time of the merger payable with respect to the whole shares of SmartFinancial common stock represented by that certificate or book-entry shares; and (ii) at the appropriate payment date, the amount of dividends or other distributions payable with respect to shares of SmartFinancial common stock represented by that certificate or the book-entry shares with a record date after the effective time of the merger (but before the date on which the certificate or book-entry shares are surrendered) and with a payment date subsequent to the issuance of the shares of SmartFinancial common stock issuable in exchange for that certificate or book-entry shares. None of SmartFinancial, the exchange agent or any other person will be liable to any former PFG shareholder for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar laws. In the event any PFG stock certificate is lost, stolen or destroyed, in order to receive the merger consideration (including cash in lieu of any fractional shares), the holder of that certificate must provide an affidavit of that fact and, if reasonably required by SmartFinancial or the exchange agent, post a bond in such amount as SmartFinancial or the exchange agent determines is reasonably necessary to indemnify it against any claim that may be made against it with respect to that certificate. SmartFinancial and the exchange agent will be entitled to deduct and withhold from the consideration otherwise payable to any Tennessee BancsharesPFG shareholder the amounts they are required by law to deduct and withhold.withhold under any applicable federal, state, local or foreign tax law. If SmartFinancial or the exchange agent deducts or withholdsany such amounts and timely remits them to the appropriate governmental authority,are withheld, these amounts will be treated for all purposes of the merger agreement as having been paid to the personsshareholders from whom they were withheld. If prior to the effective time
After completion of the merger, the outstanding shares of SmartFinancial common stock or Tennessee Bancshares common stock are increased, decreased, or changed into or exchanged for a different number or kind of securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other similar change in capitalization, an equitable and proportionate adjustment will be made to the exchange ratio and therefore the stock consideration. TABLE OF CONTENTS
Special Dividend
The merger agreement provides that Tennessee Bancshares will be entitled to pay, immediately prior to the effective time of the merger, a special dividend, in an amount up to $0.70 per share of Tennessee Bancshares common stock if certain loans disclosed to SmartFinancial (the “special dividend loans”) are (a) sold in their entirety for cash by Southern Community Bank prior to the closing of the merger to a person other than an affiliate of Tennessee Bancshares or Southern Community Bank for an amount equal to or in excess of 95% of the then-current unpaid principal balance of the special dividend loans or (b) paid in full in cash prior to the closing of the merger by the borrower(s) on the special dividend loans (including as a result of a refinancing of the special dividend loans by an unaffiliated third party) and the payment received by Southern Community Bank is equal to or in excess of 95% of the then-current unpaid principal balance of the special dividend loans. In the event that prior to the closing of the merger, Southern Community Bank sells participation interest(s) in one or more of the special dividend loans to a person other than an affiliate of Tennessee Bancshares or Southern Community Bank, Tennessee Bancshares will be entitled to pay a per share special dividend in an amount equal to the product of (x) $0.70 multiplied by (y) the quotient obtained by dividing (i) the aggregate amount of cash received by Southern Community Bank for the sale(s) of such participation interest(s) plus the aggregate amount of principal payments received by Southern Community Bank on the special dividend loans after the date of the merger agreement and prior to the date which is 15 calendar days prior to closing of the merger by (ii) the unpaid principal balance of the special dividend loans as of the date of the merger agreement; provided that (1) any such sale of a participation interest in a special dividend loan must be at a price of not less than 95% of the then-current unpaid principal balance of the subject participation interest, (2) the terms of any such sale will be subject to the prior approval of SmartFinancial, and (3) the special dividend shall be capped at, $0.70 per share.
Exchange of Certificates
Prior to the effective time of the merger, SmartFinancial will deliver or cause to be delivered to an exchange agent mutually agreed upon by the parties evidence of shares in book entry form representing the number of shares of SmartFinancial common stock to be issued to holders of Tennessee Bancshares common stock in the form of merger consideration, as well as cash in an amount sufficient for the exchange agent to make payments in respect of fractional shares.
As soon as reasonably practicable after the effective time of the merger, the exchange agent will mail or deliver to each holder of record of shares of Tennessee Bancshares common stock immediately prior to the effective time whose shares are represented in whole or in part by a stock certificate or certificates a form of letter of transmittal and instructions for surrendering shares of Tennessee Bancshares common stock for the stock consideration. Tennessee Bancshares shareholders should not return their stock certificates with the enclosed proxy card and should not forward their stock certificates to the exchange agent without a properly completed and duly executed letter of transmittal.
A holder of shares of Tennessee Bancshares common stock represented by a certificate or certificates will not be entitled to receive the stock consideration payable in respect of the holder’s shares until the holder surrenders his or her certificates (if any) to the exchange agent together with a properly completed and duly executed letter of transmittal and such other documents as the exchange agent may reasonably require. In the event the stock consideration or cash in lieu of a fractional share of Smart Financial common stock is to be paid to a person other than the person in whose name the shares are registered, the exchange agent must be provided appropriate evidence of, or appropriate instruments for, transfer and evidence that any applicable stock transfer or other taxes have been paid or are not applicable.
If a certificate previously representing Tennessee Bancshares common stock has been lost, stolen, or destroyed, the exchange agent will issue the stock consideration payable in respect of the shares represented by the certificate if the person claiming the certificate to be lost, stolen, or destroyed makes an affidavit of that fact and executes an indemnity agreement and/or posts a bond in such amount as SmartFinancial and the exchange agent reasonably require as indemnity against any claim that may be made against them with respect to the certificate.
Record holders of shares of Tennessee Bancshares common stock whose shares are held only in book-entry form will not receive a letter of transmittal and corresponding instructions from the exchange agent. The book-entry shares owned by these record holders will be automatically converted into an equivalent number of shares of SmartFinancial common stock in book-entry form, and their accounts will be credited accordingly.
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Dividends and other distributions payable or distributable with respect to shares of SmartFinancial common stock to be issued as merger consideration will not be remitted to the person entitled to receive such SmartFinancial common stock until the person delivers a properly completed and duly executed letter of transmittal and surrenders his or her shares of Tennessee Bancshares common stock that have been converted into such SmartFinancial common stock. Upon proper surrender or conversion of his or her shares of Tennessee Bancshares common stock, as applicable, all such dividends and other distributions will be remitted to such person without interest. No interest will be paid or will accrue on any amounts payable to holders of Tennessee Bancshares common stock in accordance with the merger agreement.
At the effective time of the merger, the stock transfer books of Tennessee Bancshares will be closed and there will be no further transfers of shares of Tennessee Bancshares stock on the recordsstock transfer books of Tennessee Bancshares. Until surrendered in accordance with the procedures described above and in the merger agreement, certificates representing sharesPFG other than to settle transfers of Tennessee BancsharesPFG common stock and book entry shares of Tennessee Bancshares common stock will after the effective time of the merger represent only the right to receive the stock consideration and the special dividend, if any, to the extent payment for the special dividend is not delivered to holders of Tennessee Bancshares common stock prior to or contemporaneously with the effective time of the merger.
Closing and Effective Time of the Merger
The closing of the transactions provided for by the merger agreement will take place at 10:00 a.m. central time on a date agreed upon by all of the parties to the merger agreement provide that such date is not more than 30 days after all of the conditions to the merger have been satisfied or waived (or on another date or at another time agreed to by the parties). For more information regarding conditions to the merger, see “Conditions to Consummation of the Merger” below. In order to complete the merger, SmartFinancial and Tennessee Bancshares must execute articles of merger and file them with the Tennessee Secretary of State. The merger will become effective on the date and at the time set forth in these articles of merger.
We currently anticipate completing the merger in the second quarter of 2018, subject to receipt of necessary regulatory and shareholder approvals and the satisfaction of other closing conditions set forth in the merger agreement. However, a delay in satisfying any condition to the merger could delay the completion of the merger, and there can be no assurances as to when or if the merger will be completed. If the merger is not completed by September 30, 2018, either SmartFinancial or the Tennessee Bancshares parties may terminate the merger agreement unless the failure to complete the merger by this date is due to the failure of the terminating party or parties to perform its or their obligations under the merger agreement.
Boards of Directors of SmartFinancial and SmartBank After the Merger
At or prior to the effective time of the merger, SmartFinancial and SmartBank, and their respective boards of directors, will take all action necessary to elect to the SmartFinancial and SmartBank boards of directors at or immediately following the effective time Clifton N. Miller, whom is currently a member of the board of directors of Tennessee Bancshares, provided he continues to serve on the Tennessee Bancshares board of directors until immediatelyoccurred prior to the effective time of the merger.
No interest will be paid or accrued on any amount payable upon cancellation of shares of PFG common stock. The shares of SmartFinancial common stock issued and cash amount paid in accordance with the merger agreement upon conversion of the shares of PFG common stock (including any cash paid in lieu of fractional shares) will be deemed to have been issued and paid in full satisfaction of all rights pertaining to the shares of PFG common stock. If any portion of the merger consideration is to be delivered to a person or entity other than the holder in whose name any surrendered certificate is registered, it will be a condition of such exchange that (i) the certificate surrendered must be properly endorsed or must be otherwise in proper form for transfer and (ii) the person or entity requesting such payment pays any transfer or other similar taxes required by reason of the payment of the merger consideration to a person or entity other than the registered holder of the certificate surrendered or will establish to the satisfaction of SmartFinancial that such tax has been paid or is not required to be paid. Payment of the applicable merger consideration with respect to book-entry shares will only be made to the person or entity in whose name such book-entry shares are registered. The shares of SmartFinancial common stock may be in uncertificated book-entry form, unless a physical certificate is otherwise required by any applicable law. Representations and Warranties The merger agreement contains customary representations and warranties made by the Tennessee Bancshares parties to SmartFinancial and by SmartFinancial to the Tennessee Bancshares parties. The representations and warranties contained in the merger agreement are the product of negotiations among the parties and, generally, are for the benefit of SmartFinancial and the Tennessee Bancshares parties. In particular, in your reviewPFG relating to their respective businesses that are made as of the representations and warranties contained in the merger agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purpose of establishing circumstances in which a party to the merger agreement may have the right not to consummate the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the merger agreement, rather than establishing matters as facts. The representations and warranties also may be subject to a contractual standard of materiality different from that generally applicable to shareholders and, with respect to SmartFinancial, reports and documents filed with the SEC, and some were qualified by the matters contained in the confidential disclosure schedules that TABLE OF CONTENTS
Tennessee Bancshares, Southern Community Bank, and SmartFinancial each delivered in connection with the merger agreement and, with respect to SmartFinancial, certain documents filed with the SEC. Generally, the merger agreement may only be enforced against a party thereto by another party thereto. Moreover, information concerning the subject matter of the representations and warranties contained in the merger agreement may change after the date of the merger agreement and this subsequent information may or may not be fully reflected in SmartFinancial’s public disclosures. Generally,as of the closing date of the merger. The representations and warranties of each of SmartFinancial and PFG have been made solely for the parties contained in the merger agreement will not survive the completionbenefit of the merger or the terminationother party, and these representations and warranties should not be relied on by any other person. In addition, these representations and warranties:
| · | have been qualified by information set forth in confidential disclosure schedules in connection with signing the merger agreement—the information contained in these schedules modifies, qualifies and creates exceptions to the representations and warranties in the merger agreement; |
| · | will not survive consummation of the merger; |
| · | may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to the merger agreement if those statements turn out to be inaccurate; |
| · | are in some cases subject to a materiality standard described in the merger agreement which may differ from what may be viewed as material by you; and |
| · | were made only as of the date of the merger agreement or such other date as is specified in the merger agreement. |
The merger agreement contains representations and warranties made by the Tennessee Bancshares parties to SmartFinancial and made by SmartFinancialPFG to the Tennessee Bancshares parties, relating to, amongeach other things:primarily relate to: corporate organization, existence, and good standing; corporate power and authority; and qualification to conduct business;
subsidiaries;
capital stock and capitalization;
due authorization, execution, and delivery of the merger agreement and enforceability of the merger agreement;
the absence of violations or breaches of organizational documents, and applicable laws as a result of the merger agreement or the consummation of the transactions contemplated by the merger agreement;
consents, approvals, waivers, notices, filings, and registrations required in connection with the merger agreement or the transactions contemplated by the merger agreement;
filings with governmental and regulatory authorities;
filings required under federal securities laws;
financial statements and books and records;
the absence of undisclosed liabilities;
the absence of certain events, changes, and actions, and the conduct of their respective businesses, since December 31, 2016;
pending and threatened legal proceedings and the absence of judgments, decrees, injunctions, orders, and rulings of governmental and regulatory authorities;
the absence of certain regulatory actions or any basis therefor;
compliance with laws and deposit insurance;
tax matters;
labor and employment matters;
benefit plans;
receipt of opinion of financial advisor;
brokers and broker fees and expenses;
loan matters, including the adequacy of allowances for loan and lease losses and non-performing and classified loans;
insurance matters;
investment securities;
tax treatment of the merger;
Community Reinvestment Act and Bank Secrecy Act compliance and compliance with anti-money laundering and customer or consumer privacy laws;
| · | corporate organization, existence, power and authority; |
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disclosure controls and procedures and internal control over financial reporting; and
regulatory capital levels;
| · | corporate authorization to enter into the merger agreement and to consummate the merger; |
In addition, the merger agreement contains certain
| · | regulatory approvals and consents required in connection with the merger and the bank merger; |
| · | the accuracy of financial statements; |
| · | absence of material adverse effect on each party since December 31, 2018; |
| · | litigation and legal proceedings; |
| · | compliance with laws; and |
| · | accuracy of the information supplied by each party for inclusion or incorporation by reference in this proxy statement/prospectus. |
PFG has also made representations and warranties made only by the Tennessee Bancshares parties to SmartFinancial and relating to, among other things:with respect to: | · | effectiveness of internal controls; |
| · | receipt of fairness opinion; |
| · | labor and employee relations; |
| · | derivative transactions; |
organizational documents and corporate records;equity or other ownership interests (in addition to subsidiaries);
| · | adequacy of allowances for loan losses; |
| · | trust business and the administration of fiduciary accounts; |
| · | investment management and related activities; |
| · | regulatory compliance and information security; |
| · | the absence of any regulatory agreements; |
| · | transactions with affiliates; |
| · | real and personal property matters; |
| · | intellectual properties; |
| · | fees paid to financial advisors; |
| · | absence of state takeover laws applicability; and |
Definition of violations or breaches of contracts as a result of the merger agreement or the consummation of the transactions contemplated by the merger agreement; certain material contracts;
intellectual property and information technology systems;
real and personal property;
environmental matters;
certain material interests of current and former directors and officers and their immediate family members or affiliates;
securities transactions;
transactions with affiliates;
administration and maintenance of fiduciary accounts;
required shareholder vote; and
inapplicability of state antitakeover laws.
“Material Adverse Effect”Certain of the representations and warranties contained in the merger agreementof SmartFinancial and PFG are subjectqualified as to materiality“materiality” or “material adverse effect” qualifiers.effect.” For purposes of the merger agreement, a “material adverse effect” generallyeffect,” when used in reference to either SmartFinancial or PFG, means an effect, circumstance, occurrence, event,(i) any change, development or changeeffect that individually or in the aggregate with oneis, or more other effects, circumstances, occurrences, events, developments or changes, (i) has had, or couldis reasonably be expectedlikely to have, abe, material and adverse effect onto the business, condition (financial or otherwise), operations or results of operations, liquidity, assets or deposit liabilities, properties, or business of SmartFinancial or Tennessee Bancshares (as the case may be)such party and its subsidiaries, taken as a whole, or (ii) any change, development or effect that individually or in the aggregate would, or would be reasonably likely to, materially impairsimpair the ability of SmartFinancial or Tennessee Bancshares (as the case may be)such party to perform its obligations under the merger agreement or preventsotherwise materially impairs, or is reasonably likely to materially impedesimpair, the consummation by SmartFinancial or Tennessee Bancshares (asability of such party to consummate the case may be) ofmerger and the transactions contemplated by the merger agreement. However,For purposes of clause (i) only, the definition of “material adverse effect” excludes the following: | · | changes in banking and similar laws of general applicability or interpretations thereof by any governmental authority; |
| · | changes in GAAP or regulatory accounting requirements applicable to banks or bank holding companies generally; |
| · | changes in global, national or regional political conditions (including the outbreak of war or acts of terrorism) or in economic or market (including equity, credit and debt markets, as well as changes in interest rates) conditions affecting the financial services industry generally; |
| · | public disclosure of the transactions contemplated or actions expressly required by the merger agreement or actions or omissions that are taken with the prior written consent of the other party, or as otherwise expressly permitted or contemplated by the merger agreement; |
| · | any failure by PFG or SmartFinancial to meet any internal or published industry analyst projections or forecasts or estimates of revenues or earnings for any period (it being understood and agreed that the facts and circumstances giving rise to such failure that are not otherwise excluded from the definition of material adverse effect may be taken into account in determining whether there has been a material adverse effect); |
| · | changes in the trading price or trading volume of SmartFinancial common stock; and |
| · | the impact of this merger agreement and the transactions contemplated by the merger agreement on relationships with customers or employees, including the loss of personnel; |
except, with respect to (i) above, the following will not be deemed to have or contribute to, and will not be taken into account in determining whether there exists, has been, or would reasonably be expected to be, a material adverse effect: changes afterfirst three bullets, if the dateeffects of the merger agreement in laws of general applicability that apply to insured depository institutions and/or registered bank holding companies generally, or interpretations thereof by governmental authorities, except to the extent of any materially disproportionate impact they have on SmartFinancial or Tennessee Bancshares (as the case may be)such change disproportionately affect such party and its subsidiaries, taken as a whole, as measured relativecompared to similarly situatedother companies in the bankingindustry in which such party and financial services industry;
changes after the date ofits subsidiaries operate.Covenants and Agreements Pursuant to the merger agreement, in accounting principles generally accepted in the United States (“GAAP”) or regulatory accounting requirements applicableSmartFinancial and PFG have agreed to insured depository institutions and/or registered bank holding companies generally, except to the extent of any materially disproportionate impact they havecertain restrictions on SmartFinancial or Tennessee Bancshares (as the case may be) and its subsidiaries taken as a whole as measured relative to similarly situated companies in the banking and financial services industry; changes in economic conditions, or changes in global, national, or regional political or market conditions (including changes in prevailing interest or exchange rates), in either case affecting the
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banking and financial services industry generally, except to the extent of any materially disproportionate impact they have on SmartFinancial or Tennessee Bancshares (as the case may be) and its subsidiaries taken as a whole as measured relative to similarly situated companies in the banking and financial services industry;
any failure by Tennessee Bancshares or Southern Community Bank or by SmartFinancial or SmartBank (as the case may be) to meet any internal or published industry analyst projections, forecasts, or estimates of revenue, earnings, or other financial or operating metrics for any period (however, any facts or circumstances giving rise to or contributing to any such failure that are not otherwise excluded from the definition of material adverse effect may be taken into account in determining whether there exists, has been, or would reasonably be expected to be a material adverse effect);
actions or omissions of the parties required under the merger agreement or taken or omitted with the prior consent of the counterparties;
with respect to determining whether SmartFinancial has experienced a material adverse effect, changes in the trading price or trading volume of SmartFinancial’s common stock (however, any facts or circumstances giving rise to or contributing to any such change that are not otherwise excluded from the definition of material adverse effect may be taken into account in determining whether there exists, has been, or would reasonably be expected to be a material adverse effect).
Conduct of Business Pending the Merger
The merger agreement contains customary covenants regarding the parties’ operation of their respective businesses prior toactivities until the effective time of the merger. SmartFinancial has agreed that it will carry on its business consistent with prudent banking practices and in compliance in all material respects with applicable laws. PFG has agreed to carry on its business, including the business of each of its subsidiaries, in the ordinary course of business and consistent with prudent banking practice. In addition, PFG has agreed that it will use commercially reasonable efforts to:
Subject to certain exceptions, from the date of the merger agreement
| · | preserve its business organization and assets intact; |
| · | keep available to itself and SmartFinancial the present services of the current officers and employees of PFG and its subsidiaries; and |
| · | preserve for itself and SmartFinancial the goodwill of its customers, employees, lessors and others with whom business relationships exists. |
SmartFinancial has also agreed that until the effective time of the merger, except as permitted by the merger agreement or as required by law or at the direction of a governmental authority, or with the prior written consent of SmartFinancial (such consent not be unreasonably withheld) each of Tennessee Bancsharesit and Southern Community Bank has agreed not to, and to cause its subsidiaries will not take any or knowingly fail to take any action that is intended or is reasonably likely to: | · | prevent, delay or impair SmartFinancial’s ability to consummate the merger or the transactions contemplated by the merger agreement; |
| · | agree to take, commit to take, or adopt any resolution of its board of directors in support of, any of the actions prohibited by the merger agreement; |
| · | result in the merger or the bank merger failing to qualify as a “reorganization” under Section 368(a) of the Code; |
| · | take any action that is likely to materially impair SmartFinancial’s ability to perform any of its obligations under the merger agreement or SmartBank to perform any of its obligations under the bank plan of merger; or |
| · | agree or commit to do any of the foregoing. |
PFG has also agreed that it will not, and will not permit its subsidiaries to do any of the following without the prior written consent of SmartFinancial:SmartFinancial, except as previously agreed to by the parties: | · | (i) issue, sell, grant, pledge, dispose of, encumber, or otherwise permit to become outstanding, or authorize the creation of, any additional shares of its stock, any rights, any new award or grant under the PFG stock plans or otherwise, or any other securities (including units of beneficial ownership interest in any partnership or limited liability company), or enter into any agreement with respect to the foregoing, (ii) except as permitted in the merger agreement, accelerate the vesting of any existing warrants, options or other rights, or (iii) except as permitted in the merger agreement (and provided that PFG may repurchase, redeem or otherwise acquire shares of PFG common stock in connection with the payment of the withholding taxes owed by a holder of a PFG restricted share upon the vesting of a PFG restricted share), directly or indirectly change (or establish a record date for changing), adjust, split, combine, redeem, reclassify, exchange, purchase or otherwise acquire any shares of its capital stock, or any other securities (including units of beneficial ownership interest in any partnership or limited liability company) convertible into or exchangeable for any additional shares of stock, any rights issued and outstanding prior to the effective time; |
| · | make, declare, pay or set aside for payment of dividends payable in cash, stock or property on or in respect of, or declare or make any distribution on, any shares of its capital stock, except (i) the AAA Dividend and tax distributions, and (ii) dividends from wholly owned subsidiaries to PFG; |
| · | enter into or amend or renew any employment, consulting, compensatory, severance, retention or similar agreements or arrangements with any director, officer or employee of PFG or its subsidiaries, or grant any salary, wage or fee increase or increase any employee benefit or pay any incentive or bonus payments, except (i) normal increases in base salary to employees in the ordinary course of business and pursuant to policies currently in effect,provided that, such increases shall not result in an annual adjustment in base compensation (which includes base salary and any other compensation other than bonus payments) of more than 5% for any individual or 3% in the aggregate for all employees of PFG or its subsidiaries, (ii) as specifically provided for by the merger agreement, (iii) as may be required by law, (iv) to satisfy contractual obligations, or (v) as previously disclosed to SmartFinancial; |
| · | hire any person as an employee of PFG or any of its subsidiaries, except for at-will employees at an annual rate of salary not to exceed $75,000; |
| · | enter into, establish, adopt, amend, modify or terminate (except (i) as may be required by or to make consistent with applicable law, subject to the provision of prior written notice to and consultation with SmartFinancial, (ii) to satisfy contractual obligations existing as of the date of the merger agreement and as previously disclosed to SmartFinancial, (iii) as previously disclosed to SmartFinancial, or (iv) as may be required pursuant to the terms of the merger agreement) any PFG benefit plan or other pension, retirement, stock option, stock purchase, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or other employee benefit, incentive or welfare contract, plan or arrangement, or any trust agreement (or similar arrangement) related thereto, in respect of any current or former director, officer or employee of PFG or any of its subsidiaries; |
| · | pay, loan or advance any amount to, or sell, transfer or lease any properties or assets (real, personal or mixed, tangible or intangible) to, or enter into any agreement or arrangement with, any of its officers or directors or any of their immediate family members or any affiliates or associates of any of its officers or directors other than compensation or business expense advancements or reimbursements in the ordinary course of business, except (i) pursuant to agreements or arrangements in effect on the date of the merger agreement and previously disclosed to SmartFinancial, (ii) making or renewing loans to directors, officers, and their immediate family members, affiliates, or associates that are below certain thresholds and which are in compliance with federal banking regulations, or (iii) entering into deposit agreements or pay out deposits to any of the persons or entities covered by the preceding clause (ii); |
| · | except in the ordinary course of business, sell, license, lease, transfer, mortgage, pledge, encumber or otherwise dispose of or discontinue any of its rights, assets, deposits, business or properties or cancel or release any indebtedness owed to PFG or any of its subsidiaries; |
| · | acquire or agree to acquire, by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire any assets, which would be material, individually or in the aggregate, to PFG, other than in connection with foreclosures, settlements in lieu of foreclosure or troubled loan or debt restructurings in the ordinary course of business; |
| · | make any capital expenditures in amounts exceeding $50,000 individually, or $250,000 in the aggregate, provided that SmartFinancial shall grant or deny its consent to emergency repairs or replacements necessary to prevent substantial deterioration of the condition of a property within two (2) business days of its receipt of a written request from PFG; |
| · | amend the PFG Charter or the PFG Bylaws or any equivalent documents of PFG’s subsidiaries; |
| · | implement or adopt any change in its accounting principles, practices or methods, other than as may be required by applicable laws, GAAP or applicable accounting requirements of any governmental authority, in each case, including changes in the interpretation or enforcement thereof; |
| · | except as previously disclosed to SmartFinancial, enter into, amend, modify, terminate, extend, or waive any material provision of, any PFG material contract, lease or insurance policy, or make any change in any instrument or agreement governing the terms of any of its securities, or material lease, license or contract, other than normal renewals of contracts, licenses and leases without material adverse changes of terms with respect to PFG or any of its subsidiaries, or enter into any contract that would constitute a PFG material contract if it were in effect on the date of the merger agreement, except for any amendments, modifications or terminations reasonably requested by SmartFinancial; |
| · | other than settlement of foreclosure actions in the ordinary course of business, (i) enter into any settlement or similar agreement with respect to any action, suit, proceeding, order or investigation to which PFG or any of its subsidiaries is or becomes a party after the date of the merger agreement, which settlement or agreement involves payment by PFG or any of its subsidiaries of an amount which exceeds $75,000 individually or $150,000 in the aggregate and/or would impose any material restriction on the business of PFG or any of its subsidiaries or (ii) waive or release any material rights or claims, or agree or consent to the issuance of any injunction, decree, order or judgment restricting or otherwise affecting its business or operations; |
| · | (i) enter into any material new line of business, introduce any material new products or services, any material marketing campaigns or any material new sales compensation or incentive programs or arrangements; (ii) change in any material respect its lending, investment, underwriting, risk and asset liability management and other banking and operating policies, except as required by applicable law, regulation or policies imposed by any governmental authority; (iii) make any material changes in its policies and practices with respect to underwriting, pricing, originating, acquiring, selling, servicing, or buying or selling rights to service loans, its hedging practices and policies, and (iv) incur any material liability or obligation relating to retail banking and branch merchandising, marketing and advertising activities and initiatives except in the ordinary course of business; |
| · | enter into any derivative transaction; |
| · | incur any indebtedness for borrowed money other than in the ordinary course of business consistent with past practice with a term not in excess of 12 months (other than creation of deposit liabilities or sales of certificates of deposit in the ordinary course of business), or incur, assume or become subject to, whether directly or by way of any guarantee or otherwise, any obligations or liabilities (whether absolute, accrued, contingent or otherwise) of any other person, other than the issuance of letters of credit in the ordinary course of business and in accordance with restrictions on making or extending loans as set forth in the merger agreement; |
| · | (i) other than in accordance with PFG’s investment guidelines, acquire, sell or otherwise dispose of any debt security or equity investment or any certificates of deposits issued by other banks, or (ii) change the classification method for any of the PFG investment securities from “held to maturity” to “available for sale” or from “available for sale” to “held to maturity,” as those terms are used in specified accounting literature; |
| · | make any changes to deposit pricing other than such changes made in the ordinary course of business; |
| · | except for loans or extensions of credit approved and/or committed as of the date of the merger agreement and disclosed to SmartFinancial, (i) make, renew, renegotiate, increase, extend or modify any (A) unsecured loan, if the amount of such unsecured loan, together with any other outstanding unsecured loans made by PFG or any of its subsidiaries to such borrower or its affiliates, would be in excess of $100,000, in the aggregate, (B) loan secured by other than a first lien in excess of $350,000, (C) loan in excess of the Federal Financial Institutions Examination Council’s regulatory guidelines relating to loan to value ratios, (D) loan secured by a first lien residential mortgage and with no loan policy exceptions in excess of $500,000, (E) secured loan over $750,000, (F) any loan that is not made in conformity with PFG’s ordinary course lending policies and guidelines in effect as of the date of the merger agreement, or (G) loan, whether secured or unsecured, if the amount of such loan, together with any other outstanding loans (without regard to whether such other loans have been advanced or remain to be advanced), would result in the aggregate outstanding loans to any borrower of PFG or any of its subsidiaries (without regard to whether such other loans have been advanced or remain to be advanced) to exceed $750,000, (ii) sell any loan or loan pools in excess of $1,000,000 in principal amount or sale price (other than residential mortgage loan pools sold in the ordinary course of business), or (iii) acquire any servicing rights, or sell or otherwise transfer any loan where PFG or any of its subsidiaries retains any servicing rights. Any loan in excess of the foregoing limits shall require the prior written approval of the President or Chief Credit Officer of SmartBank; |
| · | make any investment or commitment to invest in real estate or in any real estate development project other than by way of foreclosure or deed in lieu thereof or make any investment or commitment to develop, or otherwise take any actions to develop any real estate owned by PFG or its subsidiaries; |
| · | except as required by applicable law or in the ordinary course of business, make or change any material tax election, file any material amended tax return, enter into any material closing agreement with respect to taxes, settle or compromise any material liability with respect to taxes, agree to any material adjustment of any tax attribute, file any claim for a material refund of taxes, or consent to any extension or waiver of the limitation period applicable to any material tax claim or assessment; |
| · | commit any act or omission which constitutes a material breach or default by PFG or any of its subsidiaries under any agreement with any governmental authority or under any PFG material contract, material lease or other material agreement or material license to which PFG or any of its subsidiaries is a party or by which any of them or their respective properties are bound or under which any of them or their respective assets, business, or operations receives benefits; |
| · | foreclose on or take a deed or title to any real estate other than single-family residential properties without first conducting a Phase I environmental site assessment of the property in accordance with specified standards, or foreclose on or take a deed or title to any real estate other than single-family residential properties if such environmental assessment indicates the presence or likely presence of any hazardous substances under conditions that indicate an existing release, a past release, or a material threat of a release of any hazardous substances into structures on the property or into the ground, ground water, or surface water of the property; |
| · | take any action or knowingly fail to take any action not contemplated by the merger agreement that is intended or is reasonably likely to (i) prevent, delay or impair PFG’s ability to consummate the merger or the transactions contemplated by the merger agreement, or (ii) agree to take, make any commitment to take, or adopt any resolutions of its board of directors in support of any actions prohibited by the merger agreement; |
| · | directly or indirectly repurchase, redeem or otherwise acquire any shares of PFG capital stock or any securities convertible into or exercisable for any shares of PFG capital stock, except that PFG may repurchase, redeem or otherwise acquire shares of PFG common stock in connection with the payment of the withholding taxes owed by a holder of a PFG restricted share upon the vesting of a PFG restricted share; |
| · | except as required by law, file any application or make any contract or commitment for the opening, relocation or closing of any, or open, relocate or close any, branch office, loan production or servicing facility or automated banking facility, except for any change that may be requested by SmartFinancial; |
| · | merge or consolidate itself or any of its subsidiaries with any other person, or restructure, reorganize or completely or partially liquidate or dissolve it or any of its subsidiaries; or |
| · | (i) enter into any contract with respect to, or otherwise agree or commit to do, or adopt any resolutions of its board of directors or similar governing body in support of, any of the foregoing or (ii) take any action that is intended or expected to result in any of its representations and warranties set forth in the merger agreement being or becoming untrue in any material respect at any time prior to the effective time, or in any of the conditions to the merger not being satisfied or in a violation of any provision of the merger agreement, except, in every case, as may be required by applicable law. |
PFG has also agreed to cause to be delivered to SmartFinancial resignations of all the directors of PFG and its business other than insubsidiaries to be effective as of the regular, ordinary,effective time of the merger. Regulatory Matters SmartFinancial and usual course; failPFG agreed to use their respective commercially reasonable efforts to cause the registration statement to be declared effective by the SEC as promptly as reasonably practicable after filing. SmartFinancial has also agreed to use its commercially reasonable efforts to obtain all necessary state securities law or “blue sky” permits and approvals required to carry out the transactions contemplated by the merger agreement.SmartFinancial and PFG and their respective subsidiaries have agreed to cooperate with each other and use their reasonable best efforts to maintainprepare and preserve intact its business organizationsfile all necessary documentation, to effect all filings, to obtain as promptly as practicable all permits, consents, approvals and customerauthorizations of all third parties and other business relationships,regulatory and retain the services of its current officers and employees; take any actiongovernmental entities that would adversely affect or delay its ability to perform its obligations under the merger agreement orare necessary to consummate the transactions contemplated by the merger agreement;
incur, renew, modify, extend, or renegotiate any indebtedness for borrowed money or assume, guarantee, endorse, or otherwise as an accommodation become responsible foragreement, and to comply with the obligationsterms and conditions of any other person, other than (i) the creation of deposit liabilitiesall such permits, consents, approvals and authorizations;provided, however, that nothing contained in the ordinary course of business consistent with past practice, (ii) purchases of federal funds, and (iii) Federal Home Loan Bank advances with a maturity of not more than one year;
prepay any indebtedness or other similar arrangements so as to cause Tennessee Bancshares or Southern Community Bankmerger agreement will require SmartFinancial or any of theirits subsidiaries to incur any prepayment penalty;
purchase, accept, or renew any brokered deposits, except in the ordinary course of business consistent with past practice and with maturities of 24 monthsPFG or less;
adjust, split, combine, or reclassify any of its capital stock;
make, declare, pay,subsidiaries to take any action, or set aside for paymentcommit to take any dividendaction, or other distributionagree to any condition or restriction, in connection with obtaining the foregoing permits, consents, approvals and authorizations of any governmental authority that would reasonably be likely to have a material and adverse effect (measured on or in respect of its capital stock, other than dividends by Southern Community Banka scale relative to Tennessee Bancshares for the purpose of funding the payments by Tennessee Bancshares of (i) amounts due and payable by Tennessee Bancshares to First Tennessee Bank, National Association under that certain Loan Agreement dated December 20, 2016, between Tennessee Bancshares and First Tennessee Bank National Association, (ii) the special dividendPFG) on the Tennessee Bancshares common stockcondition (financial or otherwise), results of operations, liquidity, assets or deposit liabilities, properties or business of SmartFinancial, PFG, the surviving entity or the surviving bank, after giving effect to the merger (a “burdensome condition”).SmartFinancial and PFG will furnish each other and each other’s counsel with all information as may be necessary or advisable in an amount upconnection with any application, petition or any other statement or application made by or on behalf of SmartFinancial or PFG to TABLE OF CONTENTS
$0.70 per share (for more information regarding this one-time, special dividend, see “The Merger Agreement — Merger Consideration — Special Dividend” beginning on page 54), and (iii) expenses incurred by Tennessee Bancshares any governmental authority in connection with the transactions contemplated by the merger agreement;
grant any person anyagreement. Each party has the right to acquire any shares of its capital stock or any securities or rights convertible into or exercisable for its capital stock; issue any additional shares of capital stock or any securities or obligations convertible into or exercisable for any shares of its capital stock; or directly or indirectly redeem, purchase, repurchase, or otherwise acquire any shares of its capital stock;
other than in the ordinary course of business, sell, transfer, mortgage, encumber, or otherwise dispose of any of its properties, assets, or business (including other real estate owned), or cancel, release, or assign any material indebtedness or claims or waive any rights of substantial value;
make any equity investment, either by purchase of stock or other securities, contributions to capital, property transfers, purchase of any property or assets of any other person, or otherwise, or form any new subsidiary or dissolve, liquidate, or terminate any existing subsidiary;
enter into, renew, fail to renew, materially amend or modify, cancel, or terminate any new or existing material contract except for those that were disclosed to SmartFinancial;
make, renew, increase the amount of, extend the term of, or modify any loan, or commit to make, renew, increase the amount of, extend the term of, or modify any loan, except (i) in conformity with existing lending practices and where the principal amount of the loan does not exceed $800,000 or (ii) loans as to which the Tennessee Bancshares parties and their subsidiaries had binding obligations to make such loans as of the date of the merger agreement and which were disclosed to SmartFinancial. Notwithstanding the previous, the Tennessee Bancshares parties shall not make, renew, increase the amount of, extend the term of, or modify any loan, or commit to make, renew, increase the amount of, extend the term of, or modify any loan, to any person if, when aggregated with all other outstanding loans and commitments for loans to such person and such person’s family members and affiliates, the aggregate principal amount of all such loans and commitments would exceed $800,000;
extend credit to, directly or indirectly, any person who has a loan with Tennessee Bancshares or Southern Community Bank or any of their subsidiaries that is classified by Tennessee Bancshares or Southern Community Bank (or any of their subsidiaries) or the Federal Deposit Insurance Corporation, or FDIC, or the TDFI as “doubtful,” “substandard,” or “special mention” or that is on non-accrual status (a “classified borrower”);
renegotiate, renew, increase the amount of, extend the term of, or modify any loan with or to a classified borrower, except (i) in conformity with existing lending practices and regulatory requirements and (ii) where all outstanding loans and commitments for loans to the classified borrower and the classified borrower’s family members and affiliates do not and would not exceed $500,000 in the aggregate;
except in strict compliance with Regulation O of the Federal Reserve, make or increase the amount of any loan, or commit to make or increase the amount of any loan, to any director, executive officer, or principal shareholder of the Tennessee Bancshares parties or any entity controlled, directly or indirectly, by any Tennessee Bancshares party;
commence any claim, action, suit, or proceeding, other than to enforce an obligation owed to Tennessee Bancshares or Southern Community Bank or any of their subsidiaries and in accordance with past practice or enter into any settlement or similar agreement with respect to any claim, action, suit, or proceeding, which claim, action, suit, proceeding, or settlement or other agreement (i) involves the payment by it of an amount in excess of $25,000, or (ii) would impose any material restriction on its business or operations or the operations of any of its subsidiaries;
except as disclosed to SmartFinancial, increase in any manner the salary, wages, bonuses, compensation, or other benefits of, for, or payable to any of its directors, officers, or employees (except for normal employee wage and salary increases in the ordinary course of business consistent with past practice not exceeding 3% per year on a per employee basis), or pay any bonus, pension, retirement
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allowance, or contribution not required by or accrued for under any existing plan, agreement, or arrangement to any such directors, officers, or employees; become a party to, establish, adopt, amend, renew, terminate, extend, or commit to any pension, retirement, profit sharing, or other benefit plan, agreement, or arrangement, or any employment, severance, salary continuation, retention, change of control, consulting, or other contact, with or for the benefit of any director, officer, or employee, except as required by applicable law; amend, modify, or revise the terms of any outstanding stock option or voluntarily accelerate the vesting of, or the lapsing of restrictions with respect to, any stock options or other equity-based compensation; elect or appoint to any office with the title of executive vice president or higher any person who did not hold such office as of the date of the merger agreement or elect or appoint, or propose or recommend for election or appointment, to its board of directors any person who is not a member of its board of directors as of the date of the merger agreement; or hire any employee with annualized base compensation (excluding health insurance and retirement plan benefits) in excess of $50,000, except as may be necessary to replace an employee (other than an officer with a title of executive vice president or higher) whose employment is terminated, whether voluntarily or involuntarily;
amend its charter, bylaws, or other governing documents, or enter into any stock or asset purchase agreement or any plan or agreement of consolidation, merger, share exchange, or reorganization with any person or any indication of interest, letter of intent, or agreement in principle with respect thereto;
increase or decrease the rates of interest paid on time deposits or certificates of deposit, except in the ordinary course of business consistent with past practice;
purchase any debt security, including mortgage-backed and mortgage-related securities, other than United States government and United States government agency securities with final maturities of less than two years;
make any capital expenditures in excess of $50,000, individually, or $100,000, in the aggregate, other than pursuant to binding commitments existing on the date of the merger agreement and disclosed to SmartFinancial;
establish or commit to establish any new branch office, loan or deposit production office, or other banking office or facility, or file any application or notice to relocate or close or terminate the operations of any banking office or facility;
except for interest rate caps and interest rate floors for individual loans entered into in the ordinary course of business consistent with past practice, enter into any futures contract, option, swap agreement, interest rate cap, interest rate floor, or interest rate exchange agreement, or take any other action for purposes of hedging the exposure of its interest-earning assets or interest-bearing liabilities to changes in market rates of interest;
make any material changes in policies or procedures in existence on the date of the merger agreement with regard to extensions of credit, or the establishment of reserves with respect to possible loss thereon or the charge off of losses incurred thereon, investments, or asset/liability management, or in any other material banking policies or procedures, except as may be required by changes in law or GAAP or at the direction of a governmental authority;
except with respect to foreclosures in process as of the date of the merger agreement, foreclose upon or take the deed or title to any real property without prior written notice to SmartFinancial;
make or change any material tax election, settle or compromise any material tax liability, agree to an extension or waiver of the statute of limitations with respect to the assessment, collection, or determination of any material taxes, enter into any closing agreement with respect to any taxes or surrender any right to claim a material tax refund, adopt or change any method of accounting with respect to taxes, or file any amended tax return;
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take any action that is intended or could reasonably be expected to result in (i) any of the representations or warranties of the Tennessee Bancshares parties set forth in the merger agreement being or becoming untrue in any material respect at any time prior to the effective time of the merger, (ii) any of the conditions to the merger not being satisfied, or (iii) a breach or violation of any provision of the merger agreement;
adopt or implement any change in its accounting principles, practices, or methods, other than as may be required by GAAP or regulatory guidelines;
except as previously disclosed to SmartFinancial, enter into any new line of business, introduce any new products or services, or change the manner in which its investment securities or loan portfolio is classified or reported;
make any written communications to the officers or employees of the Tennessee Bancshares parties or their subsidiaries, or any oral communications presented to a significant portion of the officers or employees of the Tennessee Bancshares parties or their subsidiaries, pertaining to compensation or benefit matters that are affected by the transactions contemplated by the merger agreement, without first providing SmartFinancial a copy or written description of the intended communication and providing SmartFinancial with a reasonable period of time to review and comment on the communication;
engageapprove in or conduct any demolition, remodeling, or modifications or alterations to any of its business premises unless required by applicable law, or fail to use commercially reasonable efforts to maintain its business premises or other assets in substantially the same condition asadvance all characterizations of the merger agreement, ordinary wear and tear excepted;
subject any of its properties or assets to any lien (other than liens existing as of the date of the merger agreement and other than in connection with securing advances, repurchase agreements, and other borrowings from the Federal Home Loan Bank and transactions in federal funds);
take any action or fail to take any action, which action or failure to act would prevent or impede the merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code; or
agree to do, make any commitment to do, or adopt any resolutions of its board of directors (or other governing body) in support of, recommending, or proposing any of the foregoing.
Similarly, from the date of the merger agreement to the effective time of the merger, except as permitted by the merger agreement or as required by law or at the direction of a governmental authority, or with the prior written consent of Tennessee Bancshares (such consent not to be unreasonably withheld), SmartFinancial has agreed not to, and to cause its subsidiaries not to, do any of the following, without the prior written consent of Tennessee Bancshares:
fail to use commercially reasonable efforts to maintain and preserve intact its business organizations and advantageous customer and other business relationships;
take any action that would adversely affect or delay, in any material respect, its ability to perform its obligations under the merger agreement or to consummate the transactions contemplated by the merger agreement;
amend its charter or bylaws in a manner that would materially and adversely affect the economic benefits of the merger to the holders of Tennessee Bancshares common stock;
take any action that is intended or would reasonably be expected to result in (i) any of the conditions to the merger not being satisfied, or (ii) a breach or violation of any provision of the merger agreement;
take any action or fail to take any action, which action or failure to act would prevent or impede the merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code; or
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agree to do, make any commitment to do, or adopt any resolutions of its board of directors (or other governing body) in support of, recommending, or proposing any of the foregoing.
Covenants and Agreements
Acquisition Proposals
The Tennessee Bancshares parties agreed in the merger agreement to immediately terminate, and to use their reasonable best efforts to cause their subsidiaries and their and their subsidiaries’ affiliates, directors, officers, employees, agents, and representatives to immediately terminate, all activities, discussions, or negotiations with anyone other than SmartFinancial with respect to any acquisition proposal.
The merger agreement provides generally, and subject to the exceptions described below, that unless the merger agreement has been terminated the Tennessee Bancshares parties will not, and will cause their subsidiaries and their and their subsidiaries’ affiliates, directors, officers, employees, agents, and representatives not to, directly or indirectly through another person:
solicit, initiate, or encourage, or take any other action to facilitate or that could result in, any inquiries or discussions regarding, or the making of any proposal or offer that constitutes or could be expected to lead to, an acquisition proposal;
provide any non-public information or data regarding the Tennessee Bancshares parties or any of their subsidiaries to anyone other than SmartFinancial or SmartBank relating to or in connection with any acquisition proposal or any inquiry or indication of interest that could be expected to lead to an acquisition proposal;
continue or participate in any discussions or negotiations, or otherwise communicate in any way with any person other than SmartFinancial or SmartBank, regarding any acquisition proposal;
approve, endorse, recommend, or execute, enter into, or consummate, any indication of interest or letter of intent or similar agreement relating to any acquisition proposal or requiring the Tennessee Bancshares parties to abandon, terminate, or fail to consummate the transactions contemplated by the merger agreement (or propose to do any of the foregoing); or
| • | make or authorize any statement, recommendation, endorsement, or solicitation in support of any acquisition proposal, except in connection with a Tennessee Bancshares change of recommendation as discussed in the section below titled “Tennessee Bancshares Special Meeting.” |
The merger agreement requires the Tennessee Bancshares parties to promptly advise SmartFinancial of their receipt of an acquisition proposal, or any request or inquiry which would reasonably be expected to lead to an acquisition proposal,such party and to keep SmartFinancial informed of the status thereof, and to provide SmartFinancial any material written materials received by the Tennessee Bancshares parties or any of their subsidiaries in connection therewith. In addition, the Tennessee Bancshares parties must contemporaneously provide or make available to SmartFinancial all material documentation or correspondence provided or made available to any third party in connection with an acquisition proposal which has not been previously provided or made available to the SmartFinancial parties.
The merger agreement provides that, prior to the meeting of the Tennessee Bancshares’ shareholders, if the Tennessee Bancshares board of directors determines in good faith (after consultation with its outside legal and financial advisors) that the failure to do so would be inconsistent with its fiduciary duties, the Tennessee Bancshares parties may, in response to a bona fide, written acquisition proposal not solicited in violation of the merger agreement that the Tennessee Bancshares board of directors determines in good faith constitutes a superior proposal, (i) furnish information with respect to the Tennessee Bancshares parties and their subsidiaries to any person making the superior proposal pursuant to a confidentiality agreement on terms no more favorable to such person than the terms contained in the confidentiality agreement among SmartFinancial, SmartBank, Tennessee Bancshares, and Southern Community Bank (and which confidentiality agreement shall not provide such person the exclusive right to negotiate with the Tennessee Bancshares parties) and (ii) participate in discussions or negotiations with such person regarding the superior proposal. The Tennessee Bancshares parties must provide SmartFinancial 48 hours prior written notice of their decision to take such action and provide SmartFinancial with the identity of the person making the superior proposal and all of the material terms and conditions of the superior proposal.
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Also, the merger agreement permits the Tennessee Bancshares parties and their boards of directors and subsidiaries to comply with Rule 14e-2(a) and Rule 14d-9 under the Exchange Act and Item 1012(a) of Regulation M-A in the event of a tender offer.
For purposes of the merger agreement, the term “acquisition proposal” means any inquiry, indication, proposal, solicitation, or offer, or the filing of any regulatory application, notice, waiver, or request (whether in draft or final form), from or by any person relating to (i) any direct or indirect sale, acquisition, purchase, lease, exchange, mortgage, pledge, transfer, or other disposition of 15% or more of a party’s consolidated assets in a single transaction or series of transactions; (ii) any tender offer (including a self-tender) or exchange offer with respect to, or direct or indirect purchase or acquisition of, 15% or more of any class of equity or voting securities of a party; or (iii) any merger, share exchange, consolidation, business combination, reorganization, recapitalization, or similar transaction involving a party or any of its subsidiaries that appear in each case other than the transactions contemplated by the merger agreement.
For purposes of the merger agreement, the term “superior proposal” means any bona fide written acquisition proposal which the Tennessee Bancshares board of directors determines in good faith, after taking into account all legal, financial, regulatory, and other aspects of the proposal (including the amount, form, and timing of payment of consideration, the financing thereof, any associated break-up or termination fees, including those provided for in the merger agreement, expense reimbursement provisions, and all conditions to consummation) and the person making the proposal, and after taking into account the advice of Tennessee Bancshares’ financial advisor and outside legal counsel and is (i) more favorable fromfiling with a financial point of view to the shareholders of Tennessee Bancshares than the merger and (ii) is reasonably likely to be consummated on the terms set forth. For purposes of the definition of “superior proposal”, references to “10% or more” in the definition of the term “acquisition proposal” are replaced with references to “a majority.”
Notice of Certain Matters
Prior to the effective time of the merger, each party to the merger agreement has agreed to promptly notify the other parties of any fact, event, occurrence, circumstance, or condition known to it that constitutes or has caused, or could reasonably be expected to cause, a material breach of any of the party’s representations, warranties, covenants, or agreements contained in the merger agreement provided that no such notification shall affect the representations, warranties, covenants, or agreements of the parties or the conditions to the obligations of the parties contained in the merger agreement; be deemed to amend or supplement the disclosures each party hasgovernmental authority made to the other parties, has had or is reasonably likely to have, either individually or taken together with all other facts, events, occurrences, circumstances, and conditions known to such party, a material adverse effect on the party; or that would or could reasonably be expected to, prohibit, or materially impede or delay the consummation of the transactions contemplated by the merger agreement. Each party must give the other parties prompt written notice of any notice or communication from a third party alleging that the consent or approval of the third party is or may be required in connection with the transactions contemplated by the merger agreement. In addition, SmartFinancial and PFG agreed to provide to the other party for review a copy of each filing with a governmental authority made in connection with the transactions contemplated by the merger agreement prior to its filing.
NASDAQ Listing SmartFinancial has agreed to use its commercially reasonable efforts to cause the shares of its common stock to be issued in connection with the merger to be approved for listing on NASDAQ, subject to official notice of issuance, prior to the effective time of the merger. Employee Matters AccessGeneral
Following the effective time of the merger, SmartFinancial must maintain employee benefit plans and Informationcompensation opportunities for those persons who are full-time employees of PFG and its subsidiaries on the closing date of the merger (referred to below as “covered employees”) that provide employee benefits which, in the aggregate, are substantially comparable to the employee benefits and cash-based compensation opportunities that are made available on a uniform and non-discriminatory basis to similarly situated employees of SmartFinancial or its subsidiaries (except that no covered employee may participate in any closed or frozen plan of SmartFinancial or its subsidiaries). SmartFinancial shall give the covered employees credit for their prior service with PFG and its subsidiaries for purposes of eligibility and vesting under any employee benefit plan maintained by SmartFinancial in which covered employees may be eligible to participate. With respect to any SmartFinancial health, dental, vision or other welfare plan in which any covered employee is eligible to participate, for the plan year in which the covered employee is first eligible to participate, SmartFinancial or its applicable subsidiary must use its commercially reasonable efforts to (i) cause any pre-existing condition limitations or eligibility waiting periods under such plan to be waived with respect to the covered employee and his or her covered dependents to the extent the condition was, or would have been, covered under the PFG benefit plan in which the covered employee participated immediately prior to the effective time of the merger and (2) recognize any health, dental, vision or other welfare expenses incurred by such covered employee and his or her covered dependents in the year that includes the closing date (or, if later, the year in which such covered employee is first eligible to participate) for purposes of any applicable copayment, deductibles and annual out of pocket expense requirements under any such health, dental, vision or other welfare plan. Employees of PFG (other than those who will enter into termination agreements with SmartFinancial and/or SmartBank in connection with the transaction) who (i) become employees of SmartFinancial or SmartBank at the effective time of the merger and (ii) is terminated within one year following the effective time of the merger (other than for cause, death, disability, normal retirement or voluntarily resignation) will be entitled to receive severance compensation based on the number of years of service with PFG and the employees’ weekly rate of pay. Prior to the effective time of the merger, PFG will effectuate the Tennessee Bancshares parties have generally agreed to afford Smart Financialtermination or discontinuation of certain benefits plans maintained by PFG, as requested by SmartFinancial. Indemnification and its representatives reasonable access to itsDirectors’ and its subsidiaries’ books, records, contracts, properties, assets, personnel, and information technology systems. Also, each party has agreed to afford the other parties and their representatives any other information relating it or its subsidiaries that the other parties reasonably request. Also, Tennessee Bancshares has generally agreed to, prior to the effective time of the merger, furnish SmartFinancial with a copy of any report, application, notice, schedule, or other document or instrument filed with or received from any governmental authority, except where disclosure of the same is not permitted by law.Officers’ Insurance Further Assurances
Generally, each of the parties has agreed in theThe merger agreement to use its reasonable best efforts to promptly take or cause to be taken all actions, and to promptly do or cause to be done all things, necessary or advisable to consummate the transactions contemplated by the merger agreement (including the merger) as expeditiously as reasonably possible.
Tennessee Bancshares Special Meeting and Recommendation of Tennessee Bancshares Board
Tennessee Bancshares has agreed in the merger agreement to take all action necessary to call and hold, as promptly as reasonably practicable after the effective date of the registration statement of which this proxy
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statement/prospectus is a part, a meeting of its shareholders for the purpose of its shareholders considering and voting on approval of the merger agreement and any other matters required to be approved by Tennessee Bancshares’ shareholders in order to consummate the transactions contemplated by the merger agreement. Subject to certain limited exceptions discussed below, (i) Tennessee Bancshares and its board of directors must at all times prior to and during the special meeting recommend to Tennessee Bancshares’ shareholders the approval of the merger agreement and the transactions contemplated by the merger agreement (and take all reasonable and lawful action to solicit and obtain such approval) and (ii) neither Tennessee Bancshares nor its board of directors can withdraw, modify, or qualify in any manner adverse to SmartFinancial its recommendation of the merger agreement and the transactions contemplated thereby to Tennessee Bancshares’ shareholders, or take any other action or make any other public statement inconsistent with such recommendation (referred to in this proxy statement/prospectus as a “Tennessee Bancshares change of recommendation”).
The Tennessee Bancshares board of directors may make a Tennessee Bancshares change of recommendation if, but only if:
the Tennessee Bancshares board of directors determines in good faith (after consultation with and based on the advice of outside legal counsel)provide that, its failure to do so would result in a violation of its fiduciary duties; and
in the event the Tennessee Bancshares change of recommendation relates to an acquisition proposal, (i) the Tennessee Bancshares parties have complied in all material respects with their obligations under the merger agreement with respect to acquisition proposals, (ii) the Tennessee Bancshares board of directors has determined in good faith, after giving effect to any adjustments offered by SmartFinancial in the manner discussed below, that the acquisition proposal constitutes a superior proposal, (iii) Tennessee Bancshares notifies SmartFinancial at least five business days in advance of its intention to effect a Tennessee Bancshares change of recommendation in response to such superior proposal, and furnishes SmartFinancial the identity of the person making such superior proposal, a copy of the proposed transaction agreements and all other documents relating to such superior proposal, and (iv) prior to effecting the Tennessee Bancshares change of recommendation, the Tennessee Bancshares parties have for a period of five business days following Tennessee Bancshares’ delivery of the notice referred to above negotiated in good faith with SmartFinancial (to the extent SmartFinancial desires to negotiate) to make adjustments in the terms of the merger agreement so that the acquisition proposal no longer constitutes a superior proposal.
Absent termination of the merger agreement, nothing in the merger agreement is intended to relieve Tennessee Bancshares of its obligation to hold a meeting of its shareholders to obtain the approval required to complete the merger.
Tennessee Bancshares has also agreed in the merger agreement to adjourn or postpone the special meeting at least two times if as of the date of the meeting (i) there are not sufficient shares of Tennessee Bancshares common stock represented in person or by proxy to constitute the quorum necessary to conduct the business of the meeting or (ii) Tennessee Bancshares has not received proxies representing a sufficient number of shares of Tennessee Bancshares common stock for the approval of the merger agreement by Tennessee Bancshares’ shareholders.
Employee Benefits
SmartFinancial and SmartBank generally have agreed to provide employees of Southern Community Bank who become employees of SmartBank in connection with the merger (which we refer to as “continuing employees”) with benefits that are no less favorable that those provided to similarly situated employees of SmartBank as of the date of the merger agreement. Generally, and subject to certain customary exceptions, SmartFinancial and SmartBank will recognize thesix years of service of continuing employees with Southern Community Bank for vesting and eligibility purposes under employee benefit plans maintained by SmartFinancial or SmartBank in which the continuing employees are eligible to participate. The SmartFinancial parties have agreed to use commercially reasonable efforts to cause any pre-existing condition, eligibility waiting period, or other limitations or exclusions applicable to new employees under SmartFinancial or SmartBank health care, dental, and vision plans to not apply to continuing employees or their eligible spouses and dependents. Moreover, if continuing employees experience a transition in health care, dental, or vision coverage during the middle of a plan year, the SmartFinancial parties have agreed to use commercially reasonable efforts to cause any successor SmartFinancial
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or SmartBank benefit plan providing health care, dental, or vision coverage for continuing employees to give credit towards the satisfaction of any annual deductible limitation and out-of-pocket maximum applied under such successor benefit plan for any deductible, co-payment, or other cost-sharing amounts previously paid by continuing employees as part of their participation in the corresponding Tennessee Bancshares or Southern Community Bank benefit plan during the plan year.
The Tennessee Bancshares parties generally have agreed in the merger agreement to, prior to the effective time of the merger, take any actions reasonably requested by SmartFinancial to terminate or freeze, or cause benefit accruals to cease under, one or more of their benefit plans as of or immediately prior to the effective of the merger; to continue after the effective time of the merger, any contract or insurance policy relating to any of their benefit plans for such period as may be requested by SmartFinancial; and to facilitate the merger of any of their benefit plans into any employee benefit plans maintained by SmartFinancial or their subsidiaries.
Generally, and subject to certain exceptions and conditions set forth in the merger agreement, Southern Community Bank employees who are not offered continued employment with SmartFinancial or one of its subsidiaries, and continuing employees whose employment is terminated by SmartFinancial or one of its subsidiaries without cause during the six-month period immediately following the merger, will be paid severance benefits based on their length of service with the Tennessee Bancshares parties prior to the effective time of the merger and with SmartFinancial or one of its subsidiaries thereafter.
Indemnification and Insurance
The merger agreement generally provides that, for a period of six years following the merger, SmartFinancial willshall indemnify defend, and hold harmless all currentthe present and former directors, officers, employees and employeesagents of Tennessee BancsharesPFG and Southern Community Bankits subsidiaries against all costs andor expenses, judgments, fines, losses, claims, damages andor other liabilities incurred in connection with any claim, action, suit, proceeding or investigation arising out of matters existingactions or omissions of such persons in the course of performing their duties for PFG or its subsidiaries occurring prior toat or before the effective time of the merger and based on(including the fact that such individuals were directors, officers, or employees of Tennessee Bancshares or Southern Community Bank (or was serving attransactions contemplated by the request of Tennessee Bancshares or Southern Community Bank as a director, officer, employee, agent, trustee, or partner of another corporation, partnership, trust, joint venture, employee benefit plan, or other entity)merger agreement), to the fullestsame extent these individuals wouldas such persons have been entitledthe right to be indemnified defended, and held harmless under applicable law andpursuant to the charters and bylawsorganizational documents of Tennessee Bancshares and Southern Community Bank asPFG in effect as of the date of the merger agreement.
The merger agreement requires Tennessee Bancshares prior to the merger andextent permitted by applicable law. SmartFinancial will also advance expenses in connection with such indemnification.
For a period of six years after the merger to maintain in effect aftereffective time of the merger, a six-year “tail” policy under Tennessee Bancshares’ existingSmartFinancial will provide directors’ and officers’ liability insurance policy providingthat serves to reimburse the present and former officers and directors of PFG or its subsidiaries with respect to claims against them arising from facts or events occurring before the effective time of the merger (including the transactions contemplated by the merger agreement). The directors’ and officers’ liability insurance will contain at least the same coverage and amounts, and containingcontain terms and conditions that are notno less advantageous than thoseto the indemnified person as the coverage currently provided for by PFG;provided, however, that: (i) if SmartFinancial is unable to obtain or maintain the Tennessee Bancshares parties’ existing directors’ and officers’ liability insurance, with respectthen SmartFinancial will provide as much comparable insurance as is reasonably available, and (ii) officers and directors of PFG or its subsidiaries may be required to claims against those individuals covered by such existing policies arising from facts or events that occurred at or priormake application and provide customary representations and warranties to the completioncarrier of the merger, provided however that without the prior consent ofinsurance. SmartFinancial the Tennessee Bancshares parties shallwill not be required to expend for such tail insurance ana premium amount in excess of 150%an amount equal to 200% of the most recent annual premiums paid by PFG for director and officer insurance in effect as of the Tennessee Bancshares parties for their existing directors’date of this Agreement. SmartFinancial has agreed that if it, or any of its successors and officers’ liability insurance.assigns, consolidates with or merges with any other corporation or entity where it is not the continuing or surviving corporation, or transfers all or substantially all of its property or assets, it will make proper provision so that the successors and assigns of SmartFinancial and its subsidiaries will assume the obligations of indemnification under the merger agreement. Certain Additional Covenants
TheNo Solicitation
PFG has agreed that, from the date of the merger agreement also contains additional covenants, including, among others, covenantsit will not, and will cause its subsidiaries and each of their respective officers, directors and employees not to, and will not authorize or permit its investment bankers, financial advisors, attorneys, accountants, consultants, affiliates or other agents of PFG or any of its subsidiaries to, directly or indirectly, (i) initiate, solicit, induce or knowingly encourage, or take any action to facilitate the making of, any inquiry, offer or proposal which constitutes, or could reasonably be expected to lead to, an acquisition proposal; (ii) participate in any discussions or negotiations regarding any acquisition proposal or furnish, or otherwise afford access, to any person (other than SmartFinancial) any information or data with respect to PFG or any of its subsidiaries or otherwise relating to obtainingan acquisition proposal; (iii) release any person from, waive any provisions of, or fail to enforce any confidentiality agreement or standstill agreement to which PFG is a party; or (iv) enter into any agreement, confidentiality agreement, agreement in principle or letter of intent with respect to any acquisition proposal or approve or resolve to approve any acquisition proposal or any agreement, agreement in principle or letter of intent relating to an acquisition proposal. For purposes of the governmental authoritymerger agreement, an “acquisition proposal” means any inquiry, offer or proposal (other than an inquiry, offer, or proposal from SMBK), whether or not in writing, contemplating, relating to, or that could reasonably be expected to lead to, an Acquisition Transaction, and an “Acquisition Transaction” means (A) any transaction or series of transactions involving any merger, consolidation, recapitalization, share exchange, liquidation, dissolution or similar transaction involving PFG or any of its subsidiaries; (B) any transaction pursuant to which any third party or group acquires or would acquire (whether through sale, lease or other disposition), directly or indirectly, a significant portion of the assets of PFG or any of its subsidiaries; (C) any issuance, sale or other disposition of (including by way of merger, consolidation, share exchange or any similar transaction) securities (or options, rights or warrants to purchase or securities convertible into, such securities) representing 20% or more of the votes attached to the outstanding securities of PFG or any of its subsidiaries; (D) any tender offer or exchange offer that, if consummated, would result in any third party or group beneficially owning 20% or more of any class of equity securities of PFG or any of its subsidiaries; or (E) any transaction which is similar in form, substance or purpose to any of the foregoing transactions, or any combination of the foregoing. A “superior proposal” means a bona fide, unsolicited acquisition proposal (i) that if consummated would result in a third party (or in the case of a direct merger between such third party and PFG or any of its subsidiaries, the shareholders of such third party) acquiring, directly or indirectly, more than 50% of the outstanding PFG common stock or more than 50% of the assets of PFG and its subsidiaries, taken as a whole, for consideration consisting of cash and/or securities and (ii) that the board of directors of PFG reasonably determines in good faith, after consultation with its outside financial advisor and outside legal counsel, (a) is reasonably capable of being completed, taking into account all financial, legal, regulatory and other thirdaspects of such proposal, including all conditions contained therein and the person making such acquisition proposal, and (b) taking into account any changes to the merger agreement proposed by SmartFinancial in response to such acquisition proposal, and all financial, legal, regulatory and other aspects of such proposal, including all conditions contained therein and the person making such acquisition proposal, such proposal is more favorable to the shareholders of PFG from a financial point of view than the merger. However, at any time prior to PFG special meeting, PFG may take any of the actions described in the first paragraph of this “– No Solicitation” section if, but only if (i) PFG receives a bona fide unsolicited acquisition proposal that did not result from a breach of the first paragraph of this section, and (ii) the PFG board of directors reasonably determines in good faith, after consultation with and having considered the advice of its outside financial advisor and outside legal counsel, that (A) such acquisition proposal constitutes or is reasonably likely to lead to a superior proposal and (B) the failure to take such actions more likely than not would cause it to violate its fiduciary duties to PFG’s shareholders under applicable law, (iii) PFG has provided SmartFinancial with at least three business days prior notice of such determination, and (iv) prior to furnishing or affording access to any information or data with respect to PFG or any of its subsidiaries or otherwise relating to an acquisition proposal, PFG receives from such person a confidentiality agreement with terms no less favorable to PFG than those contained in the confidentiality agreement with SmartFinancial. PFG must promptly provide to SmartFinancial any non-public information regarding PFG or any of its subsidiaries provided to any other person which was not previously provided to SmartFinancial, and such additional information must be provided no later than the date of provision of such information to such other party. PFG must promptly (and in any event within (1) Business Day) notify SmartFinancial in writing if any proposals or offers are received by, any information is requested from, or any negotiations or discussions are sought to be initiated or continued with, PFG or its representatives, in each case in connection with any acquisition proposal, and such notice must indicate the name of the person initiating such discussions or negotiations or making such proposal, offer or information request and the material terms and conditions of any proposals or offers (and, in the case of written materials relating to such proposal, offer, information request, negotiations or discussion, providing copies of such materials (including e-mails or other electronic communications), except to the extent that such materials constitute confidential information of the party consentsmaking such offer or proposal under an effective confidentiality agreement). PFG has agreed that it will keep SmartFinancial informed, on a reasonably current basis, of the status and approvals required forterms of any such proposal, offer, information request, negotiations or discussions (including any amendments or modifications to such proposal, offer or request). Except as provided below, neither the board of directors of PFG nor any committee thereof shall (i) withdraw, qualify, amend or modify, or propose to withdraw, qualify, amend or modify, in a manner adverse to SmartFinancial in connection with the transactions contemplated by the merger agreement; public statementsagreement (including the merger), the PFG recommendation, fail to reaffirm the PFG recommendation within three business days following a request by SmartFinancial, or disclosures pertainingmake any statement, filing or release, in connection with the PFG special meeting or otherwise, inconsistent with the PFG recommendation (it being understood that taking a neutral position or no position with respect to an acquisition proposal will be considered an adverse modification of the PFG recommendation); (ii) approve or recommend, or propose to approve or recommend, any acquisition proposal; or (iii) enter into (or cause PFG or any of its subsidiaries to enter into) any letter of intent, agreement in principle, acquisition agreement or other agreement (a) related to any acquisition transaction (other than a confidentiality agreement entered into in accordance with the foregoing) or (b) requiring PFG to abandon, terminate or fail to consummate the merger or any other transaction contemplated by the merger agreement. Notwithstanding the foregoing, prior to the date of the PFG special meeting, the board of directors of PFG may withdraw, qualify, amend or modify the PFG recommendation (“PFG subsequent determination”) after the fifth business day following SmartFinancial’s receipt of a notice (the “notice of superior proposal”) from PFG advising SmartFinancial that the board of directors of PFG has decided that a bona fide unsolicited written acquisition proposal that it received (that did not result from a breach of the merger agreement) constitutes a superior proposal if, but only if, (i) the board of directors of PFG has determined in good faith, after consultation with and having considered the advice of outside legal counsel and its financial advisor, that the failure to take such actions more likely than not would cause it to violate its fiduciary duties to PFG’s shareholders under applicable law, (ii) during the five business day period after receipt of the notice of superior proposal by SmartFinancial (the “notice period”), PFG and the board of directors of PFG shall have cooperated and negotiated in good faith with SmartFinancial to make such adjustments, modifications or amendments to the terms and conditions of the merger agreement as would enable PFG to proceed with the PFG recommendation in favor of the merger with SmartFinancial without a PFG subsequent determination; provided, however, that SmartFinancial does not have any obligation to propose any adjustments, modifications or amendments to the terms and conditions of the merger agreement and (iii) at the end of the notice period, after taking into account any such adjusted, modified or amended terms as may have been proposed by SmartFinancial since its receipt of such notice of superior proposal, the board of directors of PFG has again in good faith made the determination that such acquisition proposal constitutes a superior proposal. In the event of any material revisions to the superior proposal, PFG is required to deliver a new notice of superior proposal to SmartFinancial and again comply with the foregoing requirements, except that the notice period will be reduced to three business days. Notwithstanding any PFG subsequent determination, the merger agreement will be submitted to PFG’s shareholders at the PFG special meeting for the purpose of voting on the approval of the merger proposal and nothing contained in the merger agreement will be deemed to relieve PFG of such obligation; provided, however, that if the board of directors of PFG makes a PFG subsequent determination with respect to a superior proposal, then the board of directors of PFG may recommend approval of such superior proposal by the shareholders of PFG and may submit the merger proposal to PFG’s shareholders without recommendation, in which event the board of directors of PFG will communicate the basis for its recommendation of such superior proposal and the basis for its lack of a recommendation with respect to the merger proposal to PFG’s shareholders in an appropriate amendment or supplement to this proxy statement/prospectus. Conditions to Completion of the Merger The completion of the merger depends on a number of conditions being satisfied or, where permitted, waived, including: | · | the required approval by the shareholders of PFG; |
| · | the receipt of all regulatory approvals, or expiration or termination of all statutory waiting periods in respect thereof, required to consummate the transactions contemplated by the merger agreement, without any burdensome conditions (as such term is defined in the merger agreement); |
| · | the absence of any judgment, order, injunction or decree issued by any court or agency of competent jurisdiction or other law preventing or making illegal the consummation of the merger, the bank merger or the other transactions contemplated by the merger agreement; |
| · | the effectiveness of the registration statement on Form S-4, of which this proxy statement/prospectus is a part, under the Securities Act; |
| · | the receipt by SmartFinancial and PFG from their respective tax counsel of a U.S. federal income tax opinion, dated the closing date of the merger, that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code; |
| · | the accuracy, subject to varying degrees of materiality, of SmartFinancial’s and PFG’s respective representations and warranties in the merger agreement on the date of the merger agreement and as of the effective time of the merger (or such other date specified in the merger agreement); |
| · | performance in all material respects by SmartFinancial and PFG of their respective obligations under the merger agreement; |
| · | the Plan of Bank Merger is executed and delivered; |
| · | less than 7.5% of the outstanding shares of PFG common stock validly exercise, or remain entitled to exercise, their dissenters’ rights; |
| · | the disposition of PFG’s holdings of the common stock of Upper Cumberland Bancshares, Inc. (which was completed on November 19, 2019); |
| · | the dissolution of certain PFG subsidiaries that hold real property (The Cove at Little Island, LLC, Horse Creek Holdings LLC, Progressive Funding, Inc., and Cumberland Mountain Preserve/East First Street, LLC); and the transfer of any real property held by such entities to Progressive Savings Bank; |
| · | the shares of SmartFinancial common stock to be issued in connection with the transactions contemplated by this Agreement shall be approved for listing on the NASDAQ; |
| · | the entry of certain employees of PFG and its subsidiaries into new employment arrangements; |
| · | the absence of any event which has resulted in a material adverse effect on the other party, and the absence of any condition, event, fact, circumstance or other occurrence that is reasonably expected to have a material adverse effect on the other party. |
No assurance is given as to when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed. Termination The merger agreement may be terminated at any time prior to the effective time of the merger: | · | by mutual written consent of SmartFinancial and PFG; |
| · | by SmartFinancial or PFG if any regulatory approval required for consummation of the transactions contemplated by the merger agreement has been denied by final non-appealable action by the relevant governmental authority or any application for such regulatory approval shall have been permanently withdrawn at the request of a governmental authority; |
| · | by SmartFinancial or PFG if the approval of the shareholders of PFG is not obtained; |
| · | by SmartFinancial or PFG in the event of a material breach by the other party of any representation, warranty or covenant contained in the merger agreement and such breach is not cured prior to the earlier of thirty days of notice of the breach or two business days prior to the expiration date of the merger agreement and the terminating party is not itself in material breach; |
| · | by SmartFinancial or PFG if the merger is not consummated on or before June 30, 2020, subject to automatic extension to September 30, 2020 if the only outstanding condition to closing is the receipt of regulatory approvals, which we refer to as the expiration date; |
| · | by SmartFinancial if PFG materially breaches its covenant not to solicit other offers; |
| · | by SmartFinancial if PFG withdraws, qualifies, amends, modifies or withholds its recommendation to its shareholders to approve the merger and the merger agreement, or makes any statement, filing or release, in connection with the shareholder meeting or otherwise, inconsistent with its recommendation (it being understood that taking a neutral position or no position with respect to an acquisition proposal shall be considered an adverse modification of its recommendation); |
| · | by SmartFinancial if PFG fails to properly call, give notice of, and commence a meeting of shareholders to vote on the merger; |
| · | by SmartFinancial if PFG approves or recommends an acquisition proposal; |
| · | by SmartFinancial if PFG fails to publicly recommend against a publicly announced acquisition proposal within five business days of such proposal being announced or fails to publicly reconfirm its recommendation to its shareholders within three business days of being requested to do so by SmartFinancial; |
| · | by PFG if PFG’s board of directors determines to enter into a definitive agreement with respect to a superior proposal in accordance with the terms of the merger agreement, but only if PFG pays to SmartFinancial the $2,000,000 termination fee. |
Termination Fee PFG will pay SmartFinancial a termination fee equal to $2,000,000 in the event of any of the following: | · | SmartFinancial terminates the merger agreement because: (i) PFG materially breached its covenant not to solicit other offers; (ii) PFG withdrew, qualified, amended, modified or withheld its recommendation to its shareholders to approve the merger and the merger agreement to its shareholders, or made any statement, filing or release, in connection with the shareholder meeting or otherwise, inconsistent with its recommendation (it being understood that taking a neutral position or no position with respect to an acquisition proposal shall be considered an adverse modification of its recommendation); (iii) PFG failed to properly call, give notice of, and commence a meeting of shareholders to vote on the merger; (iv) PFG approved or recommended an acquisition proposal; (v) PFG failed to publicly recommend against a publicly announced acquisition proposal within five (5) business days of such proposal being announced or failed to publicly reconfirm its recommendation to its shareholders within (3) business days of being requested to do so by SmartFinancial; or (vi) PFG resolved or otherwise determined to take, or announced an intention to take, any of the foregoing actions; |
| · | in the event that after the date of the merger agreement and prior to the termination of the merger agreement, an acquisition proposal was made known to senior management of PFG or has been made directly to PFG’s shareholders generally or an acquisition proposal shall have been publicly announced (and not withdrawn), and (i) the merger agreement is terminated by (A) SmartFinancial or PFG because the requisite PFG shareholder approval was not obtained or (B) SmartFinancial because of PFG’s material breach of its representations and warranties or covenants in the merger agreement, and (ii) prior to the date within 12 months of such termination, PFG enters into any agreement or consummates a transaction with respect to an acquisition proposal (whether or not it’s the same acquisition proposal as that referred to above); |
| · | PFG terminates the merger agreement at any time before the receipt of PFG shareholder approval for the purpose of entering into an acquisition agreement with respect to a superior proposal in compliance with the terms of the merger agreement. |
Effect of Termination A termination of the merger agreement will not relieve a breaching party from liability for any breach of any covenant, agreement, representation or warranty of the merger agreement giving rise to such termination or resulting from fraud or any willful and material breach. Notwithstanding the foregoing, the parties have agreed that if PFG pays or causes to be paid to SmartFinancial the termination fee in accordance with the merger agreement, PFG (or any successor in interest of PFG) will not have any further obligations or liabilities to SmartFinancial with respect to the merger agreement or the transactions contemplated by it. Amendment; Waiver Prior to the effective time of the merger agreement; the preparation and filing of the registration statement and this proxy statement/prospectus; the authorization for listing on Nasdaq of the shares of SmartFinancial common stock to be issued as stock consideration; and exemption from liability under Rule 16b-3 under the Exchange Act for acquisitions of SmartFinancial common stock by Tennessee Bancshares insiders. Conditions to Consummation of the Merger
The respective obligations of SmartFinancial, SmartBank, Tennessee Bancshares, and Southern Community Bank to consummate the merger are subject to the satisfaction or, to the extent permissible, waiver of certain conditions, including:
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the approvalpermitted by applicable law, any provision of the merger proposalagreement may be (a) waived by Tennessee Bancshares’ shareholders;the party benefitted by the provision, provided the waiver is in writing and signed by such party, or (b) amended or modified at any time, by an agreement in writing between the parties, except that after the PFG special meeting no amendment may be made which by law requires further approval by the shareholders of SmartFinancial or PFG without obtaining such approval.Expenses All expenses incurred in connection with the receipt of all required consents and approvals of governmental authorities (includingmerger, the Federal Reserve and the TDFI) required to consummate the transactions contemplated bybank merger, the merger agreement withoutand other transactions contemplated thereby, including fees and expenses of financial consultants, accountants and counsel, will be paid by the imposition of any non-customary condition, restriction, or requirement material and adverse toparty incurring the economic benefits of the operation of the combined company and its subsidiaries, and the expiration of all statutory waiting periods; the absence of any order, decree, or injunction enjoining or prohibiting the merger or the bank merger, and any action, suit, or proceeding seeking the same, and the absence of any law prohibiting or making illegal the consummation of the merger or the bank merger;
the effectiveness of the registration statement, of which this proxy statement/prospectus is a part, under the Securities Act, and the absence of any stop order suspending its effectiveness, as well as the absence of any action, suit, investigation, or proceeding to suspend the effectiveness of the registration statement; and
the authorization of the shares of SmartFinancial common stock to be issued as stock consideration to Tennessee Bancshares shareholders for listing on Nasdaq.
The obligation of each of Tennessee Bancshares and Southern Community Bank to consummate the merger is also subject to the satisfaction or, to the extent permissible, waiver of certain additional conditions, including:
the accuracy of the representations and warranties of SmartFinancialexpenses. Nothing in the merger agreement both aslimits either party’s rights to recover any liabilities or damages arising out of the dateother party’s willful breach of any provision of the merger agreementagreement.ANCILLARY AGREEMENTS Voting Agreements In connection with, and as of the date of the closing of the merger (except for representations and warranties that speak as of an earlier date than the date of the merger agreement), subjecta condition to, the materiality standards provided for in the merger agreement; SmartFinancial’s performance of and compliance with, in all material respects, their obligations and covenants in the merger agreement;
the Tennessee Bancshares parties’ receipt of a certificate, dated as of the date of the closing of the merger, signed by the chief executive officer and chief financial officer of SmartFinancial to the effect that the two conditions described immediately above have been satisfied; and
Tennessee Bancshares’ receipt of an opinion from Waller Lansden, dated as of the date of the closing of the merger, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code.
The respective obligations of SmartFinancial to consummate the merger are also subject to the satisfaction or, to the extent permissible, waiver of certain additional conditions, including:
the accuracy of the representations and warranties of Tennessee Bancshares and Southern Community Bank inentering into the merger agreement, both aseach of the datedirectors of PFG and Progressive Bank who hold shares of PFG common stock entered into a voting agreement with SmartFinancial. The following summary of the voting agreements is subject to, and qualified in its entirety by reference to, the form voting agreement attached as Exhibit A to the merger agreement andattached as of the date of the closing of the merger (except for representations and warranties that speak as of an earlier date than the date of the merger agreement), subjectAnnex A to this document.Pursuant to the materiality standards provided for invoting agreements, each party to a voting agreement has agreed to appear at the merger agreement; the Tennessee Bancshares parties’ performance ofPFG special meeting (in person or by proxy) and compliance with, in all material respects, their obligations and covenants in the merger agreement;
SmartFinancial’s receipt of a certificate, dated as of the date of the closing of the merger, signed by the chief executive officer and chief financial officer of Tennessee Bancshares and Southern Community Bank to the effect that the two conditions described immediately above have been satisfied;
SmartFinancial’s receipt of evidence that all consents, approvals, and waivers required to be obtained by the Tennessee Bancshares parties have been obtained;
SmartFinancial’s receipt of an opinion from Butler Snow, dated as of the date of the closing of the merger, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code;
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SmartFinancial’s receipt of evidence of written resignations from those individuals serving on the boards of directors of Tennessee Bancshares and Southern Community Bank; and
the holders of no more than 10% of the outstandingvote his or her shares of Tennessee BancsharesPFG common stock shall have perfected, and not effectively withdrawn or lost, their rights to dissent from the merger pursuant to Chapter 23 of the Tennessee Business Corporation Act.
There can be no assurance as to whether or when all of the conditions to consummation of the merger will be satisfied or, where permissible, waived.stock:
Termination of the Merger Agreement
Generally. The merger agreement may be terminated as follows:
by mutual written agreement of SmartFinancial, Tennessee Bancshares, and Southern Community Bank;
by SmartFinancial or the Tennessee Bancshares parties, in the event that Tennessee Bancshares’ shareholders do not approve the merger proposal, provided that in the case of termination by the Tennessee Bancshares parties, Tennessee Bancshares and its board of director have complied with their obligations to call and hold the special meeting and to recommend and solicit approval of the merger agreement by Tennessee Bancshares’ shareholders;
by SmartFinancial or the Tennessee Bancshares parties, in the event that any consent, approval, or waiver from the Federal Reserve, the TDFI, the United States Department of Justice, or any other governmental agency required in connection with the consummation of the transactions contemplated by the merger agreement has been denied by final and non-appealable action of such governmental authorities or any application for any such consent, approval, or waiver has been permanently withdrawn at the request of any such governmental authority, provided the denial or withdrawal is not due to the failure of the terminating parties to perform or observe their obligations under the merger agreement;
by SmartFinancial or the Tennessee Bancshares parties, in the event that any court or other governmental authority of competent jurisdiction has issued a final, non-appealable order enjoining or otherwise prohibiting the consummation of any of the transactions contemplated by the merger agreement, provided that the action of such governmental authority is not due to the failure of the terminating parties to perform or observe their obligations under the merger agreement;
by SmartFinancial or the Tennessee Bancshares parties, in the event the merger is not consummated by September 30, 2018, provided that the failure to consummate the merger by such date is not due to the failure of the terminating parties to perform or observe their obligations under the merger agreement;
by SmartFinancial:
| -· | in the eventfavor of a breach of the merger agreement by Tennessee Bancshares or Southern Community Bank, if the breach (individually or in the aggregate with all other breaches) would, if occurring or continuing on the closing date for the merger, result in any of the conditions to the merger not being satisfiedadoption and is not cured by the earlier of September 30, 2018, and 30 days after written notice to the breaching party of the breach (provided that SmartFinancial is not in material breach of the merger agreement) (which we refer to as a “SmartFinancial material breach termination”); |
| - | in the event that, (i) the Tennessee Bancshares parties materially breach their obligations under the merger agreement relative to acquisition proposals or calling and holding the special meeting and recommending and soliciting approval of the merger agreement by Tennessee Bancshares’ shareholders or (ii) the Tennessee Bancshares board of directors does not recommend in this proxy statement/prospectus the approval of the merger agreement and the approval of the merger and the other transactions contemplated thereby by Tennessee Bancshares’ shareholders or, after having made such recommendation, subsequently makes a Tennessee Bancshares change of recommendation;the merger agreement; |
| -· | in favor of any proposal to adjourn or postpone such meeting, if necessary, to solicit additional proxies to approve the event of a third-party tender or exchange offer for 10% or more ofmerger agreement and the outstanding shares of Tennessee Bancshares stock is commenced and Tennessee Bancshares’ board of directors recommends that Tennessee Bancshares shareholders tender their shares in such tender ormerger; |
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exchange offer or otherwise fails to recommend that Tennessee Bancshares shareholders reject the tender or exchange offer within the 10 business day period specified in Rule 14e-2(a) under the Exchange Act;
by the Tennessee Bancshares parties:
| -· | against any action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of PFG contained in the eventmerger agreement; |
| · | against any acquisition proposal other than the merger; and |
| · | against any other action, agreement or transaction that is intended, or could reasonably be expected, to impede, interfere or be inconsistent with, delay, postpone, discourage or materially and adversely affect consummation of a breachthe transactions contemplated by the merger agreement. |
In addition, the voting agreements provide that each shareholder party to a voting agreement will not: | · | directly or indirectly sell, transfer, pledge, assign or otherwise dispose of, or enter into any contract, option, commitment or other arrangement or understanding with respect to the sale, transfer, pledge, assignment or other disposition of, any of such shareholder’s shares of PFG common stock; and |
| · | (i) initiate, solicit, induce or knowingly encourage, or take any action to facilitate the making of, any inquiry, offer or proposal which constitutes, or could reasonably be expected to lead to, an acquisition proposal, (ii) participate in any discussions or negotiations regarding any acquisition proposal or furnish, or otherwise afford access, to any person (other than SmartFinancial) any information or data with respect to PFG or any of its subsidiaries or otherwise relating to an acquisition proposal, (iii) enter into any agreement, agreement in principle or letter of intent with respect to any acquisition proposal or approve or resolve to approve any acquisition proposal or any agreement, agreement in principle or letter of intent relating to an acquisition proposal, (iv) solicit proxies with respect to an acquisition proposal or otherwise encourage or assist any party in taking or planning any action that would compete with, restrain or otherwise serve to interfere with or inhibit the timely consummation of the merger in accordance with the terms of the merger agreement, or (v) initiate a shareholders’ vote or action by SmartFinancial if the breach (individually or in the aggregateconsent of PFG’s shareholders with all other breaches) would, if occurring or continuing on the closing date for the merger, result in any of the conditionsrespect to the merger not being satisfied and is not cured by the earlier of September 30, 2018, and 30 days after written notice to the breaching party of the breach (provided that the Tennessee Bancshares parties are not in material breach of the merger agreement);an acquisition proposal. |
| - | at any time prior to approvalThe voting agreements will automatically terminate upon the earlier of (i) the effective date of the merger agreement by the Tennessee Bancshares shareholders, for the purpose of entering into an agreement with regard to a superior proposal, provided that the Tennessee Bancshares parties have not materially breached their obligations under the merger agreement relative to acquisition proposals or calling and holding the special meeting and recommending and soliciting approval of the merger agreement by Tennessee Bancshares’ shareholders; |
Effect of Termination. Generally, and except as discussed below, if the merger, agreement is terminated,(ii) the parties will have no further liability or obligations under the merger agreement, provided that (i) certain designated provisionsamendment of the merger agreement will survivein any manner that materially and adversely affects any of the shareholder’s rights set forth in the merger agreement, (iii) termination including those relatingof the merger agreement, or (iv) two years from the date the voting agreements are executed.
As of the record date, shareholders who are party to the confidentialityvoting agreements beneficially owned and were entitled to vote an aggregate of information sharedapproximately 12,177.161 shares of PFG common stock, which represented approximately 58.8% of the shares of PFG common stock outstanding on that date. Non-Competition and Non-Disclosure Agreements In addition to the voting agreements, as a condition to SmartFinancial entering into the merger agreement, each of the directors of PFG and Progressive Bank entered into a non-competition and non-disclosure agreements with SmartFinancial. The following summary of the non-competition and non-disclosure agreements is subject to, and qualified in its entirety by reference to, the parties pursuantform of non-competition and non-disclosure agreement attached as Exhibit C to the merger agreement public statements or disclosures pertainingattached asAnnex A to this document. Each party to a non-competition and non-disclosure agreement has agreed to, among other things: | · | from and after the effective time of the merger, not disclose or use any confidential information or trade secrets of PFG for any purpose for so long as such information remains confidential information or a trade secret, except as required by law; and |
| · | for a period of two years following the closing the merger: |
| · | not solicit or attempt to solicit any customers of SmartFinancial, SmartBank, PFG or Progressive Bank, including actively sought prospective customers of Progressive Bank as of the effective time of the merger; and |
| · | on such director’s own behalf or on behalf of others, not solicit or recruit or attempt to solicit or recruit any employee (full-time or temporary) of SmartFinancial, SmartBank, PFG or Progressive Bank; |
| · | directly on the director’s own behalf or on behalf any other person, not act as a director, manager, officer, or employee of any banking business that is the same or essentially the same as the banking business conducted by SmartFinancial, SmartBank or PFG or Progressive Bank and that has a banking office located within any county in Tennessee where Progressive Bank operates a banking office as of the closing of the merger and each county contiguous to each of such counties (except that one director, Gary Hicks, is not bound by this non-competition covenant). |
The restrictions in the merger agreement ornon-competition and non-disclosure agreements will automatically terminate upon the transactions contemplated by the merger agreement, the paymentearlier of termination fees described below, and the payment of costs and expenses associated with the transactions contemplated by the merger agreement, and (ii)(i) the termination of the merger agreement, will not release a party from any liability for fraud or any willful or intentional breach(ii) two years after the effective date of the merger, agreement.or (iii) upon a change in control of SmartFinancial. Termination Fees. The Tennessee Bancshares parties will be required to pay SmartFinancial a termination fee of $1,300,000:
| • | in the event of a SmartFinancial material breach termination, if at or before the special meeting the Tennessee Bancshares Parties receive a bona fide acquisition proposal that is not withdrawn prior to the date of termination of the merger agreement and within 12 months of the date of termination Tennessee Bancshares enters into a definitive agreement with respect to or consummates an acquisition proposal, whether or not the same acquisition proposal first mentioned above; |
inClaims Letters At the event the SmartFinancial parties terminate the merger agreement because, prior to the approvaltime of the merger agreement by Tennessee Bancshares’ shareholders, (i) the Tennessee Bancshares parties materially breach their obligations under the merger agreement relative to acquisition proposals or calling and holding the special meeting and recommending and soliciting approval of the merger agreement by Tennessee Bancshares’ shareholders or (ii) the Tennessee Bancshares board of directors does not recommend in this proxy statement/prospectus the approvalexecution of the merger agreement, and effective upon the transactions contemplated therebyclosing of the merger, each director of PFG and Progressive Bank executed a claims letter with SmartFinancial. The following summary of the claims letters is subject to, and qualified in its entirety by Tennessee Bancshares’ shareholders or, after having made such recommendation, subsequently makes a Tennessee Bancshares change of recommendation; inreference to, the event the SmartFinancial parties terminateclaims letter attached as Exhibit D to the merger agreement because Tennessee Bancshares’ boardattached asAnnex A to this document.Pursuant to the claims letter, each director of directors recommends that Tennessee Bancshares shareholders tender their shares in a third-party tender or exchange offer for 10% or more of any class or series of outstanding shares of Tennessee Bancshares stock or otherwise fails to recommend that Tennessee Bancshares shareholders rejectPFG and Progressive Bank released and discharged, effective upon the tender or exchange offer within the 10 business day period specified in Rule 14e-2(a) under the Exchange Act; or in the event the Tennessee Bancshares parties terminate the merger agreement for the purpose of entering into an agreement with regard to a superior proposal.
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The above-described termination fee payable by the Tennessee Bancshares parties could discourage other companies from seeking to acquire or merge with the Tennessee Bancshares parties prior to completionconsummation of the merger, PFG and could causeits subsidiaries, their respective directors and officers (in their capacities as such), and their respective successors and assigns (including SmartFinancial and SmartBank), of and from any and all liabilities or claims that such director has or claims to have, or previously had or claimed to have, solely in his or her capacity as an officer, director or employee of PFG or any of its subsidiaries, as of the Tennessee Bancshares parties to reject any acquisition proposal from a third party whicheffective time of the merger. The release does not take intoapply to (i) compensation for services that has accrued but not yet been paid in the ordinary course of business consistent with past practice; (ii) claims that the director may have in any capacity other than as an officer, director or employee of PFG or any of its subsidiaries, such as claims as a borrower under loan commitments and agreements, claims as a depositor under any deposit account with or as the termination fee.
Amendmentholder of any certificate of deposit issued by Progressive Bank, claims on account of any services rendered by the director in a capacity other than as an officer, director or employee of PFG or any of its subsidiaries, claims in his or her capacity of a shareholder of PFG and Waiver
The merger agreementclaims as a holder of any check issued by any other depositor of Progressive Bank; (iii) any claims that the director may be amended at any time by a written instrument executed by each of the parties. However, notwithstanding the foregoing descriptions of the provisions for extensions and waivers, after the approval ofhave under the merger proposal byagreement; or (iv) any right to indemnification that the shareholdersdirector may have under the PFG Charter or PFG Bylaws or similar documents or any of its subsidiaries, Tennessee Bancshares, no amendmentlaw or waiver may be accomplished without the further approval of the Tennessee Bancshares shareholders, if such amendment or waiver requires further approval under applicable law. Any provision of the merger agreement may be waived by the party or parties entitled to the benefits of that provision, if the waiver is in writing and executed by the party or parties granting the waiver..
Governing LawTHE COMPANIES
The merger agreement is governed by Tennessee law.
ExpensesSmartFinancial, Inc.
The merger agreement provides generally that each party will pay its own expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement. This includes fees and expenses of legal counsel, accountants, and other professional advisors.
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INFORMATION ABOUT SMARTFINANCIAL
SmartFinancial a Tennessee corporation,was incorporated on September 19, 1983, under the laws of the State of Tennessee. SmartFinancial is a bank holding company headquartered in Knoxville, Tennessee. Our wholly owned subsidiary, SmartBank, provides a wide rangeregistered under the Bank Holding Company Act, as amended. The primary activity of banking, mortgage, and financial services to business and individual customers. SmartBank has 22 branches, one loan production office, and one mortgage production office across east Tennessee, Alabama, and northwest Florida,SmartFinancial currently is, and is expected to remain for the 2nd largestforeseeable future, the ownership and operation of SmartBank. As a bank holding company, SmartFinancial intends to facilitate SmartBank’s ability to serve its customers’ requirements for financial services. The holding company structure also provides flexibility for expansion through the possible acquisition of other financial institutions and the provision of additional banking-related services, as well as certain non-banking services, which a traditional commercial bank headquartered in east Tennessee, based on asset size.may not provide under present laws. As of December 31, 2017, on a consolidated basis, we had total assets of $1.7 billion, net loans of $1.3 billion, total deposits of $1.4 billion, and shareholders’ equity of $205.9 million. Our shares of common stock are traded on the Nasdaq Capital Market under the symbol “SMBK.”
Our executive offices are located at 5401 Kingston Pike, Suite 600, Knoxville, Tennessee 37919, and our telephone number is (865) 437-5700. Our website address is www.smartbank.com.
Legacy SmartFinancial/Mergers
SmartFinancial and Cornerstone Merger In 2015, SmartFinancial was incorporated in 1983 and originally headquartered in Chattanooga, Tennessee. SmartFinancial previously operated under the name Cornerstone Bancshares, Inc. On August 31,, and it merged with legacy SmartFinancial, Inc. (which we refer to as “Legacy SmartFinancial”) (which merger we refer to the merger as the “2015 merger”). Cornerstone Bancshares was the survivor of the 2015 merger, and immediately following that transaction, the company completed its merger with Legacy SmartFinancial, Inc., with Cornerstone Bancshares surviving the merger, changingchanged its name to “SmartFinancial, Inc.” and relocatingrelocated its headquarters to Knoxville, Tennessee (we refer to this merger as the “2015 merger”). AfterTennessee. Following the 2015 merger, Cornerstone Community Bank merged with and into SmartBank, with SmartBank surviving the merger.
Capstone Merger On May 22, 2017, SmartFinancial’s shareholders approved a merger with Capstone Bancshares, Inc. (which we refer to as “Capstone”), the one bank holding company of Capstone Bank, which was consummated on November 1, 2017 (which merger we refer to as the “Capstone merger”). In connection with the Capstone merger, Capstone shareholders received either stock, cash, or a combination of stock and cash. After the Capstone merger, shareholders of Legacy SmartFinancial owned approximately 56%74 percent of the outstanding common stock of the combined entity on a fully-diluted basis, after taking into account the exchange ratio and new shares issued as part of a concurrent capital raise through a private placement. While Cornerstone Bancshares was the acquiring entity for legal purposes, the 2015 merger was accounted for as a reverse merger using the acquisition method of accounting, in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification 805-10. Under this guidance, for accounting purposes, Legacy SmartFinancial was the acquirer in the 2015 merger, and as a result the historical financial statements of the combined entity are the historical financial statements of Legacy SmartFinancial. fully diluted basis. The assets and liabilities of Cornerstone BancsharesCapstone as of the effective date of the 2015 merger were recorded at their respective estimated fair values and combined with those of Legacy SmartFinancial. The excess of the purchase price over the net estimated fair values of the acquired assets and liabilities was allocated to identifiable intangible assets with the remaining excess allocated to goodwill. In periods following the 2015 merger, the financial statements of the combined entity have included the results attributable to Cornerstone Bancshares’ subsidiary bank, Cornerstone Community Bank, beginning on the date the 2015 mergergoodwill, which was completed. The 2015 merger hadapproximately $38 million. As a significant impact on all aspects of our financial statements, and as a result financial results after the 2015 merger may not be comparable to financial results prior to the 2015 merger. SmartBank/Capstone Merger
On November 1, 2017, SmartFinancial merged with Capstone Bancshares, Inc., or Capstone, pursuant to an agreement and plan of merger, dated as of May 22, 2017, by and among SmartFinancial, Capstone, SmartBank, and Capstone Bank, an Alabama-chartered commercial bank and wholly owned subsidiary of Capstone. We refer to this merger as the “Capstone merger.” At the effective time of the Capstone merger, CapstoneSmartFinancial’s assets increased approximately $536 million and liabilities increased approximately $466 million.
Tennessee Bancshares Merger On May 1, 2018, SmartFinancial consummated its merger with Tennessee Bancshares (which merger we refer to as the “Tennessee Bancshares merger”), pursuant to which Tennessee Bancshares merged with and into SmartFinancial, with SmartFinancial continuing as the surviving corporation. Immediately following the CapstoneTennessee Bancshares merger, and as partSouthern Community Bank, the wholly owned subsidiary of a single integrated transaction, Capstone BankTennessee Bancshares, merged with and into SmartBank, with SmartBank continuing as the surviving banking corporation. In connection with the CapstoneTennessee Bancshares merger, each outstanding share of Tennessee Bancshares common stock was converted into and cancelled in exchange for 0.8065 shares of SmartFinancial common stock. SmartFinancial issued approximately 2,908,0941,459,186 shares of SmartFinancial common stock and approximately $15.8 million in cash to former holders of Capstone common stock. TABLE OF CONTENTS
DESCRIPTION OF SMARTFINANCIAL CAPITAL STOCK
The charteras consideration for the Tennessee Bancshares merger. After the merger, shareholders of SmartFinancial authorizesowned approximately 88 percent of the issuance of up to a maximum of 40,000,000 shares ofoutstanding common stock par value $1.00 perof the combined entity on a fully diluted basis. The assets and liabilities of Tennessee Bancshares as of the effective date of the merger were recorded at their respective estimated fair values and combined with those of Smart Financial. The excess of the purchase price over the net estimated fair values of the acquired assets and liabilities was allocated to identifiable intangible assets with the remaining excess allocated to goodwill, which was approximately $8 million. As a result of the merger, SmartFinancial’s assets increased approximately $237 million and liabilities increased approximately $216 million. SmartFinancial is a community-focused financial institution that offers a full range of financial services to individuals, businesses, municipal entities, and nonprofit organizations in the communities that it serves. These services include consumer and commercial loans, deposit accounts, trust services, safe deposit services and brokerage services.
Foothills Bancorp Merger On November 1, 2018, SmartFinancial consummated its merger with Foothills Bancorp, Inc. (which merger we refer to as the “Foothills Bancorp Merger”), pursuant to which Foothills Bancorp, Inc. merged with and into SmartFinancial, with SmartFinancial continuing as the surviving corporation. Immediately following the Foothills Bancorp merger, Foothills Bank & Trust, the wholly owned subsidiary of Foothills Bancorp, merged with and into SmartBank, with SmartBank continuing as the surviving banking corporation. In connection with the Foothills Bancorp merger, each share and 2,000,000 shares of preferred stock, par value $1.00 per share. As of [ ], there were [ ] shares ofFoothills Bancorp, Inc. common stock outstanding immediately prior to the merger was converted into the right to receive $1.75 in cash and no shares0.666 share of preferredSmartFinancial common stock. After the Foothills Bancorp merger, shareholders of SmartFinancial owned approximately 91 percent of the outstanding common stock outstanding.of the combined entity on a fully diluted basis while the previous Foothills Bancorp shareholders owned approximately 9 percent. The preferred stock may be issued in one or more seriesassets and liabilities of Foothills Bancorp, as of the effective date of the Foothills Bancorp merger, were recorded at their respective estimated fair values and combined with those termsof the Company. The excess of the purchase price over the net estimated fair values of the acquired assets and liabilities was allocated to identifiable intangible assets with the remaining excess allocated to goodwill, which was approximately $7.5 million. As a result of the merger the Company assets increased approximately $218 million and liabilities increased approximately $196 million SmartFinancial and its subsidiaries are subject to comprehensive regulation, examination and supervision by the Federal Reserve Board and the TDFI, and are subject to numerous laws and regulations relating to their operations, including, among other things, permissible activities, capital adequacy, reserve requirements, standards for safety and soundness, internal controls, consumer protection, anti-money laundering, and privacy and data security. SmartFinancial’s headquarters are located at those times5401 Kingston Pike, Suite 600, Knoxville, Tennessee 37919 and its telephone number is (865) 437-5700. SmartFinancial’s website can be found atwww.smartfinancialinc.com. The contents of SmartFinancial’s website are not incorporated into this proxy statement/prospectus. For more information about SmartFinancial’s business, see “Where You Can Find More Information” below. Progressive Financial Group Inc. Progressive Financial Group Inc. is a business corporation incorporated on May 9, 2016 under the laws of the State of Tennessee for the considerationpurpose of acquiring the Progressive Savings Bank by means of a share exchange (completed on October 17, 2016), and becoming a registered bank holding company under the Federal Reserve Act. In 2016, PFG also acquired 23.3% of another bank holding company, Upper Cumberland Bancshares, Inc., which owns two banks, People's Bank and Trust Company of Pickett County, Byrdstown, Tennessee, and People's Bank and Trust Company of Clinton County, Albany, Kentucky (these shares were redeemed by Upper Cumberland Bancshares, Inc. on November 19, 2019). The activities of PFG are subject to the supervision of the Federal Reserve Board and the TDFI. Progressive Savings Bank (“Progressive Bank”) is a state bank chartered in Tennessee. Progressive Bank conducts a full service commercial banking business from its main office in Jamestown, Fentress County, Tennessee. Among Progressive Bank's business services are lending, leasing checking accounts, certificates of deposit, and depository services. These services are performed for individuals, business enterprises, other banks and financial institutions and nonprofit corporations. All of the Progressive Bank’s products and services are directly or indirectly related to the business of community banking, and all activity is reported as one segment of operations. Progressive Bank is not a member of the Federal Reserve System. Supervision and regulation is similar to that described for SmartFinancial board(see “Information about SmartFinancial - Business of directors determines.the Company; Supervision and Regulation”). As of the Record Date, Progressive Bank has 116 full time employees. Progressive Bank considers its relationship with its employees to be excellent. The main offices of Progressive Bank are presently located in an office building on 500 N. Main Street, Jamestown, Tennessee 38556. Progressive Bank operates branch offices at the following locations: 705 Main Street, Wartburg, Tennessee 37887; 1080 Interstate Drive, Cookeville, Tennessee 38501; 807 N. Main Street, Crossville, Tennessee 38555; 1760 S. Main Street, Crossville, Tennessee 38555; and 4929 Peavine Road, Crossville, Tennessee 38571. As of September 30, 2019, Progressive Bank had total assets of approximately $296 million, total deposits of $258 million, and total shareholders’ equity of approximately $30 million. Progressive Bank files periodic reports and other information relating to its business, financial statements and other matters with the FDIC and the Commissioner of Financial Institutions of the State of Tennessee. Such reports and other information may be obtained upon written request to the Federal Deposit Insurance Corporation, 3501 North Fairfax Drive, Room E-1002, Arlington, Virginia 22226, Attention: Public Information Center, or by calling the FDIC at (877) 275-3342 or (703) 562-2200. The non-confidential portions of Progressive Bank’s Call Reports are also available on the internet website of the Federal Financial Institutions Examinations Council (the “FFIEC”). The address of the FFIEC’s internet website is https://cdr.ffiec.gov/public. As is the case with banking institutions generally, Progressive Bank’s operations are materially and significantly influenced by general economic conditions and by related monetary and fiscal policies of financial institution regulatory agencies, including the FRB and the FDIC. Deposit flows and costs of funds are influenced by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand for financing of real estate and other types of loans, which in turn is affected by the interest rates at which such financing may be offered and other factors affecting local demand and availability of funds. Progressive Bank’s primary banking markets consist of Cumberland, Fentress, Morgan, and Putnam Counties in Tennessee. The commercial banking environment is highly competitive, and Progressive Bank encounters strong competition both in making loans and in attracting deposits. In one or more aspects of its business, Progressive Bank competes with other commercial banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries. Many of these competitors have substantially greater resources and lending limits, have more extensive and established branch networks, and offer certain products or services that Progressive Bank does not currently provide. Additionally, many of Progressive Bank’s non-bank competitors are not subject to the same extensive federal regulations that govern federally insured banks. Recent federal and state legislation has heightened the competitive environment in which financial institutions must conduct their business, and the potential for competition among financial institutions of all types has increased significantly. Progressive Bank is from time to time a party to or otherwise involved in legal proceedings arising in the normal course of business, such as claims to enforce liens and claims relating to the servicing or collection of real estate and other loans. As of the date hereof, 1,500,000of this proxy statement/prospectus, Progressive Bank is not a party to or otherwise involved in any legal proceedings that Progressive Bank’s management believes are material to Progressive Bank's business, financial condition, or results of operations. Other major operating subsidiaries of PFG include: Rains Agency Inc., which in 1927, began operations as a one-man office offering a few insurance lines. More than 90 years later, the Rains Agency is an independent agency offering a full line of personal, commercial, property and casualty, and life and health lines to help protect the lives and interests of its friends and customers. The agency represents companies such as AllState, Westfield, Auto-Owners, SafeCo, Cincinnati, Blue Cross/Blue Shield, New York Life, and John Hancock, allowing its customers the ability to shop several companies with one phone call. The Rains Agency officially joined the Progressive family in 1995. Cravens & Company Advisors, LLC ("CCA") was created and registered as an independent investment advisory firm in 2003. With experience in the fields of investments, financial, and estate planning, insurance, tax, and law, CCA brings a depth of perspective in creating comprehensive financial solutions for successful entrepreneurs, medical professionals, retirees, and their families. CCA officially joined the Progressive family in March of 2007. This has allowed Progressive Bank to offer yet another valuable relationship to its clients — wealth management services. Progressive Tax and Accounting LLC is a full-service accounting firm providing accounting services, tax compliance, and business consulting. Because it is a small firm, the firm maintains close and open relationships with each of its clients. The firm's commitment is to provide the highest quality services while retaining a small-town atmosphere. Progressive Tax and Accounting LLC officially joined the Progressive family in November 2016. PFG also has four non-operating subsidiaries -- The Cove at Little Island, Inc., Horse Creek Holdings, LLC, Cumberland Mountain Preserve East First Street, Inc., and Progressive Funding, Inc. – each of which has historically held only real estate assets or no assets at all. PFG is in the process of winding up The Cove at Little Island, Inc., Horse Creek Holdings, LLC, and Cumberland Mountain Preserve East First Street, Inc. Pursuant to the Merger Agreement, prior to the closing, PFG will must (1) sell its holdings in Upper Cumberland Bancshares, Inc., and (2) dissolve The Cove at Little Island, Inc., Horse Creek Holdings, LLC, and Cumberland Mountain Preserve East First Street, Inc. and transfer the real estate held by those entities to Progressive Savings Bank. Additionally, the Merger Agreement requires PFG to cooperate with SmartFinancial in good faith regarding the sale of Progressive Tax and Accounting LLC and CCA. On November 19, 2019, PFG completed the sale of its holdings in Upper Cumberland Bancshares, Inc. common stock, resulting in an aggregate loss of $27,160.00. DESCRIPTION OF CAPITAL STOCK As a result of the merger, PFG shareholders who receive shares of SmartFinancial common stock were reserved for issuance to Tennessee Bancshares’ shareholders in accordance with the merger agreement. There are no other shareswill become shareholders of capital stockSmartFinancial. Your rights as shareholders of SmartFinancial authorized, issued, or outstanding. will be governed by Tennessee law and the SmartFinancial Charter and the SmartFinancial Bylaws. The following is a summarybriefly summarizes the material terms of certain rights and provisions of SmartFinancial’s capitalSmartFinancial common stock. You are urgedWe urge you to read the applicable provisions of the Tennessee Business Corporation Act, or the TBCA, the SmartFinancial charterCharter and bylaws.SmartFinancial Bylaws and federal laws governing bank holding companies carefully and in their entirety. Copies of SmartFinancial’s governing documents have been filed with the SEC. To obtain copies of these documents, see “Where“Where You Can Find More InformationInformation.” beginningSmartFinancial common stock is listed on page 87.the NASDAQ Capital Market under the symbol “SMBK.” Common Stock Authorized. SmartFinancial has 40,000,000 shares of authorized common stock, $1.00 par value. As of December 18, 2019, there were 14,002,658 shares of common stock outstanding (inclusive of 34,000 unvested shares of restricted stock having voting rights). Voting Rights; Cumulative Voting.The outstanding shares of SmartFinancial common stock are fully paid and nonassessable. Holders of SmartFinancial common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. Holders of SmartFinancial common stock do not have preemptive rights and are not entitled to cumulative voting rights with respect to the election of directors. SmartFinancial’s common stock is neither redeemable nor convertible into other securities, and there are no sinking fund provisions with respect to the common stock. Subject to the preferences applicable to any shares of SmartFinancial preferred stock outstanding at the time, holders of common stock are entitled to, in the event of liquidation, share pro rata in all assets remaining after payment of liabilities. Preferred Stock
Board of Directors. The business of SmartFinancial is controlled by a board of directors, which is elected by a non-cumulative vote of the common shareholders. Currently, the SmartFinancial board of directors consists of 12 individuals. SmartFinancial’s charter authorizesbylaws provide that the issuancepower to increase or decrease the number of updirectors and to 2,000,000 sharesfill vacancies is vested in SmartFinancial’s board of preferred stock. No sharesdirectors. The overall effect of preferred stock are currently outstanding. The preferred stockthis provision may be issued by voteto prevent a person or entity from seeking to acquire control of SmartFinancial through an increase in the number of directors on the board of directors without shareholder approval. The preferred stock may be issued in one or more classes and series, with such designations, voting rights (or without voting rights), redemption, conversion or sinking fund provisions, dividend rates or provisions, liquidation rights, and other preferences and limitations as the boardelection of directors may determine in the exercise of its business judgment. The preferred stock may be issued by the board of directors for a variety of reasons.designated nominees to fill newly created vacancies. The preferred stock could be issued in public or private transactions in one or more (isolated or series of) issues. The shares of any issue of preferred stock could be issued with rights, including voting, dividend, and liquidation features, superior to those of any issue or class of shares, including the shares of common stock to be issued pursuant to the merger. The issuance of shares of the preferred stock could serve to dilute the voting rights or ownership percentage of the holders of common stock. The issuance of preferred stock might also serve to deter or block any attempt to obtain control of SmartFinancial or to facilitate any such attempt.
Dividend Rights and Limitations on Payment of Dividends
. Holders of SmartFinancial common stock are entitled to receive dividends when, as and if declared by SmartFinancial’s board of directors out of funds legally available for dividends. In order to pay any dividends, SmartFinancial generally must receive dividends from SmartBank. Under the Tennessee Banking Act, SmartBank is subject to restrictions on the payment of dividends to SmartFinancial. Pursuant to these laws, SmartBank may only make a dividend from the surplus profits arising from the business of the bank, and may not declare dividends in any calendar year that exceeds the total of its retained net income of that year combined with its retained net income of the preceding two years without the prior approval of the commissioner of the TDFI. Moreover, Tennessee laws regulating SmartBank requires certain charges against and transfers from SmartBank’s undivided profit account before undivided profits can be made available for the payment of dividends. Furthermore, the TDFI also has the authority to prohibit the payment of dividends by SmartBank if it determines such payment to be an unsafe and unsound banking practice. TABLE OF CONTENTS
SmartFinancial has not paid dividends to its common shareholders during the last three years. SmartFinancial’s ability to pay dividends to shareholders in the future will depend on its earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, SmartFinancial’s ability to service any equity or debt obligations senior to SmartFinancial’s common stock and other factors deemed relevant by SmartFinancial’s board of directors. See “Bank holding company The principal source of funds from which SmartFinancial pays cash dividends” are the dividends received from its bank subsidiary, SmartBank. Consequently, dividends are dependent upon SmartBank’s earnings, capital needs, and regulatory policies, as well as statutory and regulatory limitations. Federal and state banking laws and regulations restrict the amount of dividends and loans a bank may make to its parent company. Approval by SmartFinancial’s regulators is required if the total of all dividends declared in our annual report on Form 10-K, and “Bank dividends” in our annual report on Form 10-Kany calendar year exceeds the total of its net income for the fiscalthat year ended December 31, 2016, which is incorporated by reference into this joint proxy statement/prospectus, for additional information about limitations on our ability to declare and pay dividends. See “Where You Can Find More Information” beginning on page 87. Election of Board of Directors; Memberscombined with its retained net income of the Boardpreceding two years.
Under certain conditions, dividends paid to SmartFinancial by SmartBank are subject to approval by the TDFI. In addition, under the Federal Deposit Insurance Corporation Improvement Act, banks may not pay a dividend if, after paying the Mergerdividend, the bank would be undercapitalized. The business
Preemptive Rights; Liquidation. SmartFinancial common stock does not carry any preemptive rights enabling a holder to subscribe for or receive shares of SmartFinancial is controlled by a boardcommon stock. In the event of directors, which is elected by a non-cumulative voteliquidation, holders of SmartFinancial common stock are entitled to share in the distribution of assets remaining after payment of debts and expenses and after required payments to holders of SmartFinancial preferred stock, if any such shares are outstanding. There are no redemption or sinking fund provisions applicable to SmartFinancial common shareholders. Currently, the SmartFinancial board of directors consists of 13 individuals.stock. Preferred Stock SmartFinancial’s bylaws provide thatcharter authorizes the powerissuance of up to increase or decrease the number2,000,000 shares of directors and to fill vacancies is vested in SmartFinancial’s boardpreferred stock, par value $1.00 per share. No shares of directors.preferred stock are currently outstanding. The overall effect of this provisionpreferred stock may be to prevent a person or entity from seeking to acquire controlissued by vote of SmartFinancial through an increase in the number of directors on the board of directors without shareholder approval. The preferred stock may be issued in one or more classes and series, with such designations, voting rights (or without voting rights), redemption, conversion or sinking fund provisions, dividend rates or provisions, liquidation rights, and other preferences and limitations as the electionboard of designated nomineesdirectors may determine in the exercise of its business judgment. The preferred stock may be issued by the board of directors for a variety of reasons. The preferred stock could be issued in public or private transactions in one or more (isolated or series of) issues. The shares of any issue of preferred stock could be issued with rights, including voting, dividend, and liquidation features, superior to fill newly created vacancies. See “New Directorthose of any issue or class of shares, including the shares of common stock to be issued pursuant to the merger. The issuance of shares of the preferred stock could serve to dilute the voting rights or ownership percentage of the holders of common stock. The issuance of preferred stock might also serve to deter or block any attempt to obtain control of SmartFinancial and SmartBank” on page 49 for more information.or to facilitate any such attempt. Anti-Takeover Statutes The Tennessee Control Share Acquisition Act generally provides that, except as stated below, “control shares” will not have any voting rights. Control shares are shares acquired by a person under certain circumstances which, when added to other shares owned, would give such person effective control over one-fifth, one-third, or a majority of all voting power in the election of a Tennessee corporation’s directors. Shares acquired by such person that causes it to exceed each of these thresholds will be deemed to be control shares. However, voting rights may be restored to control shares by resolution approved by the affirmative vote of the holders of a majority of the corporation’s voting stock, other than shares held by the owner of the control shares. If voting rights are granted to control shares which give the holder a majority of all voting power in the election of the corporation’s directors, then the corporation’s other shareholders may require the corporation to redeem their shares at fair value. The Tennessee Control Share Acquisition Act is not applicable to SmartFinancial because SmartFinancial’s charter does not contain a specific provision “opting in” to the act as is required under the act. The Tennessee Business Combination Act generally prohibits a “business combination” by a Tennessee corporation with an “interested shareholder” within five years after such shareholder becomes an interested shareholder. The corporation can, however, enter into a business combination within that period if, before the interested shareholder became such, the corporation’s board of directors approved the business combination or the transaction in which the interested shareholder became an interested shareholder. After that five-year moratorium, the business combination with the interested shareholder can be consummated only if it satisfies certain fair price criteria or is approved by two-thirds of the other shareholders. For purposes of the Tennessee Business Combination Act, a “business combination” includes mergers, share exchanges, sales and leases of assets, issuances of securities, and similar transactions. An “interested shareholder” is generally any person or entity that beneficially owns 10% or more of the voting power of any outstanding class or series of stock of the corporation. SmartFinancial’s charter does not have special requirements for transactions with interested parties; however, under the Tennessee Business Corporation Act, with exceptions, all mergers and similar transactions must be approved by a majority of SmartFinancial’s board of directors and a majority of the shares entitled to vote. The Tennessee Business Combination Act applies to SmartFinancial, because neither SmartFinancial’s charter nor its bylaws expressly providesprovide that the company shallwill not be subject to the act as is required under the act. The Tennessee Greenmail Act applies to a Tennessee corporation, such as SmartFinancial, that has a class of voting stock registered or traded on a national securities exchange or registered with the SEC pursuant to Section 12(g) of the Exchange Act. Under the Tennessee Greenmail Act, SmartFinancial may not purchase any of its shares at a price above the market value of such shares from any person who holds more than 3% of the class of securities to be purchased if such person has held such shares for less than two years, unless the purchase has TABLE OF CONTENTS
been approved by the affirmative vote of a majority of the outstanding shares of each class of voting stock issued by SmartFinancial or SmartFinancial makes an offer, of at least equal value per share, to all shareholders of such class. Certain Protective
Anti-Takeover Provisions General
General.Our charter and bylaws, as well as the Tennessee Business Corporation Act, contain certain provisions designed to enhance the ability of our board of directors to deal with attempts to acquire control of us. These provisions may be deemed to have an anti-takeover effect and may discourage takeover attempts which have not been approved by the board of directors (including takeovers which certain shareholders may deem to be in their best interest). To the extent that such takeover attempts are discouraged, temporary fluctuations in the market price of common stock resulting from actual or rumored takeover attempts may be inhibited. These provisions also could discourage or make more difficult a merger, tender offer or proxy contest, even though such transaction may be favorable to the interests of shareholders, and could potentially adversely affect the market price of our common stock. The following briefly summarizes protective provisions that are contained in our charter and bylaws and which are provided by the Tennessee Business Corporation Act. This summary is necessarily general and is not intended to be a complete description of all the features and consequences of those provisions and is qualified in its entirety by reference to our articles of incorporationcharter and bylaws and the statutory provisions contained in the Tennessee Business Corporation Act. Authorized but Unissued StockStock. The authorized but unissued shares of common stock and preferred stock will be available for future issuance without shareholder approval. These additional shares may be used for a variety of corporate purposes, including future private or public offerings to raise additional capital, corporate acquisitions, and employee benefit plans. The existence of authorized but unissued and unreserved shares of common stock and preferred stock may enable the board of directors to issue shares to persons friendly to current management, which could render more difficult or discourage any attempt to obtain control of us by means such as a proxy contest, tender offer, or merger, and thereby protect the continuity of the company’s management. Removal of Directors and Filling VacanciesVacancies. Our charter and bylaws provide that a director may be removed from office prior to the expiration of such director’s term only for cause at a meeting called for such purpose. Our bylaws provide that all vacancies on our board may be filled by the board of directors for the unexpired term. Advance Notice Requirements for Shareholder ProposalsProposals. Our bylaws establish advance notice procedures with regard to shareholder proposals. These procedures provide that the shareholder must submit certain information regarding the proposal, together with the proposal itself, to our corporate secretary in advance of the annual meeting. Shareholders submitting proposals for inclusion in our proxy statement must comply with the proxy rules under the Exchange Act. We may reject a shareholder proposal that is not made in accordance with such procedures. Certain Nomination RequirementsRequirements. Pursuant to our bylaws, we have established certain nomination requirements for an individual to be elected as a director at any annual or special meeting of the shareholders, including that the nominating party provide us within a specified time prior to the meeting (i) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (ii) a representation that the shareholder is a holder of record of SmartFinancial stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between the shareholder 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 shareholder; (iv) such other information regarding each nominee proposed by such shareholder as would be required to be included in a TABLE OF CONTENTS
proxy statement filed pursuant to the proxy rules of the SEC, had the nominee been nominated, or intended to be nominated, by the board of directors; and (v) the consent of each nominee to serve as a director of the Company if so elected. These provisions could reduce the likelihood that a third party would nominate and elect individuals to serve on our board of directors. Business Combinations with Interested ShareholdersShareholders. The Tennessee business combinations statute provides that a 10% or greater shareholder of a resident domestic corporation cannot engage in a “business combination” (as defined in the statute) with such corporation for a period of two years following the date on which the 10% shareholder became such, unless the business combination or the acquisition of shares is approved by a majority of the disinterested members of such corporation’s board of directors before the 10% shareholder’s share acquisition date. This statute further provides that at no time (even after the two-year period subsequent to such share acquisition date) may the 10% shareholder engage in a business combination with the relevant corporation unless certain approvals of the board of directors or disinterested shareholders are obtained or unless the consideration given in the combination meets certain minimum standards set forth in the statute. The law is very broad in its scope and is designed to inhibit unfriendly acquisitions but it does not apply to corporations whose charter contains a provision electing not to be covered by the law. Our charter does not contain such a provision. An amendment of our charter to that effect would, however, permit a business combination with an interested shareholder even though that status was obtained prior to the amendment. Indemnification
Indemnification.The Tennessee Business Corporation Act provides that a corporation may indemnify any of its directors and officers against liability incurred in connection with a proceeding if (i) the director or officer acted in good faith, (ii) in the case of conduct in his or her official capacity with the corporation, the director or officer reasonably believed such conduct was in the corporation’s best interest, (iii) in all other cases, the director or officer reasonably believed that his or her conduct was not opposed to the best interest of the corporation, and (iv) in connection with any criminal proceeding, the director or officer had no reasonable cause to believe that his or her conduct was unlawful. In actions brought by or in the right of the corporation, however, the Tennessee Business Corporation Act provides that no indemnification may be made if the director or officer was adjudged to be liable to the corporation. In cases where the director or officer is wholly successful, on the merits or otherwise, in the defense of any proceeding instigated because of his or her status as an officer or director of a corporation, the Tennessee Business Corporation Act mandates that the corporation indemnify the director or officer against reasonable expenses incurred in the proceeding. The Tennessee Business Corporation Act also provides that in connection with any proceeding charging improper personal benefit to an officer or director, no indemnification may be made if such officer or director is adjudged liable on the basis that personal benefit was improperly received. Notwithstanding the foregoing, the Tennessee Business Corporation Act provides that a court of competent jurisdiction, upon application, may order that an officer or director be indemnified for reasonable expenses if, in consideration of all relevant circumstances, the court determines that such individual is fairly and reasonably entitled to indemnification, notwithstanding the fact that (i) such officer or director was adjudged liable to the corporation in a proceeding by or in right of the corporation, (ii) such officer or director was adjudged liable on the basis that personal benefit was improperly received by him; or (iii) such officer or director breached his duty of care to the corporation. The Tennessee Business Corporation Act also empowers a corporation to provide insurance for directors and officers against liability arising out of their positions, even though the insurance coverage may be broader than the corporation’s power to indemnify. SmartFinancial maintains directors’ and officers’ liability insurance for the benefit of its directors and officers. Our bylaws provide that the company will indemnify, to the fullest extent authorized by the Tennessee Business Corporation Act and applicable federal law or regulations, any person who is made a party to or is involved in any proceeding by reason of the fact that he or she is or was a director or officer of SmartFinancial, provided that the basis of such proceeding is alleged action in an official capacity as a director or officer. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling SmartFinancial pursuant to the provisions discussed above, SmartFinancial has been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. TABLE OF CONTENTS
Certain rules of the Federal Deposit Insurance Corporation limit the ability of certain depository institutions, their subsidiaries and their affiliated depository institution holding companies to indemnify affiliated parties, including institution directors. In general, subject to the ability to purchase directors and officers liability insurance and to advance professional expenses under certain circumstances, the rules prohibit such institutions from indemnifying a director for certain costs incurred with regard to an administrative or enforcement action commenced by any federal banking agency that results in a final order or settlement pursuant to which the director is assessed a civil money penalty, removed from office, prohibited from participating in the affairs of an insured depository institution or required to cease and desist from or take an affirmative action described in Section 8(b) of the Federal Deposit Insurance Act (12 U.S.C, (S)U.S.C. § 1818(b)). Registrar
COMPARISON OF RIGHTS OF SMARTFINANCIAL SHAREHOLDERS AND PFG SHAREHOLDERS If the merger is completed, shareholders of PFG will become shareholders of SmartFinancial. The rights of PFG shareholders are currently governed by and Transfer Agent The registrar and transfer agent for our common stock is American Stock & Transfer Company, LLC.
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COMPARATIVE RIGHTS OF SMARTFINANCIAL AND TENNESSEE BANCSHARES SHAREHOLDERS
SmartFinancial and Tennessee Bancshares are incorporated undersubject to the lawsprovisions of the State of Tennessee. The holders of Tennessee Bancshares common stock, whose rights are governed by Tennessee law,Business Corporation Act, as amended, or the charter of Tennessee Bancshares,TBCA, and the bylawsPFG Charter and PFG Bylaws. Upon completion of Tennessee Bancshares, will become holdersthe merger, the rights of SmartFinancial common stock upon the exchange of their shares of Tennessee Bancshares common stock forformer PFG shareholders who receive shares of SmartFinancial common stock at the effective time of the merger. Accordingly, their rights as such will be governed by Tennessee law, the SmartFinancial charter,TBCA and the SmartFinancial bylaws.Charter and SmartFinancial Bylaws, rather than the PFG Charter and PFG Bylaws.
The summary belowfollowing is a descriptionsummary of the material differences between the rights of holders of SmartFinancial common stock and holders of PFG common stock, but it does not purport to be a complete description of those differences, the specific rights of such holders or the terms of the SmartFinancial common stock subject to issuance in connection with the merger. The following summary is qualified in its entirety by reference to the relevant provisions of: (1) Tennessee Bancshares shareholderslaw; (2) the SmartFinancial Charter; (3) the PFG Charter; (4) the SmartFinancial Bylaws; and (5) the PFG Bylaws. The identification of some of the differences in the rights of such holders as material is not intended to indicate that other differences that may be equally important do not exist. You are urged to read carefully the relevant provisions of Tennessee law, as well as the governing corporate instruments of each of SmartFinancial shareholdersand PFG, copies of which are available, without charge, to any person, including any beneficial owner to whom this proxy statement/prospectus is delivered, by following the instructions listed under their respective governing documents and the Tennessee Business Corporation Act.“Where You Can Find More Information.” RIGHTS
Rights | SMARTFINANCIAL BANCSHARES, INC.SmartFinancial Bancshares, Inc.
Shareholder RightsSHAREHOLDER RIGHTS
| TENNESSEE BANCSHARES, INC.Progressive Financial Group Inc.
Shareholder RightsSHAREHOLDER RIGHTS
| Voting Rights | Each share of SmartFinancial’s common stock is entitled to one vote per share. Common stock has unlimited voting rights, and preferred stockholdersshareholders are entitled to vote only on matters authorized under the corporation’s charter. Voting rights are non-cumulative. | Each share of Tennessee BancsharesPFG common stock is entitled to one vote per share. Voting rights are non-cumulative. | | | Description of Common Stock | SmartFinancial is authorized to issue 40,000,000 shares of common stock, $1.00 par value. The holders of common stock are entitled to receive net assets of the corporation upon dissolution, secondary to any rights of preferred stock holders as may be specified in the charter. | Tennessee BancsharesPFG is authorized to issue 10,000,0001,000,000 shares of common stock, $1.00$10.00 par value.
| | | Description of Preferred Stock | SmartFinancial is authorized to issue 2,000,000 shares of preferred stock, $1.00 par value, in any number of series and preferences as determined by the board. There are no shares of preferred stock issued or outstanding. | Tennessee BancsharesPFG is not authorized to issue 1,000,000 shares of preferred stock, no designated par value, in any number of series and preferences as determined by the board. There are no shares of preferred stock.
stock issued or outstanding. | | | | Number of Shares of Outstanding Common Stock before the MergerMerger | As of December 18, 2019, there were 14,002,658 shares of SmartFinancial common stock outstanding (inclusive of 34,000 unvested shares of restricted stock having voting rights). | On the record date, there were [ ]20,721 shares of SmartFinancialPFG common stock outstanding. |
| On the record date, there were [ ] shares of Tennessee77
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| Rights | SmartFinancial Bancshares, common stock outstanding.Inc.
Shareholder Rights | Progressive Financial Group Inc.
Shareholder Rights | | | | Number of Shares of Outstanding Common Stock after the Merger | Immediately after the merger, SmartFinancial will have approximately [ ]15,295,250 shares of common stock outstanding. | Immediately after the merger, Tennessee BancsharesPFG will not have any shares of common stock outstanding. | | | | Estimated Voting Percentage of SmartFinancial and Tennessee Bancshares PFG Shareholders with respect to SmartFinancial Common Stock after the Merger | Based on [ ]14,002,658 shares of SmartFinancial common stock outstanding as of December 18, 2019, current holders of SmartFinancial common stock will control approximately 8.45% of SmartFinancial’s common stock following the consummation of the merger. | Based on 20,721 shares of PFG common stock outstanding as of the record date, current holders of SmartFinancialPFG common stock will control approximately [ ]%8.45% of SmartFinancial ’sSmartFinancial’s common stock following the consummation of the merger. | Based on [ ] shares of Tennessee Bancshares common stock outstanding as of the record date, current holders of Tennessee Bancshares common stock will control approximately [ ]% of SmartFinancial ’s common stock following the consummation of the merger.
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RIGHTS
| SMARTFINANCIAL BANCSHARES, INC.
SHAREHOLDER RIGHTS
| TENNESSEE BANCSHARES, INC.
SHAREHOLDER RIGHTS
| Rights of Holders of Stock Subject to Future Issuances of StockStock | The rights of holders of SmartFinancial common stock may be affected by the future issuance of SmartFinancial common stock or preferred stock. | The rights of holders of Tennessee BancsharesPFG common stock may be affected by the future issuance of Tennessee BancsharesPFG common stock stock. | | | | Right to receive dividendsdividends | Holders of SmartFinancial common stock are entitled to receive dividends as and when declared by the board of directors. Dividends are non-cumulative. | Holders of SmartFinancialPFG common stock are entitled to receive dividends as and when declared by the board of directors. Dividends are non-cumulative. | | | | Outstanding Preferred stockstock | SmartFinancial does not currently have any preferred stock outstanding. | Tennessee BancsharesPFG does not currently have any preferred stock outstanding.
| | | | Preemptive Rights | The Tennessee Business Corporation Act provides that shareholders of a corporation, solely by virtue of their status as such, do not have a preemptive right to acquire the corporation’s unissued shares unless expressly stated in the charter.
Holders of SmartFinancial common stock are not entitled to preemptive rights to acquire unissued shares of any class.. | The Tennessee Business Corporation Act provides that shareholders of a corporation, solely by virtue of their status as such, do not have a preemptive right to acquire the corporation’s unissued shares unless expressly stated in the charter.
Holders of Tennessee BancsharesPFG common stock are not entitled to preemptive rights with respect to any shares of Tennessee BancsharesPFG that may be issued. | | Transfer Rights of Shareholders | The Charter and Bylaws of SmartFinancial do not generally restrict transfers of shares of its common stock, as long as such shares are registered pursuant to the provisions of the Securities Act of 1933. | The bylaws of PFG provide certain rights and restrictions regarding the ownership and transfer of PFG common stock. Provided an election to maintain S Corporation status for federal tax purposes is in effect for PFG, no shareholder may transfer, and no person may acquire, beneficial ownership of any shares of PFG common stock, if such transfer would cause PFG's status as an S Corporation to terminate. No shareholder may sell, transfer or assign, grant a security interest in an, encumber, pledge or in any other way alienate any of his or her shares of PFG common stock without the prior written consent of PFG, except through a transfer that meets the requirements of the bylaws of PFG. Any transfer or acquisition of PFG common stock in violation of the bylaws shall be null and void. |
| Rights | SmartFinancial Bancshares, Inc.
Shareholder Rights | Progressive Financial Group Inc.
Shareholder Rights | | | The bylaws of PFG also provide a right of first refusal, first to PFG, and then to all other shareholders of PFG. No shareholder shall sell, assign, transfer or otherwise dispose of all or any part of his or her shares of PFG common stock without first giving notice of such attempted transfer to PFG and all other shareholders of PFG of the (i) number of shares he or she proposes to transfer and (ii) the terms of such transfer. This notice shall be accompanied by evidence that the proposed transferee is able to consummate the proposed transfer and that such a proposed transferee is eligible to become a shareholder of PFG pursuant to the bylaws. For 30 days from the receipt of such notice, PFG shall have the right to purchase all or some of the offered shares. In the event PFG does not purchase all of the offered shares, the selling shareholder shall immediately notify the other shareholders of PFG that they may purchase the remaining shares not purchased by PFG. The other shareholders shall have 30 days from the date of such notice to purchase such shares. If the selling shareholder's offer is accepted by either PFG or the other shareholders, the closing of such purchase shall occur within ten days after the last notice of acceptance of such offer is given. If neither PFG or the other shareholders elect to exercise their respective rights of first refusal with respect to the total number of offered shares, the selling shareholder shall be free to transfer any portion of the shares not purchased by PFG or the other shareholders in accordance with the terms of the proposed transfer described in the original notice. Such transfer shall be consummated within ten days from the last day on which PFG or any other shareholder could have accepted the selling shareholder's offer. After the expiration of such ten day period, all of the selling shareholder's shares of PFG common stock shall again be subject to the restrictions set forth in the bylaws. Any PFG common stock transferred to a third party pursuant to the bylaws shall continue to be subject to the restrictions described above and set forth in the bylaws of PFG. | Special Meeting of ShareholdersShareholders | SmartFinancial’s charter and bylaws allow for a meeting of the shareholders to be called only by (1) the chairman of the board of directors, (2) the vice-chairman of the board, (3) the president or chief executive officer of the corporation, (4) a majority of the members of the board, or (5) holder(s) of 20% or more of the outstanding shares of voting stock. If any person(s) other than the board call a special meeting, the request must be in writing, specify the nature of the proposed business to be discussed, and be delivered to the secretary of the corporation. | Tennessee Bancshares’PFG’s bylaws provide that a special meeting may be called by the commissionerchairman of financial institutions, the chairman,board of directors, the president/chief executive officer,president, a majority of the board of directors, or, upon written demand, by the ownersholders of 10% or more of the outstanding common stock. Additionally, the purpose for the meeting and written notice must be given to all shareholders of record not less than 10 days and no more than 60 days beforeone tenth (1/10) of all the date of theshares entitled to vote at such meeting.
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Rights | SmartFinancial Bancshares, Inc.
Shareholder Rights | Progressive Financial Group Inc.
Shareholder Rights |
| Election, Size, and Classification of Board of Directors | SmartFinancial’s charter provides that the number of directors will be no less than five and no more than 25 persons. The number of directors may be fixed or changed by resolution of the board. Directors are elected at the annual meeting of the shareholders by a plurality of the votes by those shareholders entitled to vote.
SmartFinancial’s board of directors presently consists of 1312 individuals. | Tennessee Bancshares’ charter andPFG’s bylaws provide that the number of directors will notmay be fewer than five and no more than 25.fixed or changed by resolution of the board. Directors are elected by a plurality vote of the shareholders entitled to vote at the annual meeting.
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RIGHTS
| SMARTFINANCIAL BANCSHARES, INC.
SHAREHOLDER RIGHTS
| TENNESSEE BANCSHARES, INC.
SHAREHOLDER RIGHTS
The PFG board of directors presently consists of 6 individuals. | Vacancies on the Board of Directors | The Tennessee Business Corporation Act provides that vacancies on the board of directors may be filled by the shareholders or directors, unless the charter or bylaws provides otherwise.
SmartFinancial’s charter states that any vacancies on the board may be filled by a majority vote of the remaining directors or the shareholders. Those directors so elected will serve until the next annual meeting of shareholders. | The Tennessee Business Corporation Act provides that vacancies on the board of directors may be filled by the shareholders or directors, unless the charter or bylaws provides otherwise.
Tennessee Bancshares’ PFG’s charter and bylaws statesstate that vacancies amongon the board of directors may be filled by a majority vote of the remaining directors except forthen in office, including vacancies that are the result of removal. | | | | Removal of Directors | The Tennessee Business Corporation Act provides that shareholders may remove directors with or without cause unless the charter provides that directors may be removed only for cause. However, if a director is elected by a particular voting group, that director may only be removed by the requisite vote of that voting group.
SmartFinancial’s charter and bylaws allow for the removal of a director with cause by a majority of the board at a meeting called for such purpose. The shareholders may also remove a director with cause at a meeting called for such purpose. Directors may not be removed without cause. | The Tennessee Business Corporation Act provides that shareholders may remove directors with or without cause unless the charter provides that directors may be removed only for cause. However, if a director is elected by a particular voting group, that director may only be removed by the requisite vote of that voting group.
Tennessee Bancshares’ PFG’s charter and bylaws statestates that shareholders may remove one or more directors with or without cause; and the board of directors, by a majority vote of the entire board, may remove any or all directors for cause. |
| Rights | SmartFinancial Bancshares, Inc.
Shareholder Rights | Progressive Financial Group Inc.
Shareholder Rights | | Indemnification | | | Indemnification
| The Tennessee Business Corporation Act provides that a corporation will indemnify a director, officer, employee or agent who was successful in the defense of any proceeding or claim to which he or she was a party because he or she was a director of the corporation against reasonable expenses incurred unless otherwise limited by the charter.
Under the Tennessee Business Corporation Act, a corporation may indemnify an individual against liability if the individual acted in good faith, the individual reasonably believed that the conduct was in the corporation’s best interest or was not opposed to its best interest, and the individual had no reasonable cause to believe the conduct was unlawful. The corporation may also advance for expenses if the director follows the requirements proscribed in the Tennessee Business Corporation Act Section 48-18-504.
The Tennessee Business Corporation Act also allows a corporation to maintain insurance or furnish other protections against liability on behalf of its directors, officers, employees, or agents. SmartFinancial’s charter and bylaws provide that the company will indemnify and advance expenses to its directors and officers and may indemnify all other persons it has the power to indemnify under the Tennessee Business Corporation Act. SmartFinancial may also purchase and maintain insurance or provide similar protections on behalf of its directors, officers, and employees to the fullest extent authorized by the Tennessee Business Corporation Act and applicable federal laws and regulations | The Tennessee Business Corporation Act provides that a corporation will indemnify a director, officer, employee or agent who was successful in the defense of any proceeding or claim to which he or she was a party because he or she was a director of the corporation against reasonable expenses incurred unless otherwise limited by the charter.
Under the Tennessee Business Corporation Act, a corporation may indemnify an individual against liability if the individual acted in good faith, the individual reasonably believed that the conduct was in the corporation’s best interest or was not opposed to its best interest, and the individual had no reasonable cause to believe the conduct was unlawful. The corporation may also advance for expenses if the director follows the requirements proscribed in the Tennessee Business Corporation Act Section 48-18-504.
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RIGHTS
| SMARTFINANCIAL BANCSHARES, INC.
SHAREHOLDER RIGHTS
| TENNESSEE BANCSHARES, INC.
SHAREHOLDER RIGHTS
| | The Tennessee Business Corporation Act also allows a corporation to maintain insurance or furnish other protections against liability on behalf of its directors, officers, employees, or agents. SmartFinancial’s charter andPFG’s bylaws provide that the companyPFG will indemnify and advance expenses to its directors and officers and may indemnify all other persons it has the power to indemnify under the Tennessee Business Corporation Act. SmartFinancial may also purchase and maintain insurance or provide similar protections on behalf of its directors, officers, and employees to the fullest extent authorized by the Tennessee Business Corporation Act and applicable federal laws and regulations | The Tennessee Business Corporation Act also allows a corporation to maintain insurance or furnish other protections against liability on behalf of its directors, officers, employees, or agents.
Tennessee Bancshares’ charter and bylaws provide that Tennessee Bancshares will indemnify and advance expenses to its directors, officers, employees and agents, and will purchase and maintain insurance or furnish similar protection on behalf of its directors, officers, employees and agents, to the fullest extent authorized by Tennessee Business Corporation Act and applicable federal law and regulation.
regulation, except in relation to such matters to which any such director or officer shall be adjudged in any action, suit, or proceeding to be liable for his own negligence or misconduct in the performance of his duty. | | | | Personal Liability of DirectorsDirectors | The Tennessee Business Corporation Act provides that a corporation may not indemnify a director for liability (1) for any breach of the director’s duty of loyalty to the corporation or its shareholders; (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (3) under Section 48-18-302 of the Tennessee Business Corporation Act (with respect to the unlawful payment of dividends).
SmartFinancial’s charter provides that a director will not be personally liable to SmartFinancial or its shareholders for monetary damages for breach of fiduciary duty as a director; however, a director’s liability will not be eliminated or limited for the following: (1) for any breach of the director’sdirector's duty of loyalty to the corporation or its shareholders; (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (3) under Section 48-18-302 of the Tennessee Business Corporation Act with respect to the unlawful payment of dividends.
SmartFinancial’s charter further provides that any amendment to the director’s liability section of the charter requires at least a two-thirds affirmative vote by shareholders entitled to vote on the amendment and a two-thirds affirmative vote by the board of directors. | The Tennessee Business Corporation Act provides that a corporation may not indemnify a director for liability (1) for any breach of the director’s duty of loyalty to the corporation or its shareholders; (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (3) under Section 48-18-302 of the Tennessee Business Corporation Act (with respect to the unlawful payment of dividends).
Tennessee Bancshares’ PFG’s charter and bylaws contain no other specific provision. |
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RIGHTS
| SMARTFINANCIAL BANCSHARES, INC.
SHAREHOLDER RIGHTS
81 | |
| Rights | TENNESSEE BANCSHARES, INC.SmartFinancial Bancshares, Inc.
Shareholder Rights | SHAREHOLDER RIGHTSProgressive Financial Group Inc.
Shareholder Rights | Dissenters’ Rights | Under the Tennessee Business Corporation Act, because SmartFinancial’s common stock is traded on the Nasdaq Capital Market, holders of common stock do not have dissenters’ rights.
SmartFinancial’s charter and bylaws do not contain any provision(s) that relate to dissenters’ rights. | The Tennessee Business Corporation Act provides dissenters rights to shareholders of a company proposing a merger, share exchange or a sale of substantially all of the assets of the company allowing shareholders to dissent from, and obtain payment of the fair value of the shareholders’ shares in the event of, certain extraordinary corporate transactions. The parties have determined that Tennessee Bancshares’PFG’s shareholders have the right to dissent from this merger. | | | | Votes on Extraordinary Corporate TransactionsTransactions | Under the Tennessee Business Corporation Act, a sale or other disposition of all or substantially all of the corporation’s assets, a merger of the corporation with and into another corporation, or a share exchange involving one or more classes or series of the corporation’s shares or a dissolution of the corporation must be approved by the board of directors (except in certain limited circumstances) plus, with certain exceptions, the affirmative vote of the holders of a majority of all shares of stock entitled to vote thereon.
SmartFinancial’s charter and bylaws contain no other specific provision. | Under the Tennessee Business Corporation Act, a sale or other disposition of all or substantially all of Tennessee Bancshares’PFG’s assets, a merger of Tennessee BancsharesPFG with and into another corporation, or a share exchange involving one or more classes or series of Tennessee Bancshares’PFG’s shares or a dissolution of Tennessee BancsharesPFG must be approved by the board of directors (except in certain limited circumstances) plus, with certain exceptions, the affirmative vote of the holders of a majority of all shares of stock entitled to vote thereon.
Tennessee Bancshares’ PFG’s charter and bylaws contain no other specific provision. | | | | Consideration of other ConstituenciesConstituencies | The Tennessee Business Combination Act provides that no corporation (nor its officers or directors) registered or traded on a national securities exchange or registered with the SEC will be held liable for either having failed to approve the acquisition of shares by an interested shareholder on or before such interested shareholder’s share acquisition date, or for opposing any proposed merger, exchange, tender offer or significant disposition of the assets of the corporation or any of its subsidiaries because of a good faith belief that such merger, exchange, tender offer or significant disposition of assets would adversely affect the corporation’s employees, customers, suppliers, the communities in which such corporation or its subsidiaries operate or are located or any other relevant factor if such factors are permitted to be considered by the SmartFinancial’s charter and bylaws contain no other specific provision. | The Tennessee Business Combination Act provides that no corporation (nor its officers or directors) registered or traded on a national securities exchange or registered with the SEC will be held liable for either having failed to approve the acquisition of shares by an interested shareholder on or before such interested shareholder’s share acquisition date, or for opposing any proposed merger, exchange, tender offer or significant disposition of the assets of the corporation or any of its subsidiaries because of a good faith belief that such merger, exchange, tender offer or significant disposition of assets would adversely affect the corporation’s employees, customers, suppliers, the communities in which such corporation or its subsidiaries operate or are located or any other relevant factor if such factors are permitted to be considered by the |
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RIGHTS
| SMARTFINANCIAL BANCSHARES, INC.
SHAREHOLDER RIGHTS
| TENNESSEE BANCSHARES, INC.
SHAREHOLDER RIGHTS
| | board of directors under the charter for such corporation in connection with a merger, exchange, tender offer or significant disposition of assets.
SmartFinancial’s charter and bylaws contain no other specific provision.
| board of directors under the charter for such corporation in connection with a merger, exchange, tender offer or significant disposition of assets Tennessee Bancshares’PFG’s charter and bylaws contain no other specific provision. |
| Rights | SmartFinancial Bancshares, Inc.
Shareholder Rights | Progressive Financial Group Inc.
Shareholder Rights | | | | Amendment of CharterCharter | The Tennessee Business Corporation Act provides that certain relatively technical amendments to a corporation’s charter may be adopted by the directors without shareholder action. Generally, the Tennessee Business Corporation Act provides that a corporation’s charter may be amended by a majority of votes entitled to be cast on an amendment, subject to any condition the board of directors may place on its submission of the amendment to the shareholders.
SmartFinancial’s charter provides that any amendment to the director’s liability section of the charter requires at least a two-thirds affirmative vote by shareholders entitled to vote on the amendment and a two-thirds affirmative vote by the board of directors | The Tennessee Business Corporation Act provides that certain relatively technical amendments to a corporation’s charter may be adopted by the directors without shareholder action. Generally, the Tennessee Business Corporation Act provides that a corporation’s charter may be amended by a majority of votes entitled to be cast on an amendment, subject to any condition the board of directors may place on its submission of the amendment to the shareholders.
Tennessee Bancshares’ PFG’s charter provides that the board of directors or shareholders of Tennessee Bancshares may amend its charter if amendment is made in a manner consistent with the laws of the State of Tennessee and the regulations of the appropriate regulatory official. Additionally, an amendment to Tennessee Bancshares charter will not be valid unless approved by a majority of the shareholders and approved in writing by the appropriate regulatory official. | | | | Amendment of Bylaws | SmartFinancial’s bylaws provide that the bylaws may be amended by shareholders at any regular or special meeting of the shareholders where a quorum is present by a majority vote of the common stock entitled to vote at the meeting. The bylaws may also be amended by the board of directors with a three-fourths vote. | Tennessee Bancshares’PFG’s charter and bylaws provide that the board of directors or shareholders of PFG may amend its bylaws, except only the shareholders may be amended by a majorityamend the provisions relating to the duties, term of the common stock. The bylaws may also be amended by a majority voteoffice, number of directors, filling vacancies occurring on the board, or indemnification of directors.
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RIGHTS
| SMARTFINANCIAL BANCSHARES, INC.
SHAREHOLDER RIGHTS
| TENNESSEE BANCSHARES, INC.
SHAREHOLDER RIGHTS
a director. | Business Combinations Involving Interested ShareholdersShareholders | The Tennessee Business Combination Act generally prohibits a “business combination” by SmartFinancial or a subsidiary with an “interested shareholder” within five years after the shareholder becomes an interested shareholder. SmartFinancial or a subsidiary can, however, enter into a business combination within that period if, before the interested shareholder became such, SmartFinancial ’s board of directors approved the business combination or the transaction in which the interested shareholder became an interested shareholder. After that five-year moratorium, the business combination with the interested shareholder can be consummated only if it satisfies certain fair price criteria or is approved by two-thirds of the other shareholders. For purposes of the Tennessee Business Combination Act, a “business combination” includes mergers, share exchanges, sales and leases of assets, issuances of securities, and similar transactions. An “interested shareholder” is generally any person or entity that beneficially owns 10% or more of the voting power of any outstanding class or series of SmartFinancial stock.
SmartFinancial’s charter does not have special requirements for transactions with interested parties. | The Tennessee Business Combination Act generally prohibits a “business combination” by Tennessee BancsharesPFG or a subsidiary with an “interested shareholder” within five years after the shareholder becomes an interested shareholder. Tennessee BancsharesPFG or a subsidiary can, however, enter into a business combination within that period if, before the interested shareholder became such, Tennessee Bancshares’PFG’s board of directors approved the business combination or the transaction in which the interested shareholder became an interested shareholder. After that five-year moratorium, the business combination with the interested shareholder can be consummated only if it satisfies certain fair price criteria or is approved by two-thirds of the other shareholders. For purposes of the Tennessee Business Combination Act, a “business combination” includes mergers, share exchanges, sales and leases of assets, issuances of securities, and similar transactions. An “interested shareholder” is generally any person or entity that beneficially owns 10% or more of the voting power of any outstanding class or series of Tennessee BancsharesPFG stock.
Tennessee Bancshares’ PFG’s charter does not have special requirements for transactions with interested parties. |
| Rights | SmartFinancial Bancshares, Inc.
Shareholder Rights | Progressive Financial Group Inc.
Shareholder Rights | | | | Shareholder Right to Make Proposals and to Nominate Directors | Under the Tennessee Business Corporation Act, shareholders have the right to submit proposals to the board of directors and to submit nominations for directors.
SmartFinancial’s charter allows for a shareholder to nominate a director so long as the shareholder is entitled to vote and provides written notice of the nomination in proper form to the secretary of the company.
SmartFinancial’s bylaws allow for shareholder proposals to be brought before the board at the annual meeting so long as written notice of the proposal is timely given to the secretary of the company in proper form. | Under Tennessee law shareholders have the right to submit proposals to the board of directors and to submit nominations for directors.
Tennessee Bancshares’ PFG’s charter and bylaws contain no other specific provision. | | | |
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RIGHTS
| SMARTFINANCIAL BANCSHARES, INC.
SHAREHOLDER RIGHTS
| TENNESSEE BANCSHARES, INC.
SHAREHOLDER RIGHTS
| Shareholder Ability to Act by Written ConsentConsent | The Tennessee Business Corporation Act allows for shareholders to act by written consent if all of the shareholders entitled to vote on the matter consent to taking such action without a meeting. The affirmative vote of the number of shares otherwise required to authorize or take such action at a meeting is the act of the shareholders. | The Tennessee Business Corporation Act allows for shareholders to act by written consent if all of the shareholders entitled to vote on the matter consent to taking such action without a meeting. The affirmative vote of the number of shares otherwise required to authorize or take such action at a meeting is the act of the shareholders.
Tennessee Bancshares bylaws provide that action required or permitted to be taken at a shareholders meeting may be taken without a meeting if all shareholders entitled to vote consent in writing to take action without a meeting. The affirmative vote of the number of shares that would be necessary to authorize or take such action at a meeting is the act of the shareholders. |
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INFORMATION ABOUT TENNESSEE BANCSHARES
Tennessee Bancshares was organized in 2007 to serve as the holding company for Southern Community Bank, a non-member, community bank headquartered in Tullahoma, Tennessee. Southern Community Bank opened for business in 2005, initially with one office located at 1400 North Jackson Street, Tullahoma, Tennessee 37388. As of December 31, 2017, Tennessee Bancshares on a consolidated basis had total assets of approximately $245.3 million, total deposits of $216.0 million, and total shareholders’ equity of approximately $23.4 million, with branches in Chattanooga and Murfreesboro, Tennessee, and Huntsville, Alabama.
Southern Community Bank wholly owns The Financial Group, LLC, or the Financial Group, which provides financial consulting and other financial and wealth management services throughout Middle Tennessee.
The following table sets forth a summary of certain information concerning the compensation awarded to or paid to Mr. Yoder by Tennessee Bancshares for services rendered in all capacities during the years ended December 31, 2017 and December 31, 2016.
Name | Year | Salary | Non-Equity
Incentive Plan
Compensation | All Other
Compensation(1) | Total | William L. Yoder President and Chief Executive Officer of Southern Community Bank and Tennessee Bancshares | | 2017 | | $ | 176,500.00 | | $ | 45,000.00 | | $ | 36,648.24 | | $ | 258,148.24 | | | 2016 | | $ | 176,500.00 | | $ | 42,500.00 | | $ | 29,468.00 | | $ | 248,670.00 | |
| (1) | Details of the amounts reported as All Other Compensation for 2017 are as follows: (i) directors fee of $22,800.00 (ii) IRA contribution of $7,329.00; (iii) medical contributions of $4,000; and (iv) club allowances of $2,519.24. |
Cash Bonus and Equity Plans
Options; Restricted Stock. Mr. Yoder does not hold, and Tennessee Bancshares has never issued to its directors and officers, restricted shares of Tennessee Bancshares common stock, options, or other equity awards. In addition, Mr. Yoder does not hold, and Tennessee Bancshares has never issued to its directors and officers, warrants to purchase shares of Tennessee Bancshares common stock.
Southern Community Bank Executive Bonus Compensation Program. Southern Community Bank instituted an Executive Bonus Compensation Program soon after the bank was opened in 2005. The purpose of the plan was to incentivize executive officers to meet or exceed annual budgetary goals, established by the board of directors, for loan growth, asset growth and earnings. In addition, the board of directors established certain qualitative goals for each plan participant. Cash bonuses are awarded to the plan participants based upon actual performance. The plan was administered by the Executive Committee of the board of directors.
Director Compensation Table. For Mr. Miller, who will serve as a director of SmartFinancial following completion of the merger, the following table presents summary financial information concerning all compensation earned during the year ended December 31, 2017 for his services as a director of Tennessee Bancshares. The table also presents summary financial information concerning all compensation earned during the year ended December 31, 2017 for Mr. Yoder’s services as a director of Tennessee Bancshares:
| Fees Earned | | Name | Paid in
Common Stock | Paid
in Cash | Total
($) | Clifton N. Miller | | — | | $ | 22,800 | | $ | 22,800 | | William L. Yoder | | — | | $ | 22,800 | | $ | 22,800 | |
Director Fees. For 2017, each director of Tennessee Bancshares received an annual retainer of $20,800 for their services as a member of the board. See “Information About Tennessee Bancshares - Tennessee Bancshares Executive Compensation - Cash and Equity Plans - Tennessee Bancshares Director Stock Plan.” Tennessee Bancshares does not compensate its directors for attendance at committee meetings or for positions of leadership held at the committee level. For 2017, non-employee director compensation was calculated and paid monthly. Although retainer amounts are stated in amounts per annum, a retainer was payable only for such months for which a director holds the position for which the retainer was payable.
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PROPOSALS
Proposal No. 1 – The Merger Proposal
Tennessee Bancshares is asking its shareholders to approve and adopt the merger agreement and the transactions contemplated thereby, including the merger and the bank merger. Tennessee Bancshares shareholders should read this proxy statement/prospectus carefully and in its entirety, including the appendixes and the documents incorporated by reference into this proxy statement/prospectus, for more detailed information concerning the merger agreement, the merger, the bank merger and the other transaction contemplated thereby. A copy of the merger agreement is attached to this proxy statement/prospectus as Appendix A.
After careful consideration, the Tennessee Bancshares board of directors determined that the transactions contemplated by the merger agreement, including the merger and the bank merger, each on the terms and conditions set forth in the merger agreement, are in the best interests of Tennessee Bancshares and its shareholders. Please see “The Merger—Tennessee Bancshares’ Reasons for the Merger; Recommendation of the Tennessee Bancshares Board of Directors” included elsewhere in this proxy statement/prospectus for a more detailed discussion of the Tennessee Bancshares board of directors’ recommendation.
Holders of Tennessee Bancshares common stock who comply with the provisions of Chapter 23 of the Tennessee Business Corporation Act are entitled to dissent from the merger and receive payment of the fair value of their shares of Tennessee Bancshares common stock if the merger is consummated. A copy of Chapter 23 of the Tennessee Business Corporation Act is attached as Appendix B to this proxy statement/prospectus. Please see the section entitled “The Merger—Dissenters’ Rights” beginning on page 44 for a summary of the procedures to be followed in asserting dissenters’ rights. A dissenting shareholder will be entitled to payment only if written notice of intent to demand payment is delivered to Tennessee Bancshares before the vote is taken and the shareholder does not vote in favor of the merger proposal.
The Tennessee Bancshares board of directors unanimously recommends that Tennessee Bancshares shareholders vote “FOR” the merger proposal.
Proposal No. 2 – Adjournment Proposal
The special meeting may be adjourned or postponed to another time or place, if necessary or appropriate, to permit, among other things, further solicitation of proxies if necessary to obtain additional votes in favor of the merger proposal.
If, at the special meeting, the number of shares of Tennessee Bancshares common stock present or represented by proxy and voting in favor of the merger proposal is insufficient to approve such proposal, Tennessee Bancshares intends to move to adjourn the special meeting in order to solicit additional proxies for the approval and adoption of the merger agreement.
In this proposal, Tennessee Bancshares is asking its shareholders to authorize the holder of any proxy solicited by the Tennessee Bancshares board of directors on a discretionary basis to vote in favor of adjourning the special meeting to another time and place, if necessary or appropriate, to permit, among other things, the solicitation of additional proxies, including the solicitation of proxies from Tennessee Bancshares shareholders who have previously voted.
Except as required by the Tennessee Business Corporation Act or Tennessee Bancshares’ amended and restated bylaws, the Tennessee Bancshares board of directors is not required to fix a new record date to determine the Tennessee Bancshares shareholders entitled to vote at the adjourned special meeting. At the adjourned special meeting, any business may be transacted which might have been transacted at the special meeting. If the Tennessee Bancshares board of directors does not fix a new record date, it is not necessary to give any notice of the time and place of the adjourned special meeting other than an announcement at the special meeting at which the adjournment is taken, unless the adjournment is for more than four months after the date fixed for the original special meeting. If a new record date is fixed, notice of the adjourned special meeting shall be given as in the case of an original special meeting.
The Tennessee Bancshares board of directors unanimously recommends that Tennessee Bancshares shareholders vote “FOR” the adjournment proposal.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF TENNESSEE BANCSHARES
The following table sets forth, as of [ ], 2018, information with respect to the beneficial ownership of Tennessee Bancshares’ common stock by each director, by its executive officers and by all of its directors and executive officers as a group, as well as information regarding each other person that Tennessee Bancshares believes owns in excess of 5% of the outstanding shares of common stock. Unless otherwise noted below, we believe that each person named in the table has or will have the sole voting and sole investment power with respect to the shares of Tennessee Bancshares common stock reported as owned by such person.
| Number of
Shares of
Common Stock
Beneficially
Owned(1) | Percent of Shares
of Tennessee
Bancshares
Common Stock(1) | Directors
| | | | | | | Dr. Stephen H. Bills(2) | | 28,590 | | | 1.6 | % | Dr. Robert Craig Collier(3) | | 69,610 | | | 3.8 | % | Theresa R. Devlin(4) | | 135,784 | | | 7.5 | % | Danny A. Lamb(5) | | 5,615 | | | | * | Joe. L. Lester(6) | | 60,444 | | | 3.3 | % | Clifton N. Miller(7) | | 159.368 | | | 8.8 | % | William L. Yoder(8) | | 71,731 | | | 4.0 | % | All directors as a group | | 531,142 | | | 29.4 | % | | | | | | | | Executive Officers (who are not also directors)
| | | | | | | Jason Redd | | — | | | — | | Gerald Player(9) | | 2,000 | | | | * | Shelia Gilmer(10) | | 4,345 | | | | * | All directors and executive officers as a group (10 persons) | | 537,487 | | | 29.7 | % |
| (1) | For purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule 13d-3 of the Securities Exchange Act of 1934, as amended, under which, in general, a person is deemed to be the beneficial owner of a security if he has or shares the power to vote or direct the voting of the security or the power to dispose of or direct the disposition of the security, or if he has the right to acquire beneficial ownership of the security within 60 days. Percentages presented are based on 1,809,282 shares of Tennessee Bancshares common stock outstanding. |
| (2) | Includes (a) 17,125 shares of Tennessee Bancshares common stock that are held by Raymond James & Associates, Inc. as custodian for the Stephen H. Bills IRA of which he has beneficial ownership and (b) 11,465 shares of Tennessee Bancshares common stock that he owns jointly with his wife. |
| (3) | Includes 69,610 shares of Tennessee Bancshares common stock that are held by the Robert Craig Collier Revocable Living Trust of which he has beneficial ownership. |
| (4) | Includes 67,582 shares of Tennessee Bancshares common stock that are held by James G. Devlin, the spouse of Mrs. Devlin, in respect of which Mrs. Devlin disclaims beneficial ownership. |
| (5) | Includes (a) 5,309 shares of Tennessee Bancshares common stock that are held by Community National Bank as custodian for the benefit of Danny A. Lamb of which he has beneficial ownership and (b) 306 shares of Tennessee Bancshares common stock that are held by Community National Bank as custodian for the benefit of Danny A. Lamb of which he has beneficial ownership. |
| (6) | Includes (a) 28,781 shares of Tennessee Bancshares common stock that are held by Washburn Trust B of which Mr. Lester is the trustee and (b) 31,663 shares of Tennessee Bancshares common stock that he owns jointly with his wife. |
| (7) | Includes (a) 44,670 shares of Tennessee Bancshares common stock that he owns individually, (b) 51,596 shares of Tennessee Bancshares common stock that are held by Raymond James & Associates, Inc. as custodian for the benefit of the Clifton N. Miller Beneficiary IRA of which he has beneficial ownership, (c) 32,285 shares of Tennessee Bancshares common stock that are held by Miller Family Partners I, LP of which he has beneficial ownership and (d) 30,817 shares of Tennessee Bancshares common stock that are held by Raymond James & Associates, Inc. as custodian for the benefit of the Clifton N. Miller SEP IRA |
| (8) | Includes (a) 37,806 shares of Tennessee Bancshares common stock that he owns jointly with his wife and (b) 33,925 shares of Tennessee Bancshares common stock that are held by Raymond James & Associates, Inc. as custodian for the benefit of the William L. Yoder IRA. |
| (9) | Includes 2,000 shares of Tennessee Bancshares common stock that Mr. Player owns jointly with his wife. |
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LEGAL MATTERS The validity of the shares of SmartFinancial common stock to be issued in connection with the merger will be passed upon for SmartFinancial by Butler Snow.Alston & Bird LLP (Atlanta, Georgia). Certain matters pertaining to theU.S. federal income tax consequences ofrelating to the merger will also be passed upon for SmartFinancial and PFG by Butler Snow.Alston & Bird LLP (Atlanta, Georgia) and Baker, Donelson, Bearman, Caldwell & Berkowitz, PC (Nashville, TN), respectively. EXPERTS The consolidated financial statements of SmartFinancial Inc.and its subsidiary as of December 31, 2016 and 2015, and2017, included in SmartFinancial’sAnnual Report on Form 10-K for the years thenyear ended have beenDecember 31, 2017, incorporated by reference herein, and in the registration statement of which this prospectus is a parthave been so incorporated by reference herein in reliance upon the reportreports of Mauldin & Jenkins, LLC, an independent registered public accounting firm, andgiven upon the authority of said firm as experts in accounting and auditing.auditing. The consolidated financial statements of SmartFinancial and its subsidiary as of December 31, 2018, and management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2018, included in SmartFinancial’s Annual Report on Form 10-K for the year ended December 31, 2018, incorporated by reference herein, have been so incorporated by reference herein in reliance upon the reports of Dixon Hughes Goodman LLP, an independent registered public accounting firm, given upon the authority of said firm as experts in accounting and auditing. SHAREHOLDER PROPOSALS
SmartFinancial
Shareholders who, in accordance with SEC Rule 14a-8, wish to present proposals for inclusion in our proxy statement and form of proxy for the 2018 SmartFinancial annual meeting were required to submit their proposals at our principal executive offices, addressed to our Corporate Secretary, no later than December 11, 2017. Shareholder proposals not submitted for inclusion in next year’s proxy statement and form of proxy, but instead sought to be presented directly at the SmartFinancial 2019 annual meeting of shareholders, may be brought before the annual meeting so long as we received notice of the proposal, addressed to the Corporate Secretary, at our principal executive offices, no later than [ ], 2018. Any proposals received after such date will be considered untimely.
Tennessee Bancshares
If the merger is consummated, there will be no Tennessee Bancshares annual meeting of shareholders for 2018 or 2019. In that case, former Tennessee Bancshares shareholders holding SmartFinancial common stock as a result of the merger must submit shareholder proposals to SmartFinancial in accordance with the procedures described above.
If the merger is not consummated, then Tennessee Bancshares will hold an annual meeting later in 2018.
WHERE YOU CAN FIND MORE INFORMATION SmartFinancial has filed with the Securities and Exchange Commission, or the SEC, a registration statement on Form S-4 under the Securities Act as amended, that registersof 1933 with the issuance ofSEC with respect to the shares of SmartFinancial common stock to be issued to shareholders of PFG in connection with the merger. This proxy statement/prospectus is a part of that registration statement and constitutes the prospectus of SmartFinancial filed as part of the registration statement. This proxy statement/prospectus does not contain all of the information set forth in addition to being a proxythe registration statement for Tennessee Bancshares shareholders.because certain parts of the registration statement are omitted in accordance with the rules and regulations of the SEC. The registration statement including this proxy statement/prospectus and the attachedits exhibits are available for inspection and schedules, contains additional relevant information aboutcopying as set forth below. In addition, SmartFinancial files annual, quarterly and SmartFinancial common stock. SmartFinancial also filesspecial reports, proxy statements and other business and financial information with the SEC under the Exchange Act.SEC. You may read and copy this informationany materials that SmartFinancial files with the SEC at the SEC’s Public Reference Room of the SEC located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s Public Reference Room by calling20549, at prescribed rates. Please call the SEC at (800) SEC-0330.
TheSEC-0330 for further information on the public reference room. In addition, SmartFinancial files reports and other business and financial information with the SEC alsoelectronically, and the SEC maintains a website that contains SmartFinancial’s SEC filings as well as reports, proxy and information statements, and other information about issuers such as SmartFinancial, who file electronically with the SEC. The addressSEC at www.sec.gov. You will also be able to obtain these documents, free of the website is www.sec.gov. The reports and other information filed by SmartFinancial with the SEC are also available atcharge, from SmartFinancial’s website at www.smartbank.com or by contacting SmartFinancial’s Investor Relations department at (423) 385-3009.www.smartfinancialinc.com under the “Investor Relations” link and then under the “SEC Filings” heading. The webwebsite addresses offor the SEC and SmartFinancial are included as inactive textual references only. Exceptand except as specifically incorporated by reference into this proxy statement/prospectus, information on those web siteswebsites is not part of this proxy statement/prospectus.
The SEC allows SmartFinancial “incorporatesto “incorporate by reference” certain documents intoinformation in this proxy statement/prospectus, whichprospectus. This means that SmartFinancial can disclose important business and financial information to you by referring you specifically to those documents. This TABLE OF CONTENTS
meansanother document filed separately with the SEC. The information that the information incorporatedSmartFinancial incorporates by reference is deemedconsidered to be part of this proxy statement/prospectus, unless superseded by information contained directly in this proxy statement/prospectus. Certainand later information that SmartFinancial subsequently files with the SEC will automatically update and supersede the information SmartFinancial included in this proxy statement/prospectus and in SmartFinancial’s other filings with the SEC. SmartFinancialprospectus. This document incorporates by reference the documents that are listed below whichthat SmartFinancial has alreadypreviously filed with the SEC, except to the extent that any information contained in such filings is deemed “furnished” in connection with SEC rules.
| · | Annual Report on Form 10-K for the year ended December 31, 2018, filed onMarch 18, 2019; |
| · | Definitive Proxy Statement on Schedule 14A for the 2019 Annual Meeting, filed onMarch 19, 2019; |
| · | Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019, June 30, 2019, and September 30, 2019, filed onMay 10, 2019,August 8, 2019, andNovember 8, 2019, respectively; |
| · | Current Reports on Form 8-K or Form 8-K/A, as applicable, filed on January 16, 2019,January 24, 2019,February 6, 2019,April 24, 2019,April 25, 2019,May 6, 2019,May 7, 2019,May 29, 2019,July 25, 2019,October 21, 2019,October 30, 2019, andNovember 6, 2019; and |
| · | The description of our common stock contained in our Registration Statement filed with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934, or the Exchange Act, including any amendment or report filed for purposes of updating such description. |
SmartFinancial also incorporates by reference any future filings SmartFinancial makesthey make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act betweenafter the date of this proxy statement/prospectus and the date of the PFG special meeting, except that SmartFinancial is not incorporating any information that has beenmeeting. Any statement contained in this proxy statement/prospectus or willin a document incorporated or deemed to be furnished (and not filed) with the SEC: the annual report on Form 10-K for the fiscal year ended December 31, 2016, filed on March 31, 2017;
those portions of the definitive proxy statement on Schedule 14A filed on April 3, 2017, in connection with our annual meeting of shareholders that are incorporated by reference into the annual report on Form 10-K for the year ended December 31, 2016;
the quarterly reports on Form 10-Q for the quarter ended March 31, 2017, June 30, 2017, and September 30, 2017; and
the current reports on Form 8-K filed on January 17, 2017, January 25, 2017, January 31, 2017, May 23, 207, May 25, 2017, August 8, 2017, September 20, 2017, November 7, 2017, December 13, 2017, January 17, 2018, and January 31, 2018 exceptin this proxy statement/prospectus is deemed to be modified or superseded to the extent that a statement contained herein or in any subsequently filed document that also is, or is deemed to be, incorporated by reference herein modified or superseded such statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this proxy statement/prospectus.Documents incorporated by reference are available from SmartFinancial without charge (except for exhibits to the documents unless the exhibits are specifically incorporated in the document by reference). You may obtain documents incorporated by reference in this document by requesting them in writing or by telephone from SmartFinancial at the following address: SmartFinancial, Inc.
5401 Kingston Pike, Suite 600
Knoxville, Tennessee 37919
Attention: Secretary
Telephone: (865) 437-5700 To obtain timely delivery, you must make a written or oral request for a copy of such information by January 21, 2020. You will not be charged for any of these documents that you request. If you request any incorporated documents from SmartFinancial, SmartFinancial will mail them to you by first class mail, or another equally prompt means, within one business day after receiving your request. You should rely only on the information contained in this proxy statement/prospectus. Neither SmartFinancial nor PFG has authorized anyone to provide you with different information. Therefore, if anyone gives you different or additional information, you should not rely on it. The information contained in this proxy statement/prospectus is deemed “furnished”correct as of its date. It may not continue to be correct after this date. PFG has supplied all of the information about PFG and its subsidiaries contained in accordance with SEC rules. This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered by this proxy statement/prospectus, or the solicitation of a proxy, in any jurisdiction to or from any person to whom or from whom it is unlawful to make such offer, solicitation of an offer or proxy solicitation in such jurisdiction. TABLE OF CONTENTS
AppendixAnnex A
Agreement and Plan of Merger
Execution Versionby and among
SmartFinancial, Inc., Tennessee Bancshares, Inc. and Southern Community Bank & Trust
dated December 12, 2017
TABLE OF CONTENTS
AGREEMENT AND PLAN
OF
MERGER
by and between SMARTFINANCIAL, INC.
TENNESSEE BANCSHARES, and PROGRESSIVE FINANCIAL GROUP INC.
AND
SOUTHERN COMMUNITY BANK December 12, 2017
Dated as of October 29, 2019 TABLE OF CONTENTS
TABLE OF CONTENTS | THE MERGER | 2 | | 1.01 The Merger | 2 | | | | | | | | | | | | | | | | 2 | | 2 | | 2 | | Section 1.05 Effective Time; Closing | 3 | | Section 1.06 Additional Actions | 3 | | Section 1.07 Reservation of Right to Revise Structure | 3 | | ARTICLE II MERGER CONSIDERATION; EXCHANGE PROCEDURES | 4 | | Section 2.01 Merger Consideration | 4 | | Section 2.02 Rights as Shareholders; Stock Transfers | 5 | | Section 2.03 Fractional Shares | 5 | | Section 2.04 Plan of Reorganization | 6 | | Section 2.05 Exchange Procedures | 6 | | Section 2.06 Deposit and Delivery of Merger Consideration | 6 | | Section 2.07 Rights of Certificate Holders after the Effective Time | 7 | | Section 2.08 Anti-Dilution Provisions | 8 | ARTICLE III MERGER CONSIDERATIONREPRESENTATIONS AND WARRANTIES OF PFG | 8 | | 3.01 Organization and Standing | 8 | | 3.02 Capital Stock | 8 | | 3.03 Subsidiaries | 9 | | 3.04 Corporate Power; Minute Books | 10 | | 3.05 Corporate Authority | 10 | | Defaults | 11 | | 3.07 Financial Statements; Internal Controls | 12 | | 3.08 Regulatory Reports | 12 | | 3.09 Absence of Certain Changes or Events | 13 | | Legal Proceedings | 13 | | Compliance With Laws | 14 | | PFG Material Contracts; Defaults | 14 | | 15 | | Section 3.14 Brokers; Fairness Opinion | 16 | | Section 3.15 Employee Benefit Plans | 16 | | Section 3.16 Labor Matters | 19 | | Section 3.17 Environmental Matters | 19 | | Section 3.18 Tax Matters | 20 | | Section 3.19 Investment Securities | 22 | | Section 3.20 Derivative Transactions | 23 | | Section 3.21 Regulatory Capitalization | 23 | | Section 3.22 Loans; Nonperforming and Classified Assets | 23 | | Section 3.23 Allowance for Loan and Lease Losses | 24 | | Section 3.24 Trust Business; Administration of Fiduciary Accounts | 25 | | Section 3.25 Investment Management and Related Activities | 25 | | Section 3.26 Repurchase Agreements | 25 | | Section 3.27 Deposit Insurance | 25 | | Section 3.28 Community Reinvestment Act, Anti-money Laundering and Customer Information Security | 25 | | Section 3.29 Transactions with Affiliates | 26 | | Section 3.30 Tangible Properties and Assets | 26 | | Section 3.31 Intellectual Property | 27 | | Section 3.32 Insurance | 27 | | Section 3.33 Antitakeover Provisions | 28 | | Section 3.34 PFG Information | 28 | | Section 3.35 [Reserved] | 28 | | Section 3.36 Bank Holding Company | 28 | | Section 3.37 No Other Representations or Warranties | 28 |
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BANCSHARES PARTIESSMBK | 29 | | 4.01 Organization and Standing | 29 | | 4.02 Capital Stock | 29 | | 29 | | Section 4.04 Corporate Authority | 29 | | Section 4.05 SEC Documents; Financial Statements | 30 | | Section 4.06 Regulatory Approvals; No Defaults | 30 | | Section 4.07 SMBK Information | 31 | | Section 4.08 Absence of Certain Changes or Events | 31 | | Section 4.09 Compliance with Laws | 31 | | Section 4.10 Legal Proceedings | 32 | | Section 4.11 No Other Representations or Warranties | 32 | ARTICLE V REPRESENTATIONS AND WARRANTIES OF SMARTFINANCIALCOVENANTS | 33 | | 5.01 Covenants of PFG | 33 | | 5.02 Covenants of SMBK | 39 | | Section 5.03 Commercially Reasonable Efforts | | | 5.04 Shareholder Approval | 39 | | 5.05 Registration Statement; Proxy Statement-Prospectus; NASDAQ Listing | 40 | | | | | | | | | | | | 41 | | 5.07 Publicity | 41 | | 5.08 Access; Current Information; Accounting Matters | 42 | | 5.09 No Solicitation by PFG; Superior Proposals | 43 | | 5.10 Indemnification | 46 | | Plans | 48 | | 5.12 Notification of Certain Changes | 49 | | 5.13 Transition; Informational Systems Conversion | 50 | | 5.14 No Control of Other Party’s Business | 50 | | 5.15 Certain Litigation | 50 | | 5.16 Director Resignations | 50 | | 50 | Section 16(b) Liability5.18 Claims Letters | 51 |
TABLE OF CONTENTS
| 51 | | Section 5.20 Coordination | 51 | | Section 5.21 Transactional Expenses | 52 | | Section 5.22 Confidentiality | 52 | | Section 5.23 AAA Dividend | 52 | | Section 5.24 Tax Matters | 52 | ARTICLE VIIIVI CONDITIONS TO CONSUMMATION OF PARENTTHE MERGER | 54 | | | | to Effect the Merger | 54 | | PFG | 55 | | Section 6.03 Conditions to Obligations of SMBK | 55 | | 6.04 Frustration of Closing Conditions | 57 | | 57 | Section 9.2 7.01 Termination | 57 | | Section 7.02 Termination Fee | 58 | | Section 7.03 Effect of Termination | 59 | | ARTICLE VIII DEFINITIONS | 59 | | 59 |
ARTICLE XIX MISCELLANEOUS | 68 | | 68 | | 9.02 Waiver; Amendment | 68 | | of Right to Trial by Jury | 68 | | 9.04 Expenses | 69 | | 9.05 Notices | 69 | | | | | | 70 | | 70 | | 9.08 Enforcement of the Agreement | 70 | | 9.09 Interpretation | 70 | | 9.10 Assignment | 71 | | 9.11 Counterparts | 72 | | Section 9.12 Privileged Communications | 72 |
EXHIBIT
Exhibit A – FORM OF VOTING AGREEMENTForm of Voting Agreement Exhibit B – Form of Bank Plan of Merger and Merger Agreement Exhibit C – Form of Director Non-Competition and Non-Disclosure Agreement Exhibit D – Form of Claims Letter TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this “Agreement”), is dated as of the 12th day of December, 2017, is made and entered intoOctober 29, 2019, by and amongbetween SmartFinancial, Inc., a Tennessee corporation (“SmartFinancialSMBK”), Tennessee Bancshares,and Progressive Financial Group Inc., a Tennessee corporation (“BancsharesPFG” and, together with SMBK, the “Parties” and each a “Party”). W I T N E S S E T H WHEREAS, and Southern Community Bank, a Tennessee-chartered commercial bank and wholly owned subsidiary of Bancshares (the “Bank”), under authority of resolutions of their respectivethe boards of directors duly adopted. R E C I T A L S
A. The board of directors of each of SmartFinancial, Bancshares, and the Bank hasParties have determined that this Agreement and the transactions contemplated hereby are advisable andit is in the best interests of SmartFinancial, Bancshares, and the Bank, respectively,their respective companies and their respective shareholders.shareholders to consummate the business combination transaction provided for in this Agreement in which PFG will, on the terms and subject to the conditions set forth in this Agreement, merge with and into SMBK (the “Merger”), with SMBK as the surviving company in the Merger (sometimes referred to in such capacity as the “Surviving Entity”);
B. As
WHEREAS, as a material inducement for SmartFinancialcondition to the willingness of SMBK to enter into this Agreement, each membercertain directors and shareholders of the board of directors of Bancshares hasPFG have entered into voting agreements (each a “Voting Agreement dated as of” and collectively, the date hereof and“Voting Agreements”), substantially in the form attached hereto asExhibit A, dated as of the date hereof, with SMBK, pursuant to which each such individualdirector or shareholder has agreed, among other things, to vote his or her sharescertain of Bancsharesthe PFG Common Stock (as defined below)owned by such director or shareholder in favor of the approval of this Agreement and the transactions contemplated hereby.hereby, subject to the terms of the Voting Agreements; C. For United States
WHEREAS, PFG owns 100% of the issued and outstanding common stock of Progressive Savings Bank, a Tennessee state-chartered bank (“Progressive Bank”) and SMBK owns 100% of the issued and outstanding common stock of SmartBank, a Tennessee state-chartered bank; WHEREAS, as a further condition to the willingness of SMBK to enter into this Agreement, certain employees of PFG and/or its Subsidiaries will enter into termination agreements, employment agreements, or retention agreements following the entry into this Agreement; WHEREAS, the Parties desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions to the Merger; and WHEREAS, for U.S. federal income tax purposes, it is intended that the Parties (as defined below) intend for the Parent Merger (as defined below) provided for herein to qualify as a “reorganization” underwithin the provisionsmeaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations and formal guidance issuedRegulations promulgated thereunder, (the “Code”), and this Agreement is intended to be and is adopted as a “plan of reorganization” for purposes of Sections 354 and 361 of the Code. NOW, THEREFORE for and, in consideration of the foregoing, the mutual covenants, representations, warranties,promises herein contained and agreements set forth herein, andfor other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONSTHE MERGER
Section 1.11.01 Certain DefinitionsThe Merger. ForSubject to the terms and conditions of this Agreement, in accordance with the Tennessee Business Corporation Act Tenn. Code Ann. §§ 48-11-101, et seq. (the “TBCA”), at the Effective Time, PFG shall merge with and into SMBK pursuant to the terms of this Agreement. SMBK shall be the Surviving Entity in the Merger and shall continue its existence as a corporation under the laws of the State of Tennessee. As of the Effective Time, the separate corporate existence of PFG shall cease. Section 1.02 Charter and Bylaws. At the Effective Time, the charter of SMBK in effect immediately prior to the Effective Time shall be the charter of the Surviving Entity until thereafter amended in accordance with applicable Law. The bylaws of SMBK in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Entity until thereafter amended in accordance with applicable Law and the terms of such bylaws. Section 1.03 Bank Merger. Except as provided below, immediately following the Effective Time and sequentially but in effect simultaneously on the Closing Date, Progressive Bank shall be merged with and into SmartBank (the “Bank Merger”), in accordance with the provisions of the Tennessee Banking Act, and SmartBank shall be the surviving bank (the “Surviving Bank”). The Bank Merger shall have the effects as set forth under applicable federal and Tennessee state banking laws and regulations, as further set forth in the separate merger agreement (the “Bank Plan of Merger”) in substantially the form attached hereto asExhibit B, which SmartBank and Progressive Bank are simultaneously executing as of the date hereof. Each of PFG and SMBK have approved the Bank Plan of Merger in its capacity as the sole shareholder of Progressive Bank and SmartBank, respectively. As provided in the Bank Plan of Merger, the Bank Merger may be abandoned at the election of SmartBank at any time, whether before or after filings are made for regulatory approval of the Bank Merger, but if the Bank Merger is abandoned for any reason, Progressive Bank shall continue to operate under its name; provided that prior to any such election, SMBK shall (a) reasonably consult with PFG and its regulatory counsel and (b) reasonably determine in good faith that such election will not, and would not reasonably be expected to, prevent, delay, or impair any Party’s ability to consummate the Merger or the other transactions contemplated by this Agreement. Section 1.04 Directors and Officers. With the exception of adding Ottis Phillips to the board of directors, the directors and officers of SMBK immediately prior to the Effective Time shall, from and after the Effective Time, continue as the directors and officers of the Surviving Entity until their successors shall have been duly elected, appointed, or qualified or until their earlier death, resignation, or removal in accordance with the charter and bylaws of the Surviving Entity. With the exception of adding Ottis Phillips to the board of directors, the directors and officers of SmartBank immediately prior to the effective time of the Bank Merger shall, from and after the Effective Time, continue as the directors and officers of the Surviving Bank until their successors shall have been duly elected, appointed, or qualified or until their earlier death, resignation, or removal in accordance with the charter and bylaws of the Surviving Bank. The parties agree that any executive officer of the Surviving Entity or the Surviving Bank shall be authorized to sign any and all Tax Returns of PFG or Progressive Bank, respectively, that are filed after the Effective Time regardless of the period covered by the Tax Returns.
Section 1.05 Effective Time; Closing. (a) Subject to the terms and conditions of this Agreement, the Parties will make all such filings as may be required to consummate the Merger and the Bank Merger by applicable Laws. The Merger shall become effective as set forth in the articles of merger (the “Articles of Merger”) related to the Merger, which will include the plan of merger (the “Plan of Merger”), that shall be filed with the Secretary of State of the State of Tennessee, as provided in the TBCA, on or prior to the Closing Date. The Merger shall become effective at such time as the Articles of Merger are duly filed with the Secretary of State of the State of Tennessee, or at such later time as is agreed between the Parties and specified in the Articles of Merger in accordance with the relevant provisions of the TBCA (such date and time is hereinafter referred to as the “Effective Time”). (b) The closing of the Merger contemplated by this Agreement (the “Closing”) shall take place on a date determined by SMBK and reasonably acceptable to PFG (the “Closing Date”), which shall be within 30 days after all of the conditions to the Closing set forth inArticle VI (other than those conditions that by their nature are to be satisfied by action taken at the Closing, which shall be satisfied or waived at the Closing) have been satisfied or waived (to the extent permitted by applicable Law) in accordance with the terms hereof, at the headquarters of SMBK at 5401 Kingston Pike, Knoxville, Tennessee, 37319, or such other place, date, and time as the Parties may mutually agree. At or prior to the Closing, there shall be delivered to SMBK and PFG the Articles of Merger and such other certificates and other documents required to be delivered underArticle VI. Section 1.06 Additional Actions. If, at any time after the Effective Time, any Party shall consider or be advised that any further deeds, documents, assignments, or assurances in Law or any other acts are necessary or desirable to carry out the purposes of this Agreement (such Party, the “Requesting Party”), the other Party and its Subsidiaries and their respective officers and directors shall be deemed to have granted to the Requesting Party and its Subsidiaries, and each or any of them, an irrevocable power of attorney to execute and deliver, in such official corporate capacities, all such deeds, documents, assignments, or assurances in Law or take any such other acts as usedare necessary or desirable to carry out the purposes of this Agreement, and the officers and directors of the Requesting Party and its Subsidiaries, as applicable, are authorized in the name of the other Party and its Subsidiaries or otherwise to take any and all such action. Section 1.07 Reservation of Right to Revise Structure. SMBK may at any time and without the approval of PFG change the method of effecting the business combination contemplated by this Agreement if and to the extent that it reasonably deems such a change to be necessary;provided,however, that no such change shall (i) alter or change the amount of the consideration to be issued to Holders as Merger Consideration, (ii) reasonably be expected to materially impede or delay consummation of the Merger, (iii) adversely affect the federal income tax treatment of the Holders in connection with the Merger, or (iv) require submission to or approval of PFG’s shareholders after the Plan of Merger has been approved by PFG’s shareholders. In the event that SMBK elects to make such a change, the Parties agree to cooperate to execute appropriate documents to reflect the change.
ARTICLE II
MERGER CONSIDERATION; EXCHANGE PROCEDURES Section 2.01 Merger Consideration. Subject to the provisions of this Agreement, at the Effective Time, automatically by virtue of the Merger and without any action on the part of the Parties or any shareholder of PFG: (a) Each share of SMBK Common Stock that is issued and outstanding immediately prior to the Effective Time shall remain outstanding following the Effective Time and shall be unchanged by the Merger. (b) Each share of PFG Common Stock owned directly by SMBK, PFG, or any of their respective wholly owned Subsidiaries (other than shares in trust accounts, managed accounts, and the like for the benefit of customers or shares held as collateral for outstanding debt previously contracted) immediately prior to the Effective Time shall be cancelled and retired at the Effective Time without any conversion thereof, and no payment shall be made with respect thereto (the “PFG Cancelled Shares”). (c) Holders of shares of PFG Common Stock shall have such rights to dissent from the Merger and obtain payment of the fair value of their shares as are afforded to such Person by Chapter 23 of the TBCA. Notwithstanding anything in this Agreement to the contrary, all shares of PFG Common Stock that are issued and outstanding immediately prior to the Effective Time and which are held by a shareholder who did not vote in favor of the Merger (or consent thereto in writing) and who is entitled to demand and properly demands the fair value of such shares pursuant to, and who complies in all respects with, the provisions of Chapter 23 of the TBCA, shall not be converted into or be exchangeable for the right to receive the Merger Consideration (the “Dissenting Shares”), but instead the holder of such Dissenting Shares (hereinafter called a “Dissenting Shareholder”) shall be entitled to payment of the fair value of such shares in accordance with the applicable provisions of the TBCA (and at the Effective Time, such Dissenting Shares shall no longer be outstanding and shall automatically be cancelled and shall cease to exist and such holder shall cease to have any rights with respect thereto, except the rights provided for pursuant to the applicable provisions of the TBCA and thisSection 2.01(c)), unless and until such Dissenting Shareholder shall have failed to perfect such holder’s right to receive, or shall have effectively withdrawn or lost rights to demand or receive, the fair value of such shares of PFG Common Stock under the applicable provisions of the TBCA. If any Dissenting Shareholder shall fail to perfect or effectively withdraw or lose such Holder’s dissenter’s rights under the applicable provisions of the TBCA, each such Dissenting Share shall be deemed to have been converted into and to have become exchangeable for the right to receive the Merger Consideration, without any interest thereon, in accordance with the applicable provisions of this Agreement. PFG shall give SMBK (i) prompt notice of any written notices to exercise dissenters’ rights in respect of any shares of PFG Common Stock, attempted withdrawals of such notices and any other instruments served pursuant to the TBCA and received by PFG relating to dissenters’ rights and (ii) the opportunity to participate in negotiations and proceedings with respect to demands for fair value under the TBCA. PFG shall not, except with the prior written consent of SMBK, voluntarily make any payment with respect to, or settle, or offer or agree to settle, any such demand for payment. Any portion of the Merger Consideration made available to the Exchange Agent pursuant to thisArticle II to pay for shares of PFG Common Stock for which dissenters’ rights have been perfected shall be returned to SMBK upon demand.
(d) Each share of PFG Stock (excluding Dissenting Shares and PFG Cancelled Shares) issued and outstanding at the Effective Time shall cease to be outstanding and shall be converted, in accordance with the terms definedof thisArticle II, into and exchanged for the right to receive (i) an amount of cash equal to the Per Share Cash Consideration and (ii) a number of shares of SMBK Common Stock equal to the Per Share Stock Consideration, where: (i) “Aggregate Cash Consideration” means an amount equal to $14,595,354.37,minus the amount of (i) the AAA Dividend, and (ii) the loss, if in excess of $250,000, realized by PFG or its applicable Subsidiary on any Pre-Closing Divestiture. (ii) “Aggregate Stock Consideration” means 1,292,592.556 shares of SMBK Common Stock. (iii) “Outstanding Shares Number” means the number of shares of PFG Common Stock issued and outstanding as of the Effective Time. (iv) “Per Share Cash Consideration” means an amount of cash equal to the quotient obtained by dividing (A) the Aggregate Cash Consideration by (B) the Outstanding Shares Number. (v) “Per Share Stock Consideration” means a number of shares of SMBK Common Stock obtained by dividing (A) the Aggregate Stock Consideration by (B) the Outstanding Shares Number. Section 2.02 Rights as Shareholders; Stock Transfers. At the Effective Time, all shares of PFG Common Stock, when converted in accordance withSection 2.01, shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each Certificate or Book-Entry Share previously evidencing such shares shall thereafter represent only the right to receive for each such share of PFG Common Stock, the Merger Consideration and any cash in lieu of fractional shares of SMBK Common Stock in accordance with thisArticle II. At the Effective Time, holders of PFG Common Stock shall cease to be, and shall have no rights as, shareholders of PFG, other than the right to receive the Merger Consideration and cash in lieu of fractional shares of SMBK Common Stock as provided under thisArticle II. At the Effective Time, the stock transfer books of PFG shall be closed, and there shall be no registration of transfers on the stock transfer books of PFG of shares of PFG Common Stock. Section 2.03 Fractional Shares. Notwithstanding any other provision hereof, no fractional shares of SMBK Common Stock and no certificates or scrip therefor, or other evidence of ownership thereof, will be issued in the Merger. In lieu thereof, SMBK shall pay or cause to be paid to each Holder of a fractional share of SMBK Common Stock, rounded to the nearest one hundredth of a share, an amount of cash (without interest and rounded to the nearest whole cent) determined by multiplying the fractional share interest in SMBK Common Stock to which such Holder would otherwise be entitled by the SMBK Average Stock Price.
Section 2.04 Plan of Reorganization. It is intended that the Merger shall qualify as a “reorganization” within the meaning of Section 368(a) of the Code and the Regulations promulgated thereunder, and it is intended that this Agreement shall constitute a “plan of reorganization” as that term is used in Sections 354 and 361 of the Code. Section 2.05 Exchange Procedures. As promptly as practicable after the Effective Time, the Exchange Agent will mail or otherwise cause to be delivered to each Holder appropriate and customary transmittal materials, which shall specify that delivery shall be effected, and risk of loss and title to the Certificates or Book-Entry Shares shall pass, only upon delivery of the Certificates or Book-Entry Shares to the Exchange Agent, as well as instructions for use in effecting the surrender of the Certificates or Book-Entry Shares in exchange for the Merger Consideration (including cash in lieu of fractional shares) as provided for in this Agreement (the “Letter of Transmittal”). Section 2.06 Deposit and Delivery of Merger Consideration. (a) Prior to the Effective Time, SMBK shall (i) deposit, or shall cause to be deposited, with the Exchange Agent stock certificates representing the number of shares of SMBK Common Stock and cash sufficient to deliver the Merger Consideration (together with, to the extent then determinable, any cash payable in lieu of fractional shares pursuant toSection 2.04, and if applicable, cash in an aggregate amount sufficient to make the appropriate payment to the Holders of Dissenting Shares) (collectively, the “Exchange Fund”), and (ii) instruct the Exchange Agent to pay such Merger Consideration and cash in lieu of fractional shares in accordance with this Agreement as promptly as practicable after the Effective Time and conditioned upon receipt of a properly completed Letter of Transmittal. The Exchange Agent and SMBK, as the case may be, shall not be obligated to deliver the Merger Consideration to a Holder to which such Holder would otherwise be entitled as a result of the Merger until such Holder surrenders the Certificates or Book-Entry Shares representing the shares of PFG Common Stock for exchange as provided in thisArticle II, or an appropriate affidavit of loss and indemnity agreement and/or a bond in such amount as may be reasonably required in each case by SMBK or the Exchange Agent. (b) Any portion of the Exchange Fund that remains unclaimed by a Holder for one year after the Effective Time (as well as any interest or proceeds from any investment thereof) shall be delivered by the Exchange Agent to SMBK. Any Holder who have not theretofore complied with thisSection 2.06 shall thereafter look only to SMBK for the Merger Consideration, any cash in lieu of fractional shares of PFG Common Stock to be issued or paid in consideration therefor, and any dividends or distributions to which such Holder is entitled in respect of each share of PFG Common Stock such Holder held immediately prior to the Effective Time, as determined pursuant to this Agreement, in each case without any interest thereon. If outstanding Certificates or Book-Entry Shares for shares of PFG Common Stock are not surrendered or the payment for them is not claimed prior to the date on which such shares of SMBK Common Stock or cash would otherwise escheat to or become the property of any Governmental Authority, the unclaimed items shall, to the extent permitted by the law of abandoned property and any other applicable Law, become the property of SMBK (and to the extent not in its possession shall be delivered to it), free and clear of all claims or interest of any Person previously entitled to such property. Neither the Exchange Agent nor any Party shall be liable to any Holder represented by any Certificate or Book-Entry Share for any amounts delivered to a public official pursuant to applicable abandoned property, escheat, or similar Laws. SMBK and the Exchange Agent shall be entitled to rely upon the stock transfer books of PFG to establish the identity of those Persons entitled to receive the Merger Consideration specified in this Agreement, which books shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of any shares of PFG Common Stock represented by any Certificate or Book-Entry Share, SMBK and the Exchange Agent shall be entitled to tender to the custody of any court of competent jurisdiction any Merger Consideration represented by such Certificate or Book-Entry Share and file legal proceedings interpleading all parties to such dispute, and will thereafter be relieved with respect to any claims thereto.
(c) SMBK or the Exchange Agent, as applicable, shall be entitled to deduct and withhold from any amounts otherwise payable pursuant to this Agreement to any Holder such amounts as SMBK is required to deduct and withhold under applicable Law. Any amounts so deducted and withheld shall be remitted to the appropriate Governmental Authority and upon such remittance shall be treated for all purposes of this Agreement as having been paid to the Holder in respect of which such deduction and withholding was made by SMBK or the Exchange Agent, as applicable. Section 2.07 Rights of Certificate Holders after the Effective Time. (a) All shares of SMBK Common Stock to be issued pursuant to the Merger shall be deemed issued and outstanding as of the Effective Time and if ever a dividend or other distribution is declared by SMBK in respect of the SMBK Common Stock, the record date for which is at or after the Effective Time, that declaration shall include dividends or other distributions in respect of all shares of SMBK Common Stock issuable pursuant to this Agreement. No dividends or other distributions in respect of the SMBK Common Stock shall be paid to any Holder of any unsurrendered Certificate or Book-Entry Share until such Certificate or Book-Entry Share is surrendered for exchange in accordance with thisArticle II. Subject to the effect of applicable Laws, following surrender of any such Certificate or Book-Entry Share, there shall be issued and/or paid to the Holder of the certificates representing whole shares of SMBK Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such whole shares of SMBK Common Stock and not paid and (ii) at the appropriate payment date, the dividends or other distributions payable with respect to such whole shares of SMBK Common Stock with a record date after the Effective Time but with a payment date subsequent to surrender. (b) In the event of a transfer of ownership of a Certificate representing PFG Common Stock that is not registered in the stock transfer records of PFG, the proper amount of cash and/or shares of SMBK Common Stock shall be paid or issued in exchange therefor to a person other than the person in whose name the Certificate so surrendered is registered if the Certificate formerly representing such PFG Common Stock shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment or issuance shall pay any transfer or other similar Taxes required by reason of the payment or issuance to a person other than the registered Holder of the Certificate or establish to the satisfaction of SMBK that the Tax has been paid or is not applicable.
Section 2.08 Anti-Dilution Provisions. If the number of shares of SMBK Common Stock or PFG Common Stock issued and outstanding prior to the Effective Time shall be increased or decreased, or changed into or exchanged for a different number of kind of shares or securities, in any such case as a result of a stock split, reverse stock split, stock combination, stock dividend, reclassification, or similar transaction, or there shall be any extraordinary dividend or distribution with respect to such stock, and the record date therefor shall be prior to the Effective Time, an appropriate and proportionate adjustment shall be made to the Merger Consideration to give holders of PFG Common Stock the same economic effect as contemplated by this Agreement prior to such event. ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PFG Except as set forth in the disclosure schedule delivered by PFG to SMBK prior to or concurrently with the execution of this Agreement with respect to each such section below (the “PFG Disclosure Schedule”); provided, that (a) the mere inclusion of an item in the PFG Disclosure Schedule as an exception to a representation or warranty shall when capitalized, have the indicated meanings. “Acquisition Proposal” means,not be deemed an admission by PFG that such item represents a material exception or fact, event, or circumstance or that such item is reasonably likely to result in a Material Adverse Effect on PFG and (b) any disclosures made with respect to a Party,section ofArticle III shall be deemed to qualify (1) any inquiry, indication, proposal, solicitation,other section ofArticle III specifically referenced or offer,cross-referenced and (2) other sections ofArticle III to the extent it is reasonably apparent on its face (notwithstanding the absence of a specific cross reference) from a reading of the disclosure that such disclosure applies to such other sections, PFG hereby represents and warrants to SMBK as follows:
Section 3.01 Organization and Standing. Each of PFG and its Subsidiaries is (a) an entity duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation or formation and (b) is duly licensed or qualified to do business and in good standing in each jurisdiction where its ownership or leasing of property or the conduct of its business requires such qualification, except where the failure to be so licensed or qualified has not had, and is not reasonably likely to have, a Material Adverse Effect with respect to PFG. A complete and accurate list of all such jurisdictions described in (a) and (b) is set forth inPFG Disclosure Schedule 3.01. Section 3.02 Capital Stock. (a) The authorized capital stock of PFG consists of 1,000,000 shares of PFG Common Stock and 1,000,000 shares of preferred stock, no par value. As of the date hereof, there are 20,721 shares of PFG Common Stock issued and outstanding and no shares of preferred stock issued and outstanding. There are no shares of PFG Common Stock held by any of PFG’s Subsidiaries (other than shares in trust accounts, managed accounts and the like for the benefit of customers).PFG Disclosure Schedule 3.02(a) sets forth, as of the date hereof, the name and address, as reflected on the books and records of PFG, of each Holder, and the number of shares of PFG Common Stock held by each such Holder. The issued and outstanding shares of PFG Common Stock are duly authorized, validly issued, fully paid, non-assessable, and have not been issued in violation of nor are they subject to preemptive rights of any PFG shareholder. All shares of PFG’s capital stock issued and outstanding have been issued in compliance with and not in violation of any applicable federal or state securities Laws.
(b) There are not outstanding Rights of PFG. There are no outstanding shares of capital stock of any class, or any options, warrants or other similar rights, convertible or exchangeable securities, “phantom stock” rights, stock appreciation rights, stock based performance units, agreements, arrangements, commitments, or understandings to which PFG or any of its Subsidiaries is a party, whether or not in writing, of any character relating to the issued or unissued capital stock or other securities of PFG or any of PFG’s Subsidiaries or obligating PFG or any of PFG’s Subsidiaries to issue (whether upon conversion, exchange or otherwise) or sell any share of capital stock of, or other equity interests in or other securities of, PFG or any of PFG’s Subsidiaries other than those listed inPFG Disclosure Schedule 3.02(b). There are no obligations, contingent or otherwise, of PFG or any of PFG’s Subsidiaries to repurchase, redeem or otherwise acquire any shares of PFG Common Stock or capital stock of any of PFG’s Subsidiaries or any other securities of PFG or any of PFG’s Subsidiaries or to provide funds to or make any investment (in the form of a loan, capital contribution, or otherwise) in any such Subsidiary or any other entity. Except for the PFG Voting Agreements, there are no agreements, arrangements, or other understandings with respect to the voting of PFG’s capital stock and there are no agreements or arrangements under which PFG is obligated to register the sale of any of its securities under the Securities Act. Section 3.03 Subsidiaries. (a) PFG Disclosure Schedule 3.03(a) sets forth a complete and accurate list of all Subsidiaries of PFG, including the jurisdiction of organization and all jurisdictions in which any such entity is qualified to do business and the number of shares or other equity interests in such Subsidiary held by PFG. Except as set forth inPFG Disclosure Schedule 3.03(a), (i) PFG owns, directly or indirectly, all of the issued and outstanding equity securities of each PFG Subsidiary, (ii) no equity securities of any of PFG’s Subsidiaries are or may become required to be issued (other than to PFG) by reason of any contractual right or otherwise, (iii) there are no contracts, commitments, understandings, or arrangements by which any of such Subsidiaries is or may be bound to sell or otherwise transfer any of its equity securities (other than to PFG or a Subsidiary of PFG), (iv) there are no contracts, commitments, understandings or arrangements relating to PFG’s rights to vote or to dispose of such securities, (v) all of the equity securities of each such Subsidiary held by PFG, directly or indirectly, are validly issued, fully paid, non-assessable and are not subject to preemptive or similar rights, and (vi) all of the equity securities of each Subsidiary that is owned, directly or indirectly, by PFG or any Subsidiary thereof, are free and clear of all Liens, other than restrictions on transfer under applicable securities or banking Laws. Neither PFG nor any of its Subsidiaries has any trust preferred securities or other similar securities outstanding. (b) Except as set forth inPFG Disclosure Schedule 3.03(b), neither PFG nor any of PFG’s Subsidiaries owns any stock or equity interest in any depository institution (as defined in 12 U.S.C. Section 1813(c)(1)) other than Progressive Bank. Except as set forth inPFG Disclosure Schedule 3.03(b), neither PFG nor any of Subsidiary of PFG beneficially owns, directly or indirectly (other than in a bona fide fiduciary capacity or in satisfaction of a debt previously contracted), any equity securities or similar interests of any Person, or any interest in a partnership or joint venture of any kind.
Section 3.04 Corporate Power; Minute Books. (a) PFG and each of its Subsidiaries has the corporate or similar power and authority to carry on its business as it is now being conducted and to own all of its properties and assets; and PFG has the corporate power and authority to execute, deliver, and perform its obligations under this Agreement and to consummate the transactions contemplated hereby, subject to receipt of all necessary approvals of Governmental Authorities, the Regulatory Approvals, and the Requisite PFG Shareholder Approval. (b) PFG has made available to SMBK a complete and correct copy of its charter and bylaws or equivalent organizational documents, each as amended to date, of PFG and each of its Subsidiaries, the minute books of PFG and each of its Subsidiaries, and the stock ledgers and stock transfer books of PFG and each of its Subsidiaries. Neither PFG nor any of its Subsidiaries is in violation of any of the terms of its charter, bylaws, or equivalent organizational documents. The minute books of PFG and each of its Subsidiaries contain records of all meetings held by, and all other corporate or similar actions of, their respective shareholders and boards of directors (including committees of their respective boards of directors) or other governing bodies, which records are complete and accurate in all material respects. The stock ledgers and the stock transfer books of PFG and each of its Subsidiaries contain complete and accurate records of the ownership of the equity securities of PFG and each of its Subsidiaries. Section 3.05 Corporate Authority. Subject only to the receipt of the Requisite PFG Shareholder Approval at the PFG Meeting, this Agreement and the transactions contemplated hereby have been authorized by all necessary corporate action of PFG and the board of directors of PFG on or prior to the date hereof. The board of directors of PFG has directed that this Agreement be submitted to PFG’s shareholders for approval at a meeting of the shareholders and, except for the receipt of the Requisite PFG Shareholder Approval in accordance with the TBCA and PFG’s charter and bylaws, no other vote or action of the shareholders of PFG is required by Law, the charter or bylaws of PFG or otherwise to approve this Agreement and the transactions contemplated hereby. PFG has duly executed and delivered this Agreement and, assuming due authorization, execution and delivery by SMBK, this Agreement is a valid and legally binding obligation of PFG, enforceable in accordance with its terms (except to the extent that validity and enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar Laws affecting the enforcement of creditors’ rights generally or by general principles of equity or by principles of public policy (the “Enforceability Exception’’).
Section 3.06 Regulatory Approvals; No Defaults. (a) No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority are required to be made or obtained by PFG or any of its Subsidiaries in connection with the execution, delivery, or performance by PFG of this Agreement or to consummate the transactions contemplated by this Agreement, except as may be required for (i) filings of applications or notices with, and consents, approvals or waivers by the FRB, the FDIC, the Tennessee Department of Financial Institutions (the “TDFI”), and other banking, regulatory, self-regulatory, or enforcement authorities or any courts, administrative agencies, or commissions or other Governmental Authorities and approval of or non-objection to such applications, filings, and notices (the “Regulatory Approvals”), (ii) the filing with the SEC of the Proxy Statement-Prospectus and the Registration Statement and declaration of effectiveness of the Registration Statement, (iii) the filing of the Articles of Merger contemplated bySection 1.04(a) and the filing of documents with the FDIC, the TDFI, or other applicable Governmental Authorities, and the Secretary of State of the State of Tennessee to cause the Bank Merger to become effective and (iv) such filings and approvals as are required to be made or obtained under the securities or “Blue Sky” laws of various states in connection with the issuance of the shares of SMBK Common Stock pursuant to this Agreement and approval of listing of such SMBK Common Stock on the NASDAQ. Subject to the receipt of the consents, approvals, and waivers referred to in the preceding sentence, the Requisite PFG Shareholder Approval and as set forth onPFG Disclosure Schedule 3.06(a), the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby by PFG do not and will not (1) constitute a breach or violation of, or a default under, the charter, bylaws or similar governing documents of PFG or any of its respective Subsidiaries, (2) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree, or injunction applicable to PFG or any of its Subsidiaries, or any of their respective properties or assets, (3) conflict with, result in a breach or violation of any provision of, or the loss of any benefit under, or a default (or an event which, with or without notice or lapse of time, or both, would constitute a default) under, result in the creation of any Lien under, result in a right of termination or the acceleration of any right or obligation (which, in each case, would have a material impact on PFG or could reasonably be expected to result in a financial obligation or penalty in excess of $50,000) under any permit, license, credit agreement, indenture, loan, note, bond, mortgage, reciprocal easement agreement, lease, instrument, concession, contract, franchise, agreement, or other instrument or obligation of PFG or any of its Subsidiaries or to which PFG or any of its Subsidiaries, or their respective properties or assets is subject or bound, or (4) require the consent or approval of any third party or Governmental Authority under any such Law, rule or regulation or any judgment, decree, order, permit, license, credit agreement, indenture, loan, note, bond, mortgage, reciprocal easement agreement, lease, instrument, concession, contract, franchise, agreement or other instrument or obligation, except where the failure to obtain the consent or approval would not be reasonably expected to have a material impact on PFG or result in a material financial penalty. (b) As of the date hereof, PFG has no Knowledge of any reason (i) why the Regulatory Approvals referred to inSection 6.01(b) will not be received in customary time frames from the applicable Governmental Authorities having jurisdiction over the transactions contemplated by this Agreement or (ii) why any Burdensome Condition would be imposed.
Section 3.07 Financial Statements; Internal Controls. (a) PFG has previously delivered or made available to SMBK copies of PFG’s (i) audited consolidated financial statements (including the related notes and schedules thereto) for the years ended December 31, 2018, 2017 and 2016, accompanied by the unqualified audit reports of Mauldin & Jenkins LLP, independent registered accountants (collectively, the “Audited Financial Statements”) and (ii) unaudited interim consolidated financial statements (including the related notes and schedules thereto) for the nine months ended September 30, 2019 (the “Unaudited Financial Statements” and collectively with the Audited Financial Statements, the “Financial Statements”). The Financial Statements (including any related notes and schedules thereto) are accurate and complete in all material respects and fairly present in all material respects the financial condition and the results of operations, changes in shareholders’ equity, and cash flows of PFG and its consolidated Subsidiaries as of the respective dates of and for the periods referred to in such financial statements, all in accordance with GAAP, consistently applied, subject, in the case of the Unaudited Financial Statements, to normal, recurring year-end adjustments (the effect of which has not had, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect with respect to PFG) and the absence of notes and schedules (that, if presented, would not differ materially from those included in the Audited Financial Statements). No financial statements of any entity or enterprise other than PFG’s Subsidiaries are required by GAAP to be included in the consolidated financial statements of PFG. The audits of PFG have been conducted in accordance with GAAP. Since December 31, 2018, neither PFG nor any of its Subsidiaries has any liabilities or obligations of a nature that would be required by GAAP to be set forth on its consolidated balance sheet or in the notes thereto except for liabilities reflected or reserved against in the Financial Statements and current liabilities incurred in the Ordinary Course of Business since December 31, 2018. True, correct and complete copies of the Financial Statements have been provided to SMBK prior to the date hereof. (b) The records, systems, controls, data, and information of PFG and its Subsidiaries are recorded, stored, maintained, and operated under means (including any electronic, mechanical, or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of PFG or its Subsidiaries or accountants (including all means of access thereto and therefrom). PFG and its Subsidiaries have devised and maintain a system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. PFG has disclosed based on its most recent evaluations, to its outside auditors and the audit committee of the board of directors of PFG (i) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect PFG’s ability to record, process, summarize and report financial data and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in PFG’s internal control over financial reporting. PFG has made available to SMBK a summary of any such disclosure made by management to the auditor and/or audit committee of PFG or any Subsidiary. (c) Except as set forth inPFG Disclosure Schedule 3.07(c), since January 1, 2016, neither PFG nor any of its Subsidiaries nor, to PFG’s Knowledge, any director, officer, employee, auditor, accountant or representative of PFG or any of its Subsidiaries has received, or otherwise had or obtained Knowledge of, any material complaint, allegation, assertion, or claim regarding the accounting or auditing practices, procedures, methodologies, or methods of PFG or any of its Subsidiaries or their respective internal accounting controls, including any material complaint, allegation, assertion, or claim that PFG or any of its Subsidiaries has engaged in questionable accounting or auditing practices. Section 3.08 Regulatory Reports. Since January 1, 2016, PFG and its Subsidiaries have timely filed with the FRB, the FDIC, the TDFI and any other applicable Governmental Authority, in correct form, the material reports, registration statements, and other documents required to be filed under applicable Laws and regulations and have paid all fees and assessments due and payable in connection therewith, and such reports and other documents were complete and accurate and in compliance in all material respects with the requirements of applicable Laws and regulations. Other than normal examinations conducted by a Governmental Authority in the Ordinary Course of Business, no Governmental Authority has notified PFG or any of its Subsidiaries that it has initiated any proceeding or, to the Knowledge of PFG, threatened an investigation into the business or operations of PFG or any of its Subsidiaries since January 1, 2016. There is no material and unresolved violation, criticism, or exception by any Governmental Authority with respect to any report or statement relating to any examinations or inspections of PFG or any of its Subsidiaries.
Section 3.09 Absence of Certain Changes or Events. Except as set forth inPFG Disclosure Schedule 3.09, the Financial Statements, or as otherwise contemplated by this Agreement, since December 31, 2018, (a) PFG and its Subsidiaries have carried on their respective businesses in all material respects in the Ordinary Course of Business, (b) there have been no events, changes, or circumstances which have had, or are reasonably likely to have, individually or in the aggregate, a Material Adverse Effect with respect to PFG, and (c) neither PFG nor any of its Subsidiaries has taken any action or failed to take any action prior to the date of this Agreement which action or failure, if taken after the date of this Agreement, would constitute a material breach or violation of any of the covenants and agreements set forth inSection 5.01(i),Section 5.01(ii),Section 5.01(iii),Section 5.01(v),Section 5.01(vii),Section 5.01(viii),Section 5.01(x),Section 5.01(xi),Section 5.01(xxi), orSection 5.01(xxv). Section 3.10 Legal Proceedings. (a) Except as set forth onPFG Disclosure Schedule 3.10(a), there are no material civil, criminal, administrative or regulatory actions, suits, demand letters, demands for indemnification, claims, hearings, notices of violation, arbitrations, investigations, orders to show cause, market conduct examinations, notices of non-compliance, or other proceedings of any nature pending or, to the Knowledge of PFG, threatened against PFG or any of its Subsidiaries or any of their current or former directors or executive officers in their capacities as such, or to which PFG or any of its Subsidiaries or any of their current or former directors or executive officers, in their capacities as such, is a party, including without limitation, any such actions, suits, demand letters, demands for indemnification, claims, hearings, notices of violation, arbitrations, investigations, orders to show cause, market conduct examinations, notices of non-compliance, or other proceedings of any nature that would challenge the validity or propriety of the transactions contemplated by this Agreement. (b) There is no material injunction, order, judgment, or decree or regulatory restriction imposed upon PFG or any of its Subsidiaries, or the assets of PFG or any of its Subsidiaries (or that, upon consummation of the Merger or the Bank Merger would apply to the Surviving Entity or any of its Subsidiaries or affiliates), and neither PFG nor any of its Subsidiaries has been advised of the threat of any such action, other than any such injunction, order, judgement, or decree that is generally applicable to all Persons in businesses similar to that of PFG or any of PFG’s Subsidiaries.
Section 3.11 Compliance With Laws. (a) PFG and each of its Subsidiaries is, and has been since January 1, 2016, in compliance in all material respects with all Laws, including, without limitation, Laws related to data protection or privacy, the USA PATRIOT Act, the Bank Secrecy Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Community Reinvestment Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Dodd-Frank Act, Sections 23A and 23B of the Federal Reserve Act, the Sarbanes-Oxley Act or the regulations implementing such statutes, all other applicable anti-money laundering Laws, fair lending Laws and other Laws relating to discriminatory lending, financing, leasing, or business practices and all agency requirements relating to the origination, sale, and servicing of mortgage loans, except where the failure to comply with such Laws would not be reasonably expected to result in a Material Adverse Effect in respect of PFG or any of its Subsidiaries. Neither PFG nor any of its Subsidiaries has been advised of any supervisory concerns regarding their compliance with the Bank Secrecy Act or related state or federal anti-money laundering laws, regulations, and guidelines, including without limitation those provisions of federal regulations requiring (i) the filing of reports, such as Currency Transaction Reports and Suspicious Activity Reports, (ii) the maintenance of records, and (iii) the exercise of due diligence in identifying customers. (b) PFG and each of its Subsidiaries have all material permits, licenses, authorizations, orders, and approvals of, and each has made all filings, applications, and registrations with, all Governmental Authorities that are required in order to permit it to own or lease its properties and to conduct its business as presently conducted. All such permits, licenses, certificates of authority, orders, and approvals are in full force and effect and, to PFG’s Knowledge, no suspension or cancellation of any of them is threatened. (c) Neither PFG nor any of its Subsidiaries has received, since January 1, 2016, written or, to PFG’s Knowledge, oral notification from any Governmental Authority (i) asserting that it is materially in non-compliance with any of the Laws which such Governmental Authority enforces or (ii) threatening to revoke any license, franchise, permit, or governmental authorization, except, in either case, where the matters referenced in such notification would not be reasonably expected to result in a Material Adverse Effect in respect of PFG or its Subsidiaries. (d) All shares of PFG Common Stock issued and outstanding have been issued in compliance in material respects with, and not in material violation of, any applicable federal or state securities Laws. Section 3.12 PFG Material Contracts; Defaults. (a) Except as set forth inPFG Disclosure Schedule 3.12(a), neither PFG nor any of its Subsidiaries is a party to, bound by, or subject to any agreement, contract, arrangement, commitment, or understanding (whether written or oral) (i) which would entitle any present or former director, officer, employee, consultant, or agent of PFG or any of its Subsidiaries to indemnification from PFG or any of its Subsidiaries; (ii) which grants any right of first refusal, right of first offer, or similar right with respect to any assets or properties of PFG or its respective Subsidiaries; (iii) related to the borrowing by PFG or any of its Subsidiaries of money other than those entered into in the Ordinary Course of Business and any guaranty of any obligation for the borrowing of money, excluding endorsements made for collection, repurchase or resell agreements, letters of credit and guaranties made in the Ordinary Course of Business; (iv) which provides for payments to be made by PFG or any of its Subsidiaries upon a change in control thereof; (v) relating to the lease of personal property having a value in excess of $25,000 individually or $50,000 in the aggregate; (vi) relating to any joint venture, partnership, limited liability company agreement, or other similar agreement or arrangement; (vii) which relates to capital expenditures and involves future payments in excess of $50,000 individually or $125,000 in the aggregate; (viii) which relates to the disposition or acquisition of assets or any interest in any business enterprise outside the Ordinary Course of Business; (ix) which is not terminable on 60 days or less notice and involving the payment of more than $30,000 per annum; (x) which contains a non-compete, or client or customer non-solicit requirement, or any other provision that restricts the conduct of any line of business by PFG or any of its Affiliates or upon consummation of the Merger will restrict the ability of the Surviving Entity or any of its Affiliates to engage in any line of business (including, for the avoidance of doubt, any exclusivity provision granted in favor of any third party) or which grants any right of first refusal, right of first offer, or similar right or that limits or purports to limit the ability of PFG or any of its Subsidiaries (or, following consummation of the transactions contemplated hereby, SMBK or any of its Subsidiaries) to own, operate, sell, transfer, pledge, or otherwise dispose of any assets or business; or (xi) pursuant to which PFG or any of its Subsidiaries may become obligated to invest in or contribute capital to any entity. Each contract, arrangement, commitment, or understanding of the type described in thisSection 3.12(a) is listed inPFG Disclosure Schedule 3.12(a) and is referred to herein as a “PFG Material Contract.” PFG has previously made available to SMBK true, complete and correct copies of each such PFG Material Contract, including any and all amendments and modifications thereto.
(b) Each PFG Material Contract is valid and binding on PFG and any of its Subsidiaries to the extent such Subsidiary is a party thereto, as applicable, and is in full force and effect and enforceable in accordance with its terms (assuming the due execution by each other party thereto, provided that PFG hereby represents and warrants that, to its Knowledge, each PFG Material Contract is duly executed by all such parties), subject to the Enforceability Exception and except where the failure to be valid, binding, enforceable, and in full force and effect, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect with respect to PFG; and neither PFG nor any of its Subsidiaries is in default under any PFG Material Contract or other “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC), to which it is a party, and there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a material default. No power of attorney or similar authorization given directly or indirectly by PFG or any of its Subsidiaries is currently outstanding. (c) PFG Disclosure Schedule 3.12(c) sets forth a true and complete list of all PFG Material Contracts pursuant to which consents, waivers, or notices are or may be required to be given thereunder, in each case, prior to the performance by PFG of this Agreement and the consummation of the Merger, the Bank Merger and the other transactions contemplated hereby and thereby. Section 3.13 Agreements with Regulatory Agencies. Neither PFG nor any of its Subsidiaries is subject to any cease-and-desist or other order issued by, or is a party to any written agreement, consent agreement, or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is a recipient of any extraordinary supervisory letter from, or is subject to any order or directive by, or has adopted any board resolutions at the request of any Governmental Authority (each a “PFG Regulatory Agreement”) that restricts, or by its terms will in the future restrict, the conduct of PFG’s or any of its Subsidiaries’ business or that in any manner relates to their capital adequacy, credit or risk management policies, dividend policies, management, business, or operations, nor has PFG or any of its Subsidiaries been advised by any Governmental Authority that it is considering issuing, initiating, ordering, requesting, recommending or otherwise proceeding with (or is considering the appropriateness of any of the aforementioned actions) any PFG Regulatory Agreement. To PFG’s Knowledge, there are no investigations relating to any regulatory application,matters pending before any Governmental Authority with respect to PFG or any of its Subsidiaries.
Section 3.14 Brokers; Fairness Opinion. Neither PFG nor any of its officers, directors or any of its Subsidiaries has employed any broker or finder or incurred, nor will it incur, any liability for any broker’s fees, commissions or finder’s fees in connection with any of the transactions contemplated by this Agreement, except that PFG has engaged, and will pay a fee or commission to Olsen Palmer LLC (“PFG Financial Advisor”), in accordance with the terms of a letter agreement between PFG Financial Advisor and PFG, a true, complete and correct copy of which has been previously delivered by PFG to SMBK. PFG has received the opinion of the PFG Financial Advisor (and, when it is delivered in writing, a copy of such opinion will be promptly provided to SMBK) to the effect that, as of the date of this Agreement and based upon and subject to the qualifications and assumptions set forth therein, the Merger Consideration is fair, from a financial point of view, to the holders of shares of PFG Common Stock, and, as of the date of this Agreement, such opinion has not been withdrawn, revoked, or modified. Section 3.15 Employee Benefit Plans. (a) PFG Disclosure Schedule 3.15(a) sets forth a true and complete list of each PFG Benefit Plan. For purposes of this Agreement, “PFG Benefit Plans” means all benefit and compensation plans, contracts, policies, or arrangements (i) covering current or former employees or their beneficiaries and dependents of PFG, any of its Subsidiaries, or any of PFG’s related organizations described in Code Sections 414(b), (c), (m), or (o), or any entity which is considered one employer with PFG, any of its Subsidiaries, or Controlled Group Members under Section 4001 of ERISA or Section 414 of the Code (“ERISA Affiliates”) (such current employees collectively, the “PFG Employees”), (ii) covering current or former directors or their beneficiaries and dependents of PFG, any of its Subsidiaries, or ERISA Affiliates, or (iii) with respect to which PFG or any of its Subsidiaries has or may have any liability or contingent liability (including liability arising from ERISA Affiliates) including, but not limited to, “employee benefit plans” within the meaning of Section 3(3) of ERISA, health/welfare, employment, severance, change-of-control, fringe benefit, deferred compensation, defined benefit plan, defined contribution plan, stock option, stock purchase, stock appreciation rights, stock based, incentive, bonus plans, retirement plans, and other policies, plans, or arrangements whether or not subject to ERISA. (b) With respect to each PFG Benefit Plan, PFG has provided to SMBK true and complete copies of such PFG Benefit Plan, any trust instruments, insurance contracts, or other funding arrangements forming a part of any PFG Benefit Plans and all amendments thereto, summary plan descriptions and summary of material modifications, IRS Form 5500 (for the three most recently completed plan years), the most recent IRS determination, opinion, notification and advisory letters, with respect thereto and any correspondence from any regulatory agency. In addition, with respect to each of the PFG Benefit Plans for the three most recently completed plan years, any plan financial statements and accompanying accounting reports, service contracts, fidelity bonds, and employee and participant annual QDIA notice, waiver,safe harbor notice, or request (whetherfee disclosures notices under 29 CFR 2550.404a-5, and nondiscrimination testing data and results under Code Sections 105(h), 125, 129, 401(k), and 401(m), as applicable, have been provided to SMBK.
(c) All PFG Benefit Plans are in draftcompliance in all material respects in form and operation with all applicable Laws, including ERISA and the Code. Each PFG Benefit Plan which is intended to be qualified under Section 401(a) of the Code (“PFG 401(a) Plan”) has received a favorable opinion, determination, or final form),advisory letter from the IRS, and to PFG’s Knowledge there is not any circumstance that could reasonably be expected to result in revocation of any such favorable determination, opinion, or advisory letter or the loss of the qualification of such PFG 401(a) Plan under Section 401(a) of the Code, and nothing has occurred that would be expected to result in the PFG 401(a) Plan ceasing to be qualified under Section 401(a) of the Code. All PFG Benefit Plans have been administered in accordance with their terms. There is no pending or, to PFG’s Knowledge, threatened litigation or regulatory action relating to the PFG Benefit Plans. Neither PFG nor any of its Subsidiaries has engaged in a transaction with respect to any PFG Benefit Plan, including a PFG 401(a) Plan that could subject PFG or any of its Subsidiaries to a tax or penalty under any Law including, but not limited to, Section 4975 of the Code or Section 502(i) of ERISA. No PFG 401(a) Plan has been submitted under or been the subject of an IRS voluntary compliance program submission that is still outstanding or that has not been fully corrected in accordance with a compliance statement issued by the IRS with respect to any applicable failures. There are no audits, inquiries or proceedings pending or, to PFG’s Knowledge, threatened by the IRS or the Department of Labor with respect to any PFG Benefit Plan. To PFG's Knowledge, there are no current, pending, or threatened investigations by the IRS or the Department of Labor with respect to any PFG Benefit Plan. (d) No liability under Title IV of ERISA has been or is expected to be incurred by PFG, any of its Subsidiaries or any ERISA Affiliates with respect to any ongoing, frozen or terminated “single employer plan,” within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by PFG, any of its Subsidiaries, or any ERISA Affiliates. Neither PFG nor any ERISA Affiliate has ever maintained, sponsored, or contributed to, or been obligated to contribute to a plan subject to Title IV of ERISA or Section 412 of the Code. None of PFG or any ERISA Affiliate has contributed to (or been obligated to contribute to) a “multiemployer plan” within the meaning of Section 3(37) of ERISA at any time. Neither PFG nor any of its Subsidiaries or ERISA Affiliates have incurred, and there are no circumstances under which they could reasonably be expected to incur, liability under Title IV of ERISA (regardless of whether based on contributions of an ERISA Affiliate). Neither PFG nor any of its Subsidiaries has ever sponsored, maintained, or participated in a multiple employer welfare arrangement as defined in ERISA Section 3(40). No notice of a “reportable event” within the meaning of Section 4043 of ERISA has been required to be filed for any PFG Benefit Plan or by any ERISA Affiliate or will be required to be filed, in either case, in connection with the transactions contemplated by this Agreement. (e) All contributions required to be made with respect to all PFG Benefit Plans have been timely made. No PFG Benefit Plan or single employer plan of an ERISA Affiliate has an “accumulated funding deficiency” (whether or not waived) within the meaning of Section 412 of the Code or Section 3012 of ERISA and no ERISA Affiliate has an outstanding funding waiver.
(f) Except as set forth inPFG Disclosure Schedule 3.15(f), no PFG Benefit Plan provides life insurance, medical, surgical, hospitalization or other employee welfare benefits to any PFG Employee, or any of their affiliates, upon or following his or her retirement or termination of employment for any reason, except as may be required by Law. (g) All PFG Benefit Plans that are group health plans have been operated in all material respects in compliance with the group health plan continuation requirements of Section 4980B of the Code and all other applicable sections of ERISA and the Code, and no material liabilities arising under Code Section 4980H have occurred. PFG may amend or terminate any such PFG Benefit Plan at any time without incurring any liability thereunder for future benefits coverage at any time after such termination. (h) Except as otherwise provided for in this Agreement or as set forth inPFG Disclosure Schedule 3.15(h), neither the execution of this Agreement, shareholder approval of this Agreement, or consummation of any of the transactions contemplated by this Agreement (individually or in conjunction with any other event) will (i) entitle any current or former PFG Employee to retention or other bonuses, parachute payments, non-competition payments, or any other payment, (ii) entitle any current or former PFG Employee to unemployment compensation, severance pay or any increase in severance pay upon any termination of employment, (iii) accelerate the time of payment or vesting (except as required by Law) or trigger any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or trigger any other obligation pursuant to, any of the PFG Benefit Plans, (iv) result in any breach or violation of, or a default under, any of the PFG Benefit Plans, (v) result in any payment of any amount that would, individually or in combination with any other such payment, be an excess “parachute payment” to a “disqualified individual” as those terms are defined in Section 280G of the Code, or (vi) limit or restrict the right of PFG or, after the consummation of the transactions contemplated hereby, SMBK or any of its Subsidiaries, to merge, amend or terminate any of the PFG Benefit Plans. (i) Except as set forth inPFG Disclosure Schedule 3.15(i), (i) each PFG Benefit Plan that is a non-qualified deferred compensation plan or arrangement within the meaning of Section 409A of the Code, and any underlying award, is in compliance in all respects with Section 409A of the Code and (ii) no payment or award that has been made to any participant under a PFG Benefit Plan is subject to the interest and penalties specified in Section 409A(a)(1)(B) of the Code. Neither PFG nor any of its Subsidiaries (x) has any obligation to reimburse or indemnify any participant in a PFG Benefit Plan for any of the interest or penalties specified in Section 409A(a)(1)(B) of the Code that may be currently due or triggered in the future, or (y) except as set forth inPFG Disclosure Schedule 3.15(i), has been required to report to any Governmental Authority any correction or taxes due as a result of a failure to comply with Section 409A of the Code. (j) No PFG Benefit Plan provides for the gross-up or reimbursement of any Taxes imposed by Section 4999 of the Code or otherwise, and neither PFG nor any of its Subsidiaries has any obligation to reimburse or indemnify any party for such Taxes.
(k) PFG has made available to SMBK copies of any Code Section 280G calculations (whether or not final) with respect to the disqualified individuals referenced in such calculations in connection with the transactions contemplated by this Agreement. (l) PFG Disclosure Schedule 3.15(l) contains a schedule showing the monetary amounts payable or potentially payable, whether individually or in the aggregate (including good faith estimates of all amounts not subject to precise quantification as of the date of this Agreement) under any employment, change-in-control, severance, or similar contract, plan, or arrangement with or which covers any present or former director, officer, employee, or consultant of PFG or any of its Subsidiaries who may be entitled to any such amount and identifying the types and estimated amounts of the in-kind benefits due under any PFG Benefit Plans (other than a plan qualified under Section 401(a) of the Code) for each such Person, specifying the assumptions in such schedule and providing estimates of other required contributions to any trusts for any related fees or expenses. (m) PFG and its Subsidiaries have correctly classified in all material respects all individuals who directly or indirectly perform services for PFG or any of its Subsidiaries for purposes of each PFG Benefit Plan, ERISA, and the Code. Section 3.16 Labor Matters. Neither PFG nor any of its Subsidiaries is a party to or bound by any collective bargaining agreement, contract, or other agreement or understanding with a labor union or labor organization, nor is there any proceeding pending or, to PFG’s Knowledge threatened, asserting that PFG or any of its Subsidiaries has committed an unfair labor practice (within the meaning of the National Labor Relations Act) or seeking to compel PFG or any of its Subsidiaries to bargain with any labor organization as to wages or conditions of employment, nor is there any strike or other labor dispute against PFG pending or, to PFG’s Knowledge, threatened, nor to PFG’s Knowledge is there any activity involving PFG Employees seeking to certify a collective bargaining unit or engaging in other organizational activity. To its Knowledge, PFG and its Subsidiaries have correctly classified all individuals who directly or indirectly perform services for PFG or any of its Subsidiaries for purposes of federal and state unemployment compensation Laws, workers’ compensation Laws, and the rules and regulations of the U.S. Department of Labor. To PFG’s Knowledge, no officer of PFG or any of its Subsidiaries is in material violation of any employment contract, confidentiality, non-competition agreement, or any other restrictive covenant. Section 3.17 Environmental Matters. (a) To its Knowledge, PFG and its Subsidiaries have been and are in material compliance with all applicable Environmental Laws, including obtaining, maintaining, and complying with all permits required under Environmental Laws for the operation of their respective businesses, (b) there is no action or investigation by or before any Governmental Authority relating to or arising under any Environmental Laws that is pending or, to the Knowledge of PFG, threatened against PFG or any of its Subsidiaries or any real property or facility presently owned, operated, or leased by PFG or any of its Subsidiaries or any predecessor (including in a fiduciary or agency capacity), (c) neither PFG nor any of its Subsidiaries has received any notice of or is subject to any liability, order, settlement, judgment, injunction, or decree involving uncompleted, outstanding, or unresolved requirements relating to or arising under Environmental Laws, (d) to the Knowledge of PFG, there have been no releases of Hazardous Substances at, on, under or affecting any of the real properties or facilities presently owned, operated or leased by PFG or any of its Subsidiaries or any predecessor (including in a fiduciary or agency capacity) in amount or condition that has resulted in or would reasonably be expected to result in liability to PFG or any of its Subsidiaries relating to or arising under any Environmental Laws, and (e) to the Knowledge of PFG, there are no underground storage tanks on, in or under any property currently owned, operated or leased by PFG or any of its Subsidiaries.
Section 3.18 Tax Matters. (a) Each of PFG and its Subsidiaries has duly and timely filed (taking into account all applicable extensions) all Tax Returns that it was required to file under applicable Laws, other than Tax Returns that are not yet due or for which a request for extension was timely filed consistent with requirements of applicable Law. All such Tax Returns were correct and complete in all material respects and have been prepared in compliance with all applicable Laws. All Taxes due and owing by PFG or any of its Subsidiaries (whether or not shown on any Tax Return) have been fully and timely paid. Neither PFG nor any of its Subsidiaries is currently the beneficiary of any extension of time within which to file any Tax Return. Neither PFG nor any of its Subsidiaries has ever received written notice of any claim by any Governmental Authority in a jurisdiction where PFG or such Subsidiary does not file Tax Returns that it is or may be subject to Taxes by that jurisdiction. There are no Liens for Taxes (other than Taxes not yet due and payable or that are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP) upon any of the assets of PFG or any of its Subsidiaries. (b) PFG and each of its Subsidiaries have properly withheld and paid over to the appropriate Governmental Authority all Taxes required to have been withheld and paid over in connection with any amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other Person, and have complied in all material respects with all applicable reporting requirements related to Taxes. (c) No foreign, federal, state, or local Tax audits or administrative or judicial Tax proceedings are currently being conducted or pending or threatened in writing, in each case, with respect to Taxes of PFG or any of its Subsidiaries. Neither PFG nor any of its Subsidiaries has received from any foreign, federal, state, or local taxing authority (including jurisdictions where PFG or any of its Subsidiaries have not filed Tax Returns) any (i) notice indicating an intent to open an audit or other review with respect to Taxes or (ii) notice of deficiency or proposed adjustment for any directamount of Tax proposed, asserted, or indirectassessed by any taxing authority against PFG or any of its Subsidiaries which, in either case of (i) or (ii), have not been fully paid or settled. (d) PFG has delivered or made available to SMBK true and complete copies of the foreign, federal, state, or local Tax Returns filed with respect to PFG or any of its Subsidiaries, and of all examination reports and statements of deficiencies assessed against or agreed to by PFG, in each case with respect to income Taxes, for taxable periods ended on or after December 31, 2015. (e) With respect to tax years open for audit as of the date hereof, neither PFG nor any of its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.
(f) Neither PFG nor any of its Subsidiaries has been a United States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii). Neither PFG nor any of its Subsidiaries is a party to or is otherwise bound by any Tax allocation or sharing agreement (other than such an agreement (i) exclusively between or among PFG and its Subsidiaries or (ii) with customers, vendors, lessors, or similar third parties entered into in the Ordinary Course of Business and not primarily related to Taxes). PFG (i) has not been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was PFG), and (ii) has no liability for the Taxes of any Person (other than PFG and its Subsidiaries) under Regulations Section 1.1502-6 (or any similar provision of foreign, state, or local Law), as a transferee or successor, by contract, or otherwise. (g) The most recent Financial Statements as of the date hereof reflect an adequate reserve, in accordance with GAAP, for all Taxes payable by PFG and its Subsidiaries for all taxable periods through the date of such Financial Statements. Since December 31, 2017, neither PFG nor any of its Subsidiaries has incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP, outside the Ordinary Course of Business. (h) Neither SMBK, PFG nor any of its Subsidiaries will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Effective Time as a result of any: (i) change in method of accounting pursuant to Section 481 of the Code or any comparable provision under foreign, state, or local Law for a taxable period ending on or prior to the Closing Date by PFG or any of its Subsidiaries; (ii) “closing agreement” as described in Code Section 7121 (or any corresponding or similar provision of foreign, state, or local Law) executed on or prior to the Closing Date by PFG or any of its Subsidiaries; (iii) intercompany transactions or any excess loss account described in Regulations under Code Section 1502 (or any corresponding or similar provision of foreign, state, or local Law); (iv) installment sale acquisition,or open transaction disposition made on or prior to the Closing Date by PFG or any of its Subsidiaries; or (v) prepaid amount received on or prior to the Closing Date by PFG or any of its Subsidiaries. (i) Since January 1, 2016, neither PFG nor any of its Subsidiaries has distributed stock of another Person nor had its stock distributed by another Person in a transaction that was intended to be nontaxable and governed in whole or in part by Section 355 or Section 361 of the Code. (j) Neither PFG nor any of its Subsidiaries has been a party to any “listed transaction,” as defined in Section 6707A(c)(2) of the Code and Section 1.6011-4(b)(2) of the Regulations. (k) Since its formation in 2016, PFG has been a validly electing “S corporation” (Subchapter S corporation) under Sections 1361 and 1362 of the Code for federal income Tax purposes, and a valid “S corporation” in all states that permit comparable flow-through income Tax treatment for state purposes (whether or not the state requires a separate state election). No actions or omissions have been committed by PFG, holders of PFG Common Stock or otherwise to cause PFG to cease to so qualify as an “S corporation.” At no time has PFG had, within the meaning of Code Section 1361(b) and the Treasury Regulations thereunder: (i) more than 100 shareholders (taking into account the special rules in Code Section 1361(c)); (ii) any shareholder who is a person (other than an estate, a trust described in Code Section 1361(c)(2), or an organization described in Code Section 1361(c)(6)) who is not an individual; (iii) any shareholder that is a nonresident alien; or (iv) more than one class of stock. Neither PFG nor any of its Subsidiaries is a financial institution which uses the reserve method of accounting for bad debts described in Code 585. Any “trust preferred securities” issued by PFG or any of its Subsidiaries are properly treated as debt, rather than equity, for federal income Tax purposes.
(l) Since the formation of PFG in 2016, each Subsidiary of PFG that otherwise would be taxed as a domestic corporation as that term is defined in Section 7701(a)(3) and the Regulations thereunder, is and always has been, within the meaning of Section 1361(b)(3) and the Regulations thereunder, a domestic corporation, a 100% subsidiary of PFG, and a properly electing ‘‘qualified subchapter S subsidiary’’ within the meaning of Section 1361(b)(3)(B) of the Code. (m) PFG and its Subsidiaries will not be subject to Tax under Code Section 1374 (or any similar provision of Law) in connection with the transactions contemplated by this Agreement. Neither PFG nor any of its Subsidiaries has, in the past five years, acquired assets from a C corporation in a transaction in which the Tax basis of PFG or any of its Subsidiaries for the acquired assets was determined, in whole or in part, by reference to the Tax basis of the acquired assets in the hands of the transferor. (n) Neither PFG nor any of its Subsidiaries (i) is a “controlled foreign corporation” as defined in Section 957 of the Code, (ii) is a “passive foreign investment company” within the meaning of Section 1297 of the Code, or (iii) has a permanent establishment (within the meaning of an applicable Tax treaty) or otherwise has an office or fixed place of business in a country other than the United States of America. (o) Neither PFG nor any of its Subsidiaries has taken or agreed to take any action, and to the Knowledge of PFG there is no fact or circumstance, that would be reasonably likely to prevent the Merger from qualifying for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code. Section 3.19 Investment Securities.PFG Disclosure Schedule 3.19 sets forth as of July 31, 2019, the PFG Investment Securities, as well as any purchases or sales of PFG Investment Securities between December 31, 2018 to and including July 31, 2019, reflecting with respect to all such securities, whenever purchased or sold, descriptions thereof, CUSIP numbers, designations as securities “available for sale” or securities “held to maturity” (as those terms are used in ASC 320), book values, fair values and coupon rates, and any gain or loss with respect to any PFG Investment Securities sold during such time period between December 31, 2019 to and including July 31, 2019. Neither PFG nor any of its Subsidiaries owns any of the outstanding equity of any savings bank, savings and loan association, savings and loan holding company, credit union, bank or bank holding company, insurance company, mortgage or loan broker, or any other financial institution other than Progressive Bank.
Section 3.20 Derivative Transactions. (a) All Derivative Transactions entered into by PFG or any of its Subsidiaries or for the account of any of its customers were entered into in accordance in all material respects with applicable Laws and regulatory policies of any Governmental Authority, and in accordance in all material respects with the investment, securities, commodities, risk management, and other policies, practices and procedures employed by PFG or any of its Subsidiaries, and were entered into with counterparties believed at the time to be financially responsible and able to understand (either alone or in consultation with its advisers) and to bear the risks of such Derivative Transactions. PFG and each of its Subsidiaries have duly performed, in all material respects, all of their obligations under the Derivative Transactions to the extent that such obligations to perform have accrued, and there are no material breaches, violations, or defaults or allegations or assertions of such by any party thereunder. (b) Each Derivative Transaction is listed inPFG Disclosure Schedule 3.20(b), and the financial position of PFG or its Subsidiaries under or with respect to each has been reflected in the books and records of PFG or its Subsidiaries in accordance with GAAP, and no material open exposure of PFG or its Subsidiaries with respect to any such instrument (or with respect to multiple instruments with respect to any single counterparty) exists, except as set forth inPFG Disclosure Schedule 3.20(b). (c) No Derivative Transaction, were it to be a Loan held by PFG or any of its Subsidiaries, would be classified as “Special Mention,” “Substandard,” “Doubtful,” “Loss,” “Classified,” “Criticized,” “Credit Risk Assets,” “Concerned Loans,” “Watch List,” as such terms are defined by the FDIC’s uniform loan classification standards, or words of similar import. Section 3.21 Regulatory Capitalization. PFG and Progressive Bank are “well-capitalized,” as such term is defined in the applicable state and federal rules and regulations. Section 3.22 Loans; Nonperforming and Classified Assets. (a) PFG Disclosure Schedule 3.22(a) sets forth all (i) loans, loan agreements, notes, or borrowing arrangements and other extensions of credit (including, without limitation, leases, credit enhancements, commitments, guarantees, and interest-bearing assets) (collectively, “Loans”) in which PFG or any of its Subsidiaries is a creditor which, as of July 31, 2019, was over 30 days or more delinquent in payment of principal or interest, and (ii) Loans with any director, executive officer or 5% or greater shareholder of PFG or any of its Subsidiaries, or to the Knowledge of PFG, any affiliate of any of the foregoing. Set forth inPFG Disclosure Schedule 3.22(a) is a true, correct and complete list of (A) all of the Loans of PFG and its Subsidiaries that, as of July 31, 2019, were classified as “Special Mention,” “Substandard,” “Doubtful,” “Loss,” “Classified,” “Criticized,” “Credit Risk Assets,” “Concerned Loans,” “Watch List” or words of similar import by Progressive Bank, PFG, or any bank examiner, together with the principal amount of and accrued and unpaid interest on each such Loan and the identity of the borrower thereunder, together with the aggregate principal amount of such Loans by category of Loan (e.g., commercial, consumer, etc.), and (B) each Loan classified by Progressive Bank as a Troubled Debt Restructuring as defined by GAAP. (b) PFG Disclosure Schedule 3.22(b) identifies each asset of PFG or any of its Subsidiaries that as of July 31, 2019 was classified as other real estate owned (“OREO”) and the book value thereof as of July 31, 2019 as well as any assets classified as OREO between December 31, 2018 and July 31, 2019 and any sales of OREO between December 31, 2018 and July 31, 2019, reflecting any gain or loss with respect to any OREO sold.
(c) Each Loan held in PFG’s or any of its Subsidiaries’ loan portfolio (each a “PFG Loan”) (i) is evidenced by notes, agreements, or other evidences of indebtedness that are true, genuine, and what they purport to be, (ii) to the extent secured, is and has been secured by valid Liens which have been perfected and (iii) is a legal, valid, and binding obligation of PFG or any Subsidiary and the obligor named therein, and, assuming due authorization, execution and delivery thereof by such obligor or obligors, enforceable in accordance with its terms, subject to the Enforceability Exception. (d) All currently outstanding PFG Loans were solicited, originated, and currently exist in material compliance with all applicable requirements of Law and the notes or other credit or security documents with respect to each such outstanding PFG Loan are complete and correct in all material respects. There are no oral modifications or amendments or additional agreements related to the PFG Loans that are not reflected in the written records of PFG or its Subsidiary, as applicable. All such PFG Loans are owned by PFG or its Subsidiaries free and clear of any Liens other than a blanket lien on qualifying loans provided to the Federal Home Loan Bank of Atlanta. No claims of defense as to the enforcement of any PFG Loan have been asserted in writing against PFG or any of its Subsidiaries for which there is a reasonable possibility of a material adverse determination, and PFG has no Knowledge of any acts or omissions which would give rise to any claim or right of rescission, set-off, counterclaim, or defense for which there is a reasonable possibility of a material adverse determination to its Subsidiaries. Other than participation loans purchased by PFG or any Subsidiary from third parties that are described onPFG Disclosure Schedule 3.22(d), no PFG Loans are presently serviced by third parties and there is no obligation which could result in any PFG Loan becoming subject to any third party servicing. (e) Neither PFG nor any of its Subsidiaries is a party to any agreement or arrangement with (or otherwise obligated to) any Person which obligates PFG or any of its Subsidiaries to repurchase from any such Person any Loan or other asset of PFG or any of its Subsidiaries, unless there is a material breach of a representation or covenant by PFG or any of its Subsidiaries, and none of the agreements pursuant to which PFG or any of its Subsidiaries has sold Loans or pools of Loans or participations in Loans or pools of Loans contains any obligation to repurchase such Loans or interests therein solely on account of a payment default by the obligor on any such Loan. (f) Neither PFG nor any of its Subsidiaries is now nor has it ever been since January 1, 2016, subject to any fine, suspension, settlement, or other contract or other administrative agreement or sanction by, or any reduction in any loan purchase commitment from, any Governmental Authority relating to the origination, sale or servicing of mortgage or consumer Loans. Section 3.23 Allowance for Loan and Lease Losses. The allowances for loan and lease losses as reflected in each of (a) the latest balance sheets included in the Financial Statements and (b) in the balance sheets as of December 31, 2018 included in the Financial Statements, were, in the opinion of management, as of each of the dates thereof, in compliance in all material respects with PFG and Progressive Bank’s respective existing methodology for determining the adequacy of its allowance for loan and lease losses as well as the standards established by applicable Governmental Authority, the Financial Accounting Standards Board, and GAAP.
Section 3.24 Trust Business; Administration of Fiduciary Accounts. Except as set forth onPFG Disclosure Schedule 3.24, Neither PFG nor any of its Subsidiaries has offered or engaged in providing any individual or corporate trust services or administers any accounts for which it acts as a fiduciary, including, but not limited to, any accounts in which it serves as a trustee, agent, custodian, personal representative, guardian, conservator, or investment advisor. Section 3.25 Investment Management and Related Activities. Except as set forth inPFG Disclosure Schedule 3.25, none of PFG, any Subsidiary or any of their respective directors, officers, or employees is required to be registered, licensed, or authorized under the Laws of any Governmental Authority as an investment adviser, a broker or dealer, an insurance agency, a commodity trading adviser, a commodity pool operator, a futures commission merchant, an introducing broker, a registered representative or associated person, investment adviser, representative or solicitor, a counseling officer, an insurance agent, a sales person, or in any similar capacity with a Governmental Authority. Section 3.26 Repurchase Agreements. With respect to all agreements pursuant to which PFG or any of its Subsidiaries has purchased securities subject to an agreement to resell, if any, PFG or any of its Subsidiaries, as the case may be, has a valid, perfected first lien or security interest in the government securities or other collateral securing the repurchase agreement, and the value of such collateral equals or exceeds the amount of the debt secured thereby. Section 3.27 Deposit Insurance. The deposits of Progressive Bank are insured by the FDIC in accordance with the Federal Deposit Insurance Act (“FDIA”) to the fullest extent permitted by Law, and Progressive Bank have paid all premiums and assessments and filed all reports required by the FDIA. No proceedings for the revocation or termination of such deposit insurance are pending or, to PFG’s Knowledge, threatened. Section 3.28 Community Reinvestment Act, Anti-money Laundering and Customer Information Security. Neither PFG nor any of its Subsidiaries is a party to any agreement with any individual or group regarding Community Reinvestment Act matters, and neither PFG nor any of its Subsidiaries has Knowledge that any facts or circumstances exist which would cause PFG or any of its Subsidiaries: (i) to be deemed not to be in satisfactory compliance with the Community Reinvestment Act, and the regulations promulgated thereunder, or to be assigned a rating for Community Reinvestment Act purposes by federal or state bank regulators of lower than “satisfactory”; or (ii) to be deemed to be operating in violation of the Bank Secrecy Act and its implementing regulations (31 C.F.R. Part 103), the USA PATRIOT Act, any order issued with respect to anti-money laundering by the U.S. Department of the Treasury’s Office of Foreign Assets Control, or any other applicable anti-money laundering statute, rule or regulation; or (iii) to be deemed not to be in satisfactory compliance with the applicable privacy of customer information requirements contained in any federal and state privacy Laws and regulations, including, without limitation, in Title V of the Gramm-Leach-Bliley Act of 1999 and regulations promulgated thereunder. Furthermore, the boards of directors of PFG and its Subsidiaries has implemented an anti-money laundering program that contains adequate and appropriate customer identification verification procedures that has not been deemed ineffective by any Governmental Authority and that meets the requirements of Sections 352 and 326 of the USA PATRIOT Act.
Section 3.29 Transactions with Affiliates. Except as set forth inPFG Disclosure Schedule 3.29, there are no outstanding amounts payable to or receivable from, or advances by PFG or any of its Subsidiaries to, and neither PFG nor any of its Subsidiaries is otherwise a creditor or debtor to (a) any director, executive officer, 5% or greater shareholder of PFG or any of its Subsidiaries or to any of their respective Affiliates or Associates, other than as part of the normal and customary terms of such person’s employment or service as a director with PFG or any of its Subsidiaries and other than deposits held by Progressive Bank in the Ordinary Course of Business, or (b) any other Affiliate of PFG or any of its Subsidiaries. Except as set forth inPFG Disclosure Schedule 3.29, neither PFG nor any of its Subsidiaries is a party to any transaction or agreement with any of its respective directors, executive officers, or other Affiliates. All agreements between Progressive Bank and any of their respective Affiliates (or any company treated as an affiliate for purposes of such Law) comply, to the extent applicable, with Sections 23A and 23B of the Federal Reserve Act and Regulation W of the FRB. Section 3.30 Tangible Properties and Assets. (a) PFG Disclosure Schedule 3.30(a) sets forth a true, correct, and complete list of all real property owned by PFG and each of its Subsidiaries. Except as set forth inPFG Disclosure Schedule 3.30(a), PFG or its Subsidiaries has good and marketable title to, valid leasehold interests in or otherwise legally enforceable rights to use all of the real property, personal property, and other assets (tangible or intangible), used, occupied, and operated or held for use by it in connection with its business as presently conducted in each case, free and clear of any Lien, except for (i) statutory Liens for amounts not yet delinquent, and (ii) easements, rights of way, and other similar Liens that do not materially affect the value or use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties. There is no pending or, to PFG’s Knowledge, threatened legal, administrative, arbitral, or other proceeding, claim, action or governmental or regulatory investigation of any nature with respect to the real property that PFG or any of its Subsidiaries owns, uses, or occupies or has the right to use or occupy, now or in the future, including without limitation a pending or threatened taking of any of such real property by eminent domain. True and complete copies of all deeds or other documentation evidencing ownership of the real properties set forth inPFG Disclosure Schedule 3.30(a), and complete copies of the title insurance policies and surveys for each property, together with any mortgages, deeds of trust, and security agreements to which such property is subject have been furnished or made available to SMBK. (b) PFG Disclosure Schedule 3.30(b) sets forth a true, correct and complete schedule of all leases, subleases, licenses, and other agreements under which PFG or any of its Subsidiaries uses or occupies or has the right to use or occupy, now or in the future, real property (the “Leases”). Each of the Leases is valid, binding and in full force and effect and neither PFG nor any of its Subsidiaries has received a written notice of, and otherwise has no Knowledge of any, default or termination with respect to any Lease. To PFG’s Knowledge, there has not occurred any event and no condition exists that would constitute a termination event or a breach by PFG or any of its Subsidiaries of, or default by PFG or any of its Subsidiaries in, the performance of any covenant, agreement or condition contained in any Lease. To PFG’s Knowledge, no lessor under a Lease is in material breach or default in the performance of any material covenant, agreement, or condition contained in such Lease. PFG and each of its Subsidiaries has paid all rents and other charges to the extent due under the Leases. True and complete copies of all Leases for, or other documentation evidencing ownership of or a leasehold interest in, the properties listed inPFG Disclosure Schedule 3.30(b), have been furnished or made available to SMBK.
(c) All buildings, structures, fixtures, building systems and equipment, and all components thereof, including the roof, foundation, load-bearing walls and other structural elements thereof, heating, ventilation, air conditioning, mechanical, electrical, plumbing and other building systems, environmental control, remediation and abatement systems, sewer, storm and waste water systems, irrigation and other water distribution systems, parking facilities, fire protection, security and surveillance systems, and telecommunications, computer, wiring and cable installations, included in the owned real property or the subject of the Leases are in good condition and repair (normal wear and tear excepted) and sufficient for the operation of the business of PFG and its Subsidiaries. Section 3.31 Intellectual Property.PFG Disclosure Schedule 3.31 sets forth a true, complete and correct list of all PFG Intellectual Property. PFG or its Subsidiaries owns or has a valid license to use all material PFG Intellectual Property, free and clear of all Liens, royalty or other payment obligations (except for royalties or payments with respect to off-the-shelf Software at standard commercial rates). The PFG Intellectual Property constitutes all of the Intellectual Property necessary to carry on the business of PFG and its Subsidiaries as currently conducted. The PFG Intellectual Property is valid and enforceable and has not been cancelled, forfeited, expired or abandoned, and neither PFG nor any of its Subsidiaries has received notice challenging the validity or enforceability of PFG Intellectual Property. None of PFG or any of its Subsidiaries is, nor will any of them be as a result of the execution and delivery of this Agreement or the performance by PFG of its obligations hereunder, in violation of any licenses, sublicenses and other agreements as to which PFG or any of its Subsidiaries is a party and pursuant to which PFG or any of its Subsidiaries is authorized to use any third-party patents, trademarks, service marks, copyrights, trade secrets or computer software, and neither PFG nor any of its Subsidiaries has received notice challenging PFG’s or any of its Subsidiaries’ license or legally enforceable right to use any such third-party intellectual property rights. The consummation of the transactions contemplated hereby will not result in the material loss or impairment of the right of PFG or any of its Subsidiaries to own or use any of PFG Intellectual Property. Section 3.32 Insurance. (a) PFG Disclosure Schedule 3.32(a) identifies all of the insurance policies, binders or bonds currently maintained by PFG and its Subsidiaries (the “Insurance Policies”), including the insurer, policy numbers, amount of coverage, effective and termination, dates and any pending claims thereunder involving more than $10,000. PFG and each of its Subsidiaries is insured with reputable insurers against such risks and in such amounts as the management of PFG reasonably has determined to be prudent in accordance with industry practices. All of the Insurance Policies are in full force and effect, neither PFG nor any Subsidiary has received notice of cancellation of any of the Insurance Policies or is otherwise aware that any insurer under any of the Insurance Policies has expressed an intent to cancel any such Insurance Policies, and neither PFG nor any of its Subsidiaries is in default thereunder, and all claims thereunder have been filed in due and timely fashion in all material respects.
(b) PFG Disclosure Schedule 3.32(b) sets forth a true, correct and complete description of all bank owned life insurance (“BOLI”) owned by PFG or its Subsidiaries, including the value of its BOLI as of the end of the month prior to the date hereof. The value of such BOLI is and has been fairly and accurately reflected in the most recent balance sheet included in the Financial Statements in accordance with GAAP. All BOLI is owned solely by Progressive Bank, no other Person has any ownership claims with respect to such BOLI or proceeds of insurance derived therefrom and there is no split dollar or similar benefit under such BOLI. Neither PFG nor any of PFG’s Subsidiaries has any outstanding borrowings secured in whole or part by its BOLI. Section 3.33 Antitakeover Provisions. No “control share acquisition,” “business combination moratorium,” “fair price,” or other form of antitakeover statute or regulation is applicable to this Agreement, the Plan of Merger, and the transactions contemplated hereby and thereby. Section 3.34 PFG Information. The information relating to PFG and its Subsidiaries that is provided by or on behalf of PFG for inclusion in the Proxy Statement-Prospectus and the Registration Statement will not (with respect to the Proxy Statement-Prospectus, as of the date the Proxy Statement-Prospectus is first mailed to PFG’s shareholders and as of the date of the PFG Meeting, and with respect to the Registration Statement, as of the time the Registration Statement or any amendment or supplement thereto is declared effective under the Securities Act) contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The portions of the Proxy Statement-Prospectus relating to PFG and PFG’s Subsidiaries and other portions thereof within the reasonable control of PFG and its Subsidiaries will comply as to form in all material respects with the provisions of the Exchange Act, and the rules and regulations thereunder. Section 3.35 Transaction Costs. PFG has provided SMBK with an itemized estimate, determined in good faith after reasonable inquiry, of the investment banking fees, accounting fees, attorneys’ fees, and other costs or fees that PFG and its Subsidiaries are reasonably expected to be paid or accrued through the Closing Date in connection with the Merger and the other transactions contemplated by this Agreement, exclusive of any costs that may be incurred by PFG as a result of any litigation which may arise in connection with this Agreement (collectively, “PFG Expenses”). Section 3.36 Bank Holding Company. PFG is regulated as a bank holding company under the Bank Holding Company Act of 1956, as amended. Section 3.37 No Other Representations or Warranties. Except for the representations and warranties made by PFG in this Article III and for the disclosures contained in the PFG Disclosure Schedule, neither PFG nor any other Person makes any express or implied representation or warranty with respect to PFG, its Subsidiaries, or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise), or prospects, and PFG hereby disclaims any such other representations or warranties. PFG acknowledges and agrees that neither SMBK nor any other Person has made or is making any express or implied representation or warranty other than those contained in Article IV and in the SMBK Disclosure Schedule.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SMBK Except as set forth in the SMBK Reports or in the disclosure schedule delivered by SMBK to PFG prior to or concurrently with the execution of this Agreement with respect to each such Section below (the “SMBK Disclosure Schedule”);provided, that (a) the mere inclusion of an item in the SMBK Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by SMBK that such item represents a material exception or fact, event or circumstance or that such item is reasonably likely to result in a Material Adverse Effect on SMBK, and (b) any disclosures made with respect to a section ofArticle IV shall be deemed to qualify (1) any other section ofArticle IV specifically referenced or cross-referenced and (2) other sections ofArticle IV to the extent it is reasonably apparent on its face (notwithstanding the absence of a specific cross reference) from a reading of the disclosure that such disclosure applies to such other sections, SMBK hereby represents and warrants to PFG as follows: Section 4.01 Organization and Standing. Each of SMBK and its Subsidiaries is (a) an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation and (b) is duly licensed or qualified to do business and in good standing in each jurisdiction where its ownership or leasing of property or the conduct of its business requires such qualification, except where the failure to be so licensed or qualified has not had, and is not reasonably likely to have, a Material Adverse Effect with respect to SMBK. Section 4.02 Capital Stock. The authorized capital stock of SMBK consists of 40,000,000 shares of SMBK Common Stock, and 2,000,000 shares of preferred stock. As of the date hereof, 13,961,324 shares of SMBK Common Stock were issued and outstanding, 2,444,155 shares of SMBK Common Stock were reserved for issuance under employee benefit plans, and no shares of preferred stock were issued and outstanding. The outstanding shares of SMBK Common Stock have been duly authorized and validly issued and are fully paid, and non-assessable and have not been issued in violation of nor are they subject to preemptive rights of any SMBK shareholder. The shares of SMBK Common Stock to be issued pursuant to this Agreement, when issued in accordance with the terms of this Agreement, will be duly authorized, validly issued, fully paid and non-assessable and will not be subject to preemptive rights. All shares of SMBK’s capital stock issued and outstanding have been issued in compliance with and not in violation of any applicable federal or state securities Laws. SMBK owns all of the issued and outstanding shares of SmartBank common stock. Section 4.03 Corporate Power. (a) SMBK and each of its Subsidiaries has the corporate or similar power and authority to carry on its business as it is now being conducted and to own all of its properties and assets; and SMBK has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby, subject to receipt of all necessary approvals of Governmental Authorities and the Regulatory Approvals. Section 4.04 Corporate Authority. This Agreement and the transactions contemplated hereby have been authorized by all necessary corporate action of SMBK on or prior to the date hereof. SMBK has duly executed and delivered this Agreement and, assuming due authorization, execution and delivery by PFG, this Agreement is a valid and legally binding obligation of SMBK, enforceable in accordance with its terms, subject to the Enforceability Exception.
Section 4.05 SEC Documents; Financial Statements. (a) SMBK has filed or furnished all required reports, forms, schedules, registration statements, and other documents with the SEC that it has been required to file or furnish since January 1, 2016 (the “SMBK Reports”) and has paid all fees and assessments due and payable in connection therewith. As of their respective dates of filing with the SEC (or, if amended or superseded by a subsequent filing prior to the date hereof, as of the date of such subsequent filing), the SMBK Reports complied as to form in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such SMBK Reports, and none of the SMBK Reports when filed with the SEC, or if amended prior to the date hereof, as of the date of such amendment, 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 therein, in light of the circumstances under which they were made, not misleading. (b) The consolidated financial statements of SMBK (or incorporated by reference) included (or incorporated by reference) in the SMBK Reports (including the related notes, where applicable) complied as to form, as of their respective dates of filing with the SEC (or, if amended or superseded by a subsequent filing prior to the date hereof, as of the date of such subsequent filing), in all material respects, with all applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto (except, in the case of unaudited statements, as permitted by the rules of the SEC), have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be disclosed therein), and fairly present, in all material respects, the consolidated financial position of SMBK and its Subsidiaries and the consolidated results of operations, changes in shareholders’ equity and cash flows of such companies as of the dates and for the periods shown. Section 4.06 Regulatory Approvals; No Defaults. (a) No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority are required to be made or obtained by SMBK or any of its Subsidiaries in connection with the execution, delivery, or performance by SMBK of this Agreement or to consummate the transactions contemplated by this Agreement, including the Bank Merger, except for (i) the Regulatory Approvals, (ii) the filing with the SEC of the Proxy Statement and the filing and declaration of effectiveness of the Form S-4, (iii) the filing of the Articles of Merger contemplated bySection 1.04(a) and the filing of documents with the TDFI and the Secretary of State of the State of Tennessee to cause the Bank Merger to become effective, (iv) such other filings and reports as required pursuant to the Exchange Act and the rules and regulations promulgated thereunder, or applicable stock exchange requirements, (v) any consents, authorizations, approvals, filings or exemptions in connection with compliance with the rules and regulations of any applicable SRO and the rules of the NASDAQ, and (vi) such filings and approvals as are required to be made or obtained under the securities or “Blue Sky” laws of various states in connection with the issuance of the shares of SMBK Common Stock pursuant to this Agreement and approval of listing of such SMBK Common Stock on the NASDAQ. Subject to the receipt of the approvals referred to in the preceding sentence, the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby by SMBK do not and will not, (1) constitute a breach or violation of, or a default under, the charter and bylaws of SMBK, (2) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree, or injunction applicable to SMBK or any of its Subsidiaries, or any of their respective properties or assets, (3) violate, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of SMBK or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, contract, agreement, or other instrument or obligation to which SMBK or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound.
(b) As of the date hereof, SMBK has no Knowledge of any reason (i) why the Regulatory Approvals referred to inSection 6.01(b) will not be received in customary time frames from the applicable Governmental Authorities having jurisdiction over the transactions contemplated by this Agreement or (ii) why any Burdensome Condition would be imposed. Section 4.07 SMBK Information. The information relating to SMBK and its Subsidiaries that is supplied by or on behalf of SMBK for inclusion or incorporation by reference in the Proxy Statement-Prospectus and the Registration Statement will not (with respect to the Proxy Statement-Prospectus, as of the date the Proxy Statement-Prospectus is first mailed to PFG shareholders and as of the date of the PFG Meeting, and with respect to the Registration Statement, as of the time the Registration Statement or any amendment or supplement thereto is declared effective under the Securities Act) contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading;provided,however, that any information contained in any SMBK Report as of a later date shall be deemed to modify information as of an earlier date. Section 4.08 Absence of Certain Changes or Events. Except as reflected or disclosed in SMBK’s Annual Report on Form 10-K for the year ended December 31, 2018 or in the SMBK Reports since December 31, 2018, as filed with the SEC, there has been no change or development with respect to SMBK and its assets and business or combination of such changes or developments which, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect with respect to SMBK. Section 4.09 Compliance with Laws. (a) SMBK is regulated as a bank holding company under the Bank Holding Company Act of 1956, as amended. SMBK and each of its Subsidiaries is, and has been since January 1, 2016, in compliance in all material respects with all applicable Laws, including, without limitation, Laws related to data protection or privacy, the USA PATRIOT Act, the Bank Secrecy Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Community Reinvestment Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Dodd-Frank Act, Sections 23A and 23B of the Federal Reserve Act, the Sarbanes-Oxley Act and the regulations implementing such statutes, all other applicable anti-money laundering Laws, fair lending Laws and other Laws relating to discriminatory lending, financing, leasing, or business practices and all agency requirements relating to the origination, sale, and servicing of mortgage loans, except where the failure to comply with such Laws would not be reasonably expected to result in a Material Adverse Effect in respect of SMBK.
(b) The deposit accounts of SmartBank are insured by the FDIC through the Deposit Insurance Fund to the fullest extent permitted by Law, and all premiums and assessments required to be paid in connection therewith have been paid when due, and no proceedings for the termination of such insurance are pending or, to SMBK’s Knowledge, threatened. SmartBank received a rating of “satisfactory” in its most recent examination under the Community Reinvestment Act. (c) SMBK and each of its Subsidiaries have all material permits, licenses, authorizations, orders, and approvals of, and each has made all filings and applications and registrations with, all Governmental Authorities that are required in order to permit it to own or lease its properties and to conduct its business as presently conducted, except where the failure to obtain such permits, licenses, authorizations, orders, and approvals would not be reasonably likely to have a Material Adverse Effect with respect to SMBK. All such permits, licenses, certificates of authority, orders, and approvals are in full force and effect and, to SMBK’s Knowledge, no suspension or cancellation of any of them is threatened. (d) Neither SMBK nor any of its Subsidiaries has received, since January 1, 2016, written or, to SMBK’s Knowledge, oral notification from any Governmental Authority (i) asserting that it is not in compliance with any of the Laws which such Governmental Authority enforces or (ii) threatening to revoke any license, franchise, permit or governmental authorization, except where such noncompliance or threatened revocation is not reasonably likely to have, a Material Adverse Effect with respect to SMBK. Section 4.10 Legal Proceedings. (a) Neither SMBK nor any of its Subsidiaries is a party to any, and there are no pending or, to SMBK’s knowledge, threatened, legal, administrative, arbitral or other proceedings, claims, actions, or governmental or regulatory investigations of any nature against SMBK or any of its Subsidiaries or any of their current or former directors or executive officers in their capacities as such that is reasonably likely to have a Material Adverse Effect on SMBK, or challenging the validity or propriety of the transactions contemplated by this Agreement. (b) There is no material injunction, order, judgment, decree, or regulatory restriction (other than regulatory restrictions of general application to banks and bank holding companies) imposed upon SMBK, any of its Subsidiaries or the assets of SMBK or any of its Subsidiaries (or that, upon consummation of the Merger or the Bank Merger would apply to the Surviving Entity or any of its Subsidiaries or affiliates). Section 4.11 No Other Representations or Warranties. Except for the representations and warranties made by SMBK in this Article IV and for the disclosures contained in the SMBK Disclosure Schedule, neither SMBK nor any other Person makes any express or implied representation or warranty with respect to SMBK, its Subsidiaries or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise), or prospects, and SMBK hereby disclaims any such other representations or warranties. SMBK acknowledges and agrees that neither PFG nor any other Person has made or is making any express or implied representation or warranty other than those contained in Article III and in the PFG Disclosure Schedule.
ARTICLE V
COVENANTS Section 5.01 Covenants of PFG. (a) Negative Covenants. During the period from the date of this Agreement and continuing until the Effective Time or the earlier termination of this Agreement in accordance with its terms, except as expressly contemplated or permitted by this Agreement (including as set forth in the PFG Disclosure Schedule), required by Law or with the prior written consent of SMBK (which consent shall not be unreasonably withheld, conditioned or delayed), PFG shall carry on its business, including the business of each of its Subsidiaries, in the Ordinary Course of Business in all material respects and consistent with prudent banking practice. Without limiting the generality of the foregoing, PFG will use commercially reasonable efforts to (i) preserve its business organizations and assets intact, (ii) keep available to itself and SMBK the present services of the current officers and employees of PFG and its Subsidiaries, (iii) preserve for itself and SMBK the goodwill of its customers, employees, lessors and others with whom business relationships exist, and (iv) continue diligent collection efforts with respect to any delinquent loans and, to the extent within its control, not allow any material increase in delinquent loans. Without limiting the generality of and in furtherance of the foregoing, from the date of this Agreement until the Effective Time, except (x) as set forth inPFG Disclosure Schedule 5.01, (y) as otherwise expressly required by this Agreement, or (z) consented to in writing by SMBK (which consent shall not be unreasonably withheld, conditioned, or delayed), PFG shall not and shall not permit its Subsidiaries to: (i) Stock. (A) Issue, sell, grant, pledge, dispose of, encumber, or otherwise permit to become outstanding, or authorize the creation of, any additional shares of its stock, any Rights, or any other securities (including units of beneficial ownership interest in any partnership or limited liability company), or enter into any agreement with respect to the foregoing, or (B) except as expressly permitted by this Agreement, directly or indirectly change (or establish a record date for changing), adjust, split, combine, redeem, reclassify, exchange, purchase, or otherwise acquire any shares of its capital stock, or any other securities (including units of beneficial ownership interest in any partnership or limited liability company) convertible into or exchangeable for any additional shares of stock or any Rights issued and outstanding prior to the Effective Time. (ii) Dividends; Other Distributions. Except for the AAA Dividend and Tax Distributions, make, declare, pay, or set aside for payment of dividends payable in cash, stock, or property on or in respect of, or declare or make any distribution on, any shares of its capital stock, except for dividends from wholly owned Subsidiaries to PFG.
(iii) Compensation; Employment Agreements, Etc. Enter into or amend or renew any employment, consulting, compensatory, severance, retention, or similar agreements or arrangements with any director, officer, or employee of PFG or any of its Subsidiaries, or grant any salary, wage, or fee increase or increase any employee benefit or pay any incentive or bonus payments, except, in each case, (A) normal increases in base salary to employees in the Ordinary Course of Business and pursuant to policies currently in effect,provided that,such increases shall not result in an annual adjustment in base compensation (which includes base salary and any other compensation other than bonus payments) of more than 5% for any individual or 3% in the aggregate for all employees of PFG or any of its Subsidiaries other than annual increases in base compensation and year-end bonuses disclosed inPFG Disclosure Schedule 5.01(a)(iii), (B) as specifically provided for by this Agreement (including, without limitation, as contemplated bySection 5.11 of this Agreement), (C) as may be required by Law, (D) to satisfy the contractual obligations existing as of the date hereof set forth onPFG Disclosure Schedule 3.15(l), or (E) as otherwise set forth inPFG Disclosure Schedule 5.01(a)(iii). (iv) Hiring. Hire any person as an employee or officer of PFG or any of its Subsidiaries, except for at-will employment at an annual rate of base salary not to exceed $75,000 to fill vacancies that may arise from time to time in the Ordinary Course of Business. (v) Benefit Plans. Enter into, establish, adopt, amend, modify, or terminate (except (A) as may be required by or to make consistent with applicable Law, subject to the provision of prior written notice to and consultation with respect thereto with SMBK, (B) to satisfy contractual obligations existing as of the date hereof and set forth inPFG Disclosure Schedule 5.01(a)(v), (C) as previously disclosed to SMBK and set forth inPFG Disclosure Schedule 5.01(a)(v), or (D) as may be required pursuant to the terms of this Agreement) any PFG Benefit Plan or other pension, retirement, stock option, stock purchase, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or other employee benefit, incentive or welfare contract, plan or arrangement, or any trust agreement (or similar arrangement) related thereto, in respect of any current or former director, officer, or employee of PFG or any of its Subsidiaries. (vi) Transactions with Affiliates. Except pursuant to agreements or arrangements in effect on the date hereof and set forth inPFG Disclosure Schedule 5.01(a)(vi), or renewals of such agreements or arrangements, pay, loan or advance any amount to, or sell, transfer, or lease any properties or assets (real, personal or mixed, tangible or intangible) to, or enter into any agreement or arrangement with, any of its officers or directors or any of their immediate family members or any Affiliates or Associates of any of its officers or directors other than compensation or business expense advancements or reimbursements in the Ordinary Course of Business. (vii) Dispositions. Except in the Ordinary Course of Business and except for the Pre-Closing Divestitures, sell, license, lease, transfer, mortgage, pledge, encumber or otherwise dispose of or discontinue any of its rights, assets, deposits, business, or properties or cancel or release any indebtedness owed to PFG or any of its Subsidiaries.
(viii) Acquisitions. Acquire or agree to acquire (other than by way of foreclosures or acquisitions of control in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the Ordinary Course of Business) all or any portion of the assets, debt, business, deposits, or properties of any other entity or Person, except for purchases specifically approved by SMBK pursuant to any other applicable paragraph of thisSection 5.01. (ix) Capital Expenditures. Make any capital expenditures in amounts exceeding $50,000 individually, or $250,000 in the aggregate, provided that SMBK shall grant or deny its consent to emergency repairs or replacements necessary to prevent substantial deterioration of the condition of a property within two Business Days of its receipt of a written request from PFG. (x) Governing Documents. Amend PFG’s charter or bylaws or any equivalent documents of PFG’s Subsidiaries. (xi) Accounting Methods. Implement or adopt any change in its accounting principles, practices or methods, other than as may be required by applicable Laws or GAAP or applicable accounting requirements of any Governmental Authority, in each case, including changes in the interpretation or enforcement thereof. (xii) Contracts. Except as set forth inPFG Disclosure Schedule 5.01(a)(xii), enter into, amend, modify, terminate, extend, or waive any material provision of, any PFG Material Contract, Lease or Insurance Policy, or make any change in any instrument or agreement governing the terms of any of its securities, or material lease, license or contract, other than normal renewals of contracts, licenses, and leases without material adverse changes of terms with respect to PFG or any of its Subsidiaries, or enter into any contract that would constitute a PFG Material Contract if it were in effect on the date of this Agreement, except for any amendments, modifications or terminations reasonably requested by SMBK. (xiii) Claims. Other than settlement of foreclosure actions in the Ordinary Course of Business, (A) enter into any settlement or similar agreement with respect to any action, suit, proceeding, order or investigation to which PFG or any of its Subsidiaries is or becomes a party after the date of this Agreement, which settlement or agreement involves payment by PFG or any of its Subsidiaries of an amount which exceeds $75,000 individually or $150,000 in the aggregate and/or would impose any material restriction on the business of PFG or any of its Subsidiaries or (B) waive or release any material rights or claims, or agree or consent to the issuance of any injunction, decree, order, or judgment restricting or otherwise affecting its business or operations. (xiv) Banking Operations. (A) Enter into any material new line of business, introduce any material new products or services, any material marketing campaigns or any material new sales compensation or incentive programs or arrangements; (B) change in any material respect its lending, investment, underwriting, risk and asset liability management, and other banking and operating policies, except as required by applicable Law, regulation, or policies imposed by any Governmental Authority; (C) make any material changes in its policies and practices with respect to underwriting, pricing, originating, acquiring, selling, servicing, or buying or selling rights to service Loans, its hedging practices and policies; and (D) incur any material liability or obligation relating to retail banking and branch merchandising, marketing, and advertising activities and initiatives except in the Ordinary Course of Business.
(xv) Derivative Transactions. Enter into any Derivative Transaction. (xvi) Indebtedness. Incur any indebtedness for borrowed money other than in the Ordinary Course of Business consistent with past practice with a term not in excess of 12 months (other than creation of deposit liabilities or sales of certificates of deposit in the Ordinary Course of Business), or incur, assume, or become subject to, whether directly or by way of any guarantee or otherwise, any obligations or liabilities (absolute, accrued, contingent or otherwise) of any other Person, other than the issuance of letters of credit in the Ordinary Course of Business and in accordance with the restrictions set forth inSection 5.01(a)(xvi). (xvii) Investment Securities. (i) Other than in accordance with PFG’s investment guidelines, acquire, sell, or otherwise dispose of any debt security or equity investment or any certificates of deposits issued by other banks, nor (ii) change the classification method for any of the PFG Investment Securities from “held to maturity” to “available for sale” or from “available for sale” to “held to maturity,” as those terms are used in ASC 320. (xviii) Deposits. Other than in the Ordinary Course of Business, make any changes to deposit pricing. (xix) Loans. Except for loans or extensions of credit approved and/or committed as of the date hereof that are listed inPFG Disclosure Schedule 5.01(a)(xix), (A) make, renew, renegotiate, increase, extend, or modify any (1) unsecured loan, if the amount of such unsecured loan, together with any other outstanding unsecured loans made by PFG or any of its Subsidiaries to such borrower or its Affiliates, would be in excess of $100,000, in the aggregate, (2) loan secured by other than a first lien in excess of $350,000, (3) loan in excess of FFIEC regulatory guidelines relating to loan to value ratios, (4) loan secured by a first lien residential mortgage and with no loan policy exceptions in excess of $500,000, (5) secured loan over $750,000, (6) any loan that is not made in conformity with PFG’s ordinary course lending policies and guidelines in effect as of the date hereof, or (7) loan, whether secured or unsecured, if the amount of such loan, together with any other outstanding loans (without regard to whether such other loans have been advanced or remain to be advanced), would result in the aggregate outstanding loans to any borrower of PFG or any of its Subsidiaries (without regard to whether such other loans have been advanced or remain to be advanced) to exceed $750,000, (B) sell any loan or loan pools in excess of $1,000,000 in principal amount or sale price (other than residential mortgage loan pools sold in the Ordinary Couse of Business), or (C) acquire any servicing rights, or sell or otherwise transfer any loan where PFG or any of its Subsidiaries retains any servicing rights. Any loan in excess of the limits set forth in thisSection 5.01(a)(xix) shall require the prior written approval of the President or Chief Credit Officer of SmartBank, which approval or rejection shall be given in writing within five Business Days after the loan package is delivered to such individual.
(xx) Investments or Developments in Real Estate. Make any investment or commitment to invest in real estate or in any real estate development project other than by way of foreclosure or deed in lieu thereof or make any investment or commitment to develop, or otherwise take any actions to develop any real estate owned by PFG or its Subsidiaries. (xxi) Taxes. Except as required by applicable Law, make or change any Tax election, file any amended Tax Return, enter into any closing agreement with respect to Taxes, settle or compromise any liability with respect to Taxes, agree to any adjustment of any Tax attribute, file any claim for a refund of Taxes, or consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment. (xxii) Compliance with Agreements. Commit any act or omission which constitutes a material breach or default by PFG or any of its Subsidiaries under any agreement with any Governmental Authority or under any PFG Material Contract, Lease, or other material agreement or material license to which PFG or any of its Subsidiaries is a party or by which any of them or their respective properties are bound or under which any of them or their respective assets, business, or operations receives benefits. (xxiii) Environmental Assessments. Foreclose on or take a deed or title to any real estate that could reasonably be expected to result in any liability to PFG under any Environmental Law without first conducting an ASTM International (“ASTM”) E1527-13 Phase I Environmental Site Assessment (or any applicable successor standard) of the property that satisfies the requirements of 40 C.F.R. Part 312 (“Phase I”), or foreclose on or take a deed or title to any real estate other than single-family residential properties if such environmental assessment indicates the presence or likely presence of any Hazardous Substances under conditions that indicate an existing release, a past release, or a material threat of a release of any Hazardous Substances into structures on the property or into the ground, ground water, or surface water of the property. (xxiv) Adverse Actions. Take any action or knowingly fail to take any action not contemplated by this Agreement that is intended or is reasonably likely to (A) prevent, delay, or impair PFG’s ability to consummate the Merger or the transactions contemplated by this Agreement or (B) agree to take, make any commitment to take, or adopt any resolutions of its board of directors in support of, any of the actions prohibited by thisSection 5.01. (xxv) Capital Stock Purchase. Directly or indirectly repurchase, redeem, or otherwise acquire any shares of its capital stock or any securities convertible into or exercisable for any shares of its capital stock. (xxvi) Facilities. Except as required by Law or set forth inPFG Disclosure Schedule 5.01(a)(xxvi), file any application or make any contract or commitment for the opening, relocation, or closing of any, or open, relocate, or close any, branch office, loan production, or servicing facility or automated banking facility, except for any change that may be requested by SMBK.
(xxvii) Restructure. Except as disclosed onPFG Disclosure Schedule 5.01(a)(xxvii), merge or consolidate itself or any of its Subsidiaries with any other Person, or restructure, reorganize or completely or partially liquidate or dissolve it or any of its Subsidiaries. (xxviii) Commitments. (A) Enter into any contract with respect to, or otherwise agree or commit to do, or adopt any resolutions of its board of directors or similar governing body in support of, any of the foregoing or (B) take any action that is intended or expected to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time prior to the Effective Time, or in any of the conditions to the Merger not being satisfied in any material respect or in a violation of any provision of this Agreement, except, in every case, as may be required by applicable Law. (b) Divestitures. PFG will (i) use its best efforts to effect the sale, transfer, or redemption of the assets set forth onSMBK Disclosure Schedule 5.01(b)(i) (each sale or transfer, a “Required Pre-Closing Divestiture”, and (ii) shall coordinate in good faith with SMBK regarding the sale, transfer, or redemption of the assets of PFG or its Subsidiaries set forth onSMBK Disclosure Schedule 5.01(b)(ii) (collectively with the Required Pre-Closing Divestitures, the “Pre-Closing Divestitures”). The terms on which each Pre-Closing Divestiture is effected shall be subject to SMBK’s prior written approval, which shall be not be unreasonably withheld, and, except as approved in writing by SMBK, shall (i) provide for the transferee or redeeming entity to have no recourse to SMBK, PFG, or any of their Subsidiaries after the transfer or redemption; and (ii) shall include such other terms as set forth onSMBK Disclosure Schedule 5.01(b)(i) orSMBK Disclosure Schedule 5.01(b)(ii), as applicable, with respect to such Pre-Closing Divestitures. (c) 280G Shareholder Vote. If the execution of this Agreement, approval by the shareholders of PFG, the consummation of any of the transactions contemplated hereby (either alone or in conjunction with any other event) would entitle any person who is a “disqualified individual” to a “parachute payment” (as such terms are defined in Section 280G of the Code) absent approval by the shareholders of PFG, then, prior to the Closing, PFG will take all necessary actions to submit to its shareholders at the PFG Meeting a separate shareholder vote that is not contingent on approval of this Agreement, in a manner that satisfies the stockholder approval requirements for exemption under Section 280G(b)(5)(A)(ii) of the Code and the regulations promulgated thereunder, the right of each disqualified individual to receive or retain, as applicable, any payments and benefits to the extent necessary so that no payment or benefit received by such disqualified person shall be deemed a parachute payment, and to obtain any required waivers or consents from the disqualified individual(s) prior to the vote, so that such vote shall establish the disqualified individual’s right to the payment or benefits (“280G Waiver”). In addition, prior to such shareholder vote, PFG shall provide adequate disclosure to all shareholders of PFG entitled to vote thereon of all material facts concerning all payments that, but for such vote, could be deemed parachute payments under Section 280G of the Code in a manner that satisfies Section 280G(b)(5) of the Code (“280G Disclosure”). PFG and its shareholders will be responsible for all Liabilities and obligations related to the matters described in thisSection 5.01(c),including any claims by disqualified individuals that they are entitled to payment or reimbursement for any related excise taxes. PFG will provide the 280G Disclosure and the 280G Waiver to SMBK within a reasonable period of time before disseminating such materials to the disqualified individuals and PFG’s shareholders, and will work with SMBK in good faith regarding any comments provided by SMBK thereto.
Section 5.02 Covenants of SMBK. From the date hereof until the Effective Time, SMBK shall not and shall not permit any of its Subsidiaries to take any action or knowingly fail to take any action not contemplated by this Agreement that is intended or is reasonably likely to (i) prevent, delay or impair SMBK’s ability to consummate the Merger or the transactions contemplated by this Agreement or (ii) agree to take, make any commitment to take, or adopt any resolutions of its board of directors in support of, any of the actions prohibited by thisSection 5.02. Section 5.03 Commercially Reasonable Efforts. Subject to the terms and conditions of this Agreement, each of the Parties agrees to use commercially reasonable efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws, so as to permit consummation of the transactions contemplated hereby as promptly as practicable, including the satisfaction of the conditions set forth inArticle VI, and shall reasonably cooperate with the other Party to that end. Section 5.04 Shareholder Approval. (a) Following the execution of this Agreement, PFG shall take, in accordance in all material respects with applicable Law and the charter and bylaws of PFG, all action necessary to convene a special meeting of its shareholders as promptly as practicable after the Registration Statement is declared effective by the SEC to consider and vote upon the approval of this Agreement and the transactions contemplated hereby (including the Merger) and any other matters required to be approved by PFG’s shareholders in order to permit consummation of the Merger and the transactions contemplated hereby (including any adjournment or postponement thereof, the “PFG Meeting”) and shall take all lawful action to solicit such approval by such shareholders. PFG shall use its reasonable best efforts to obtain the Requisite PFG Shareholder Approval to consummate the Merger and the other transactions contemplated hereby, and shall ensure that the PFG Meeting is called, noticed, convened, held, and conducted, and that all proxies solicited by PFG in connection with the PFG Meeting are solicited in compliance in all material respects with the TBCA, the charter and bylaws of PFG, and all other applicable legal requirements. Except with the prior approval of SMBK, no other matters shall be submitted for the approval of PFG shareholders at the PFG Meeting. (b) Except to the extent provided otherwise inSection 5.09, the board of directors of PFG shall at all times prior to and during the PFG Meeting recommend approval of this Agreement by the shareholders of PFG and the transactions contemplated hereby (including the Merger) and any other matters required to be approved by PFG’s shareholders for consummation of the Merger and the transactions contemplated hereby (the “PFG Recommendation”). In the event that there is present at the PFG Meeting, in person or by proxy, sufficient favorable voting power to secure the Requisite PFG Shareholder Approval, PFG will not adjourn or postpone the PFG Meeting unless PFG is advised by counsel that failure to do so would result in a breach of the fiduciary duties of the board of directors of PFG. PFG shall keep SMBK updated with respect to the proxy solicitation results in connection with the PFG Meeting as reasonably requested by SMBK.
(c) PFG shall adjourn or postpone the PFG Meeting if (i) as of the time for which such meeting is originally scheduled there are insufficient shares of PFG Common Stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of such meeting, or (ii) on the date of such meeting PFG has not received proxies representing a sufficient number of shares necessary to obtain the Requisite PFG Shareholder Approval. PFG shall be required to effect a single adjournment or postponement of the PFG Meeting pursuant to clause (i) or (ii) of thisSection 5.04(c) for a single period of no more than fifteen (15) Business Days only to allow time to solicit additional proxies as may be necessary to obtain the Requisite PFG Shareholder Approval. Section 5.05 Registration Statement; Proxy Statement-Prospectus; NASDAQ Listing. (a) SMBK and PFG agree to cooperate in the preparation of the Registration Statement to be filed by SMBK with the SEC in connection with the issuance of SMBK Common Stock in the transactions contemplated by this Agreement (including the Proxy Statement-Prospectus and all related documents). PFG shall deliver to SMBK such financial statements and related analysis of PFG, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of PFG, as may be required in order to file the Registration Statement, and any other report required to be filed by SMBK with the SEC, in each case, in compliance in all material respects with applicable Laws, and shall, as promptly as practicable following execution of this Agreement, prepare and deliver drafts of such information to SMBK to review. Each of SMBK and PFG agree to use their respective commercially reasonable efforts to cause the Registration Statement to be declared effective by the SEC as promptly as reasonably practicable after the filing thereof and to maintain such effectiveness for as long as necessary to consummate the Merger and the other transactions contemplated by this Agreement. SMBK also agrees to use commercially reasonable efforts to obtain any necessary state securities Law or “blue sky” permits and approvals required to carry out the transactions contemplated by this Agreement. PFG agrees to cooperate with SMBK and SMBK’s counsel and accountants in requesting and obtaining appropriate opinions, consents, and letters from PFG’s independent auditors in connection with the Registration Statement and the Proxy Statement-Prospectus. After the Registration Statement is declared effective under the Securities Act, PFG, at its own expense, shall promptly mail or cause to be mailed the Proxy Statement-Prospectus to its shareholders. (b) SMBK will use its commercially reasonable efforts to cause the shares of SMBK Common Stock to be issued in connection with the transactions contemplated by this Agreement to be approved for listing on the NASDAQ, subject to official notice of issuance, prior to the Effective Time.
Section 5.06 Regulatory Filings; Consents. (a) Each of SMBK and PFG and their respective Subsidiaries shall cooperate and use their respective commercially reasonable efforts (i) to promptly prepare all documentation (including the Registration Statement and the Proxy Statement-Prospectus), and to effect all filings, to obtain all permits, consents, approvals, and authorizations of all third parties and Governmental Authorities necessary to consummate the transactions contemplated by this Agreement, the Regulatory Approvals and all other consents and approvals of a Governmental Authority required to consummate the Merger in the manner contemplated herein, (ii) to comply with the terms and conditions of such permits, consents, approvals and authorizations and (iii) to cause the transactions contemplated by this Agreement to be consummated as expeditiously as practicable;provided,however, notwithstanding the foregoing or anything to the contrary in this Agreement, nothing contained herein shall be deemed to require SMBK or any of its Subsidiaries or PFG or any of its Subsidiaries to take any non-standard action, or commit to take any such action, or agree to any non-standard condition or restriction, in connection with obtaining the foregoing permits, consents, approvals and authorizations of any Governmental Authority that would reasonably be likely to have a material and adverse effect (measured on a scale relative to PFG) on the condition (financial or otherwise), results of operations, liquidity, assets or deposit liabilities, properties or business of SMBK, PFG, the Surviving Entity or the Surviving Bank, after giving effect to the Merger (“Burdensome Condition”). SMBK and PFG will furnish each other and each other’s counsel with all information concerning themselves, their Subsidiaries, directors, trustees, officers and shareholders and such other matters as may be necessary or advisable in connection with any application, petition or any other statement or application made by or on behalf of SMBK or PFG to any Governmental Authority in connection with the transactions contemplated by this Agreement. Each Party shall have the right to review and approve in advance all characterizations of the information relating to such party and any of its Subsidiaries that appear in any filing made in connection with the transactions contemplated by this Agreement with any Governmental Authority. In addition, SMBK and PFG shall each furnish to the other for review a copy of each non-confidential portion of such filing made in connection with the transactions contemplated by this Agreement with any Governmental Authority prior to its filing. (b) PFG will use its best efforts, and SMBK shall reasonably cooperate with PFG at PFG’s request, to obtain all consents, approvals, authorizations, waivers or similar affirmations described onPFG Disclosure Schedule 3.12(c). Each Party will notify the other Party promptly and shall promptly furnish the other Party with copies of notices or other communications received by such Party or any of its Subsidiaries of any communication from any Person alleging that the consent of such Person (or another Person) is or may be required in connection with the transactions contemplated by this Agreement (and the response thereto from such Party, its Subsidiaries or its representatives). PFG will consult with SMBK and its representatives as often as practicable under the circumstances so as to permit PFG and SMBK and their respective representatives to cooperate to take appropriate measures to obtain such consents and avoid or mitigate any adverse consequences that may result from the foregoing. Section 5.07 Publicity. SMBK and PFG shall consult with each other before issuing any press release with respect to this Agreement or the transactions contemplated hereby and shall not issue any such press release or make any such public statement without the prior consent of the other Party, which shall not be unreasonably delayed or withheld;provided,however, that a party may, without the prior consent of the other party (but after such consultation, to the extent practicable in the circumstances), issue such press release or make such public statements as may upon the advice of counsel be required by Law or the rules and regulations of any stock exchanges. It is understood that SMBK shall assume primary responsibility for the preparation of joint press releases relating to this Agreement, the Merger, and the other transactions contemplated hereby.
Section 5.08 Access; Current Information; Accounting Matters. (a) For the purposes of verifying the representations and warranties of the other and preparing for the Merger and the other matters contemplated by this Agreement, upon reasonable notice and subject to applicable Laws, PFG agrees to afford SMBK and its officers, employees, counsel, accountants, and other authorized representatives such access during normal business hours at any time and from time to time throughout the period prior to the Effective Time to PFG’s and its Subsidiaries’ books, records (including, without limitation, Tax Returns and work papers of independent auditors), loan files, information technology systems, business, properties, and personnel and to such other information relating to them as SMBK may reasonably request and PFG shall use its commercially reasonable efforts to provide any appropriate notices to employees and/or customers in accordance with applicable Law and PFG’s privacy policy and, during such period, PFG shall furnish to SMBK, upon SMBK’s reasonable request, all such other information concerning the business, properties and personnel of PFG and its Subsidiaries that is substantially similar in scope to the information provided to SMBK in connection with its diligence review prior to the date of this Agreement. (b) For the purposes of verifying the representations and warranties of the other and preparing for the Merger and the other matters contemplated by this Agreement, during the period of time from the date of this Agreement to the Effective Time, upon reasonable notice and subject to applicable Laws, SMBK agrees to furnish to PFG such information as PFG may reasonably request concerning the business of SMBK and its Subsidiaries that is substantially similar in scope to the information provided to PFG in connection with its diligence review prior to the date of this Agreement. (c) As promptly as reasonably practicable after they become available, PFG will furnish to SMBK copies of the board packages distributed to the board of directors of PFG or any of its Subsidiaries, and minutes from the meetings thereof, copies of any internal management financial control reports showing actual financial performance against plan and previous period, and copies of any reports provided to the board of directors of PFG or any committee thereof relating to the financial performance and risk management of PFG. (d) During the period from the date of this Agreement to the Effective Time, at the reasonable request of either Party, the other Party will cause one or more of its designated representatives to confer with representatives of the requesting Party and to report the general status of the ongoing operations of the other Party and its Subsidiaries. Without limiting the foregoing, PFG agrees to provide to SMBK (i) a copy of each report filed by PFG or any of its Subsidiaries with a Governmental Authority, (ii) a copy of PFG’s monthly loan trial balance, and (iii) a copy of PFG’s monthly statement of condition and profit and loss statement, in each case, which shall be provided as promptly as reasonably practicable after it is filed or prepared, as applicable. PFG further agrees to provide SMBK, no later than 10 Business Days following the end of each calendar month following the date hereof, any supplements toPFG Disclosure Schedule 3.19,PFG Disclosure Schedule 3.22(a), andPFG Disclosure Schedule 3.22(b)that would be required if the references to July 31, 2019 in each corresponding representation and warranty of PFG were changed to the date of the most recently ended calendar month.
(e) No investigation by a Party or its representatives shall be deemed to modify or waive any representation, warranty, covenant, or agreement of the other Party set forth in this Agreement, or the conditions to the respective obligations of SMBK and PFG to consummate the transactions contemplated hereby. (f) Notwithstanding anything to the contrary in thisSection 5.08, PFG shall not be required to copy SMBK on any documents that disclose confidential discussions of this Agreement or the transactions contemplated hereby, that contain competitively sensitive business or other proprietary information filed under a claim of confidentiality (including any confidential supervisory information) or any other matter that PFG’s board of directors has been advised by counsel that such distribution to SMBK may violate a confidentiality obligation or fiduciary duty or any Law or regulation, or may result in a waiver of PFG’s attorney-client privilege. In the event any of the restrictions in thisSection 5.08(g) shall apply, PFG shall use its commercially reasonable efforts to provide appropriate consents, waivers, decrees, and approvals necessary to satisfy any confidentiality issues relating to documents prepared or held by third parties (including work papers), the Parties will make appropriate alternate disclosure arrangements, including adopting additional specific procedures to protect the confidentiality of sensitive material and to ensure compliance with applicable Laws. Section 5.09 No Solicitation by PFG; Superior Proposals. (a) Except as permitted bySection 5.09(b), PFG shall not, and shall cause its Subsidiaries and each of their respective officers, directors, and employees not to, and will not authorize any investment bankers, financial advisors, attorneys, accountants, consultants, affiliates or other agents of PFG or any of PFG’s Subsidiaries (collectively, the “PFG Representatives”) to, directly or indirectly, (i) initiate, solicit, induce, or knowingly encourage, or take any action to facilitate the making of, any inquiry, offer or proposal which constitutes, or could reasonably be expected to lead to, an Acquisition Proposal; (ii) participate in any discussions or negotiations regarding any Acquisition Proposal or furnish, or otherwise afford access, to any Person (other than SMBK) any information or data with respect to PFG or any of its Subsidiaries or otherwise relating to an Acquisition Proposal; (iii) release any Person from, waive any provisions of, or fail to enforce any confidentiality agreement or standstill agreement to which PFG is a party; or (iv) enter into any agreement, confidentiality agreement, agreement in principle or letter of intent with respect to any Acquisition Proposal or approve or resolve to approve any Acquisition Proposal or any agreement, agreement in principle, or letter of intent relating to an Acquisition Proposal. Any violation of the foregoing restrictions by any of the PFG Representatives, whether or not such PFG Representative is so authorized and whether or not such PFG Representative is purporting to act on behalf of PFG or otherwise, shall be deemed to be a breach of this Agreement by PFG. PFG and its Subsidiaries shall, and shall cause each of the PFG Representatives to, immediately cease and cause to be terminated any and all existing discussions, negotiations, and communications with any Persons with respect to any existing or potential Acquisition Proposal. For purposes of this Agreement, “Acquisition Proposal” means any inquiry, offer or proposal (other than an inquiry, offer, or proposal from SMBK), whether or not in writing, contemplating, relating to, or that could reasonably be expected to lead to, an Acquisition Transaction.
For purposes of this Agreement, “Acquisition Transaction” means (A) any transaction or series of transactions involving any merger, consolidation, recapitalization, share exchange, liquidation, dissolution, or similar transaction involving PFG or any of its Subsidiaries; (B) any transaction pursuant to which any third party or group acquires or would acquire (whether through sale, lease or other disposition), directly or indirectly, a significant portion of the assets of PFG or any of its Subsidiaries; (C) any issuance, sale or other disposition of 15%(including by way of merger, consolidation, share exchange or any similar transaction) securities (or options, rights or warrants to purchase or securities convertible into, such securities) representing 20% or more of such Party’s consolidated assets in a single transactionthe votes attached to the outstanding securities of PFG or seriesany of transactions; (ii)its Subsidiaries; (D) any tender offer (including a self-tender) or exchange offer with respect to,that, if consummated, would result in any third party or direct or indirect purchase or acquisition of, 15%group beneficially owning 20% or more of any class of equity or voting securities of PFG or any of its Subsidiaries; or (E) any transaction which is similar in form, substance or purpose to any of the foregoing transactions, or any combination of the foregoing. For purposes of this Agreement, “Superior Proposal” means a bona fide, unsolicited Acquisition Proposal (i) that if consummated would result in a third party (or in the case of a direct merger between such Party;third party and PFG or any of its Subsidiaries, the shareholders of such third party) acquiring, directly or indirectly, more than 50% of the outstanding PFG Common Stock or more than 50% of the assets of PFG and its Subsidiaries, taken as a whole, for consideration consisting of cash and/or securities and (ii) that the board of directors of PFG reasonably determines in good faith, after consultation with its outside financial advisor and outside legal counsel, (A) is reasonably capable of being completed, taking into account all financial, legal, regulatory and other aspects of such proposal, including all conditions contained therein and the person making such Acquisition Proposal, and (B) taking into account any changes to this Agreement proposed by SMBK in response to such Acquisition Proposal, as contemplated bySection 5.09(c), and all financial, legal, regulatory and other aspects of such takeover proposal, including all conditions contained therein and the person making such proposal, is more favorable to the shareholders of PFG from a financial point of view than the Merger. (b) NotwithstandingSection 5.09(a) or any other provision of this Agreement, prior to the date of the PFG Meeting, PFG may take any of the actions described inSection 5.09(a)if, but only if, (i) PFG has received a bona fide unsolicited written Acquisition Proposal that did not result from a breach ofSection 5.09(a); (ii) the board of directors of PFG reasonably determines in good faith, after consultation with and having considered the advice of its outside financial advisor and outside legal counsel, that (A) such Acquisition Proposal constitutes or is reasonably likely to lead to a Superior Proposal and (B) the failure to take such actions more likely than not would cause it to violate its fiduciary duties to PFG’s shareholders under applicable Law; (iii) PFG has provided SMBK with at least three Business Days’ prior notice of such determination; and (iv) prior to furnishing or affording access to any merger, shareinformation or data with respect to PFG or any of its Subsidiaries or otherwise relating to an Acquisition Proposal, PFG receives from such Person a confidentiality agreement with terms no less favorable to PFG than those contained in the confidentiality agreement with SMBK. PFG shall promptly provide to SMBK any non-public information regarding PFG or its Subsidiaries provided to any other Person which was not previously provided to SMBK, such additional information to be provided no later than the date of provision of such information to such other party.
(c) PFG shall promptly (and in any event within one (1) Business Day) notify SMBK in writing if any proposals or offers are received by, any information is requested from, or any negotiations or discussions are sought to be initiated or continued with, PFG or the PFG Representatives, in each case in connection with any Acquisition Proposal, and such notice shall indicate the name of the Person initiating such discussions or negotiations or making such proposal, offer, or information request and the material terms and conditions of any proposals or offers (and, in the case of written materials relating to such proposal, offer, information request, negotiations or discussion, providing copies of such materials (including e-mails or other electronic communications) except to the extent that such materials constitute confidential information of the party making such offer or proposal under an effective confidentiality agreement). PFG agrees that it shall keep SMBK informed, on a reasonably current basis, of the status and terms of any such proposal, offer, information request, negotiations, or discussions (including any amendments or modifications to such proposal, offer, or request). (d) Except as provided inSection 5.09(e), neither the board of directors of PFG nor the board of directors of any Subsidiary nor any committee of any boards of directors of PFG or its Subsidiaries shall (i) fail to make or withdraw (or modify or qualify in any manner adverse to SMBK or publicly propose to withdraw, modify, or qualify in any manner adverse to SMBK) the PFG Recommendation, or the determination of the advisability to its shareholders of the approval of this Agreement and the transactions contemplated hereby, including the Merger, (ii) adopt, approve, or publicly recommend, endorse or otherwise declare advisable any Acquisition Proposal, (iii) fail to include the PFG Recommendation in whole or in part in the Proxy Statement Prospectus or any filing or amendment or supplement relating thereto, (iv) fail to recommend against any then-pending tender or exchange consolidation,offer that constitutes an Acquisition Proposal within five business combination, reorganization, recapitalization,days after it is announced, (v) fail to reaffirm the PFG Recommendation within three business days following a request by SMBK, or make any statement, filing or release, in connection with the PFG Meeting or otherwise, inconsistent with the PFG Recommendation, or (vi) resolve to do any of the foregoing. Each such action set forth in thisSection 5.5(d) shall be referred to herein as an “Adverse Recommendation Action.” (e) NotwithstandingSection 5.09(d), prior to the receipt of the Requisite PFG Shareholder Approval, the board of directors of PFG may withdraw, qualify, amend or modify the PFG Recommendation (a “PFG Subsequent Determination”) or cause or permit PFG to terminate this Agreement to enter into a definitive agreement with respect to such Superior Proposal in accordance with the terms ofSection 7.01(g) after the fifth Business Day following SMBK’s receipt of a notice (the “Notice of Superior Proposal”) from PFG advising SMBK that the board of directors of PFG has decided (in good faith after consultation with its outside legal counsel and financial advisor) that a bona fide unsolicited written Acquisition Proposal that it received (that did not result from a breach ofSection 5.09(a)) constitutes a Superior Proposal if, but only if, (i) the board of directors of PFG has determined in good faith, after consultation with and having considered the advice of outside legal counsel and its financial advisor, that the failure to take such actions more likely than not would cause it to violate its fiduciary duties to PFG’s shareholders under applicable Law, (ii) during the five Business Day period after receipt of the Notice of Superior Proposal by SMBK (the “Notice Period”), PFG and the board of directors of PFG shall have cooperated and negotiated in good faith with SMBK to make such adjustments, modifications or amendments to the terms and conditions of this Agreement as would enable PFG to proceed with the PFG Recommendation without a PFG Subsequent Determination;provided,however, that SMBK shall not have any obligation to propose any adjustments, modifications or amendments to the terms and conditions of this Agreement and (iii) at the end of the Notice Period, after taking into account any such adjusted, modified, or amended terms as may have been proposed by SMBK since its receipt of such Notice of Superior Proposal, the board of directors of PFG has again in good faith made the determination (A) in clause (i) of thisSection 5.09(e) and (B) that such Acquisition Proposal constitutes a Superior Proposal. In the event of any material revisions to the Superior Proposal, PFG shall be required to deliver a new Notice of Superior Proposal to SMBK and again comply with the requirements of thisSection 5.09(e), except that the Notice Period shall be reduced to three Business Days.
(f) Notwithstanding any PFG Subsequent Determination, unless this Agreement has been terminated, this Agreement shall be submitted to PFG’s shareholders at the PFG Meeting for the purpose of voting on the approval of this Agreement and the transactions contemplated hereby (including the Merger) and nothing contained herein shall be deemed to relieve PFG of such obligation;provided,however, that if the board of directors of PFG shall have made a PFG Subsequent Determination with respect to a Superior Proposal, then the board of directors of PFG may recommend approval of such Superior Proposal by the shareholders of PFG and may submit this Agreement to PFG’s shareholders without recommendation, in which event the board of directors of PFG shall communicate the basis for its recommendation of such Superior Proposal and the basis for its lack of a recommendation with respect to this Agreement and the transactions contemplated hereby to PFG’s shareholders in the Proxy Statement-Prospectus or an appropriate amendment or supplement thereto. (g) Nothing contained in thisSection 5.09 shall prohibit PFG or the board of directors of PFG from complying with PFG’s obligations required under Rule 14e-2(a) promulgated under the Exchange Act (as if such rule was applicable to PFG);provided,however, that any such disclosure relating to an Acquisition Proposal (other than a “stop, look, and listen” or similar transaction involvingcommunication of the type contemplated by Rule 14d-9(f) under the Exchange Act) shall be deemed a change in the PFG Recommendation unless the board of directors of PFG reaffirms the PFG Recommendation in such disclosure. Section 5.10 Indemnification. (a) For a period of six years from and after the Effective Time, and in any event subject to the provisions ofSection 5.10(c)(iv), SMBK shall indemnify and hold harmless the present and former directors and officers of PFG and its Subsidiaries (each an “Indemnified Party”), against all costs, expenses (including reasonable attorney’s fees), judgments, fines, losses, claims, damages, or liabilities or amounts that are paid in settlement (which settlement shall require the prior written consent of SMBK, which consent shall not be unreasonably withheld) of or in connection with any claim, action, suit, proceeding, or investigation, whether civil, criminal, administrative or investigative (each a “Claim”), arising out of actions or omissions of such persons in the course of performing their duties for PFG or any of its Subsidiaries occurring at or before the Effective Time (including the Merger and the other transactions contemplated hereby), regardless of whether such Claim is asserted or claimed before, or after, the Effective Time, to the same extent permitted under the organizational documents of PFG and its Subsidiaries in effect on the date of this Agreement to the extent permitted by applicable Law.
(b) Any Indemnified Party wishing to claim indemnification under thisSection 5.10 shall promptly notify SMBK upon learning of any Claim,provided that, failure to so notify shall not affect the obligation of SMBK under thisSection 5.10, unless, and only to the extent that, SMBK is materially prejudiced in the defense of such Claim as a consequence. In the event of any such Claim (whether asserted or claimed prior to, at or after the Effective Time), (i) SMBK shall have the right to assume the defense thereof and SMBK shall not be liable to such Indemnified Parties for any legal expenses or other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, (ii) the Indemnified Parties will cooperate in the defense of any such matter, (iii) SMBK shall not be liable for any settlement effected without its prior written consent, and (iv) SMBK shall have no obligation hereunder to any Indemnified Party if such indemnification would be in violation of any applicable federal or state banking Laws or regulations, or in the event that a federal or state banking agency or a court of competent jurisdiction shall determine that indemnification of an Indemnified Party in the manner contemplated hereby is prohibited by applicable Laws and regulations, whether or not related to banking Laws. (c) For a period of six years following the Effective Time, SMBK will maintain director’s and officer’s liability insurance (herein, “D&O Insurance”) that serves to reimburse the present and former officers and directors of PFG or its Subsidiaries (determined as of the Effective Time) with respect to claims against such directors and officers arising from facts or events occurring before the Effective Time (including the transactions contemplated hereby), which insurance will contain at least the same coverage and amounts, and contain terms and conditions no less advantageous to the Indemnified Party, as that coverage currently provided by PFG;provided that, if SMBK is unable to maintain or obtain the insurance called for by thisSection 5.10, SMBK will provide as much comparable insurance as is reasonably available (subject to the limitations described below in thisSection 5.10(d)); andprovided,further, that officers and directors of PFG or its Subsidiaries may be required to make application and provide customary representations and warranties to the carrier of the D&O Insurance for the purpose of obtaining such insurance. In no event shall SMBK be required to expend for such tail insurance a premium amount in excess of an amount equal to 200% of the annual premiums paid by PFG for D&O Insurance in effect as of the date of this Agreement (the “Maximum D&O Tail Premium”). If the cost of such tail insurance exceeds the Maximum D&O Tail Premium, SMBK shall obtain tail insurance coverage or a separate tail insurance policy with the greatest coverage available for a cost not exceeding the Maximum D&O Tail Premium. (d) ThisSection 5.10 shall survive the Effective Time, is intended to benefit each PFG Indemnified Party (each of whom shall be entitled to enforce this Section against SMBK) and shall be binding on all successors and assigns of SMBK. (e) If SMBK or any of its successors and assigns (i) shall consolidate with or merge into any other corporation or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) shall transfer all or substantially all of its property and assets to any individual, corporation or other entity, then, in each such case, proper provision shall be made so that the successors and assigns of SMBK and its Subsidiaries shall assume the obligations set forth in thisSection 5.10.
Section 5.11 Employees; Benefit Plans. (a) Following the Effective Time, SMBK shall maintain or cause to be maintained employee benefit plans for the benefit of employees who are full time employees of PFG on the Closing Date and who become employees of SMBK (“Covered Employees”) that provide employee benefits which, in the aggregate, are substantially comparable to the employee benefits and cash-based compensation opportunities that are made available on a uniform and non-discriminatory basis to similarly situated employees of SMBK;provided,however, that in no event shall any Covered Employee be eligible to participate in any closed or frozen plan of SMBK. To the extent permissible by applicable Law and the terms of the applicable PFG benefit plans, SMBK shall give the Covered Employees credit for their prior service with PFG (i) for purposes of eligibility (including initial participation and eligibility for current benefits) and vesting under any qualified or non-qualified employee benefit plan maintained by SMBK and in which Covered Employees may be eligible to participate and (ii) for all purposes under any welfare benefit plans, vacation plans (although SMBK may consider current vacation benefits provided to such employees by PFG), severance plans, and similar arrangements maintained by SMBK. (b) With respect to any employee benefit plan of SMBK that is a health, dental, vision, or other welfare plan in which any Covered Employee is eligible to participate, for the plan year in which such Covered Employee is first eligible to participate, SMBK shall use its commercially reasonable efforts to cause any pre-existing condition limitations, eligibility waiting periods, or evidence of insurability requirements under such SMBK plan to be waived with respect to such Covered Employee and his or her covered dependents to the extent such condition was or would have been covered under the PFG Benefit Plan in which such Covered Employee participated immediately prior to the Effective Time. (c) PFG shall cause Progressive Bank to take all necessary actions to terminate its participation in the Progressive Savings Bank F.S.B. 401(k) Plan, effective as the date immediately preceding the Effective Time of the Merger, and the Jo Ann Rains Employee Stock Ownership Plan, effective as of the Effective Time, subject to the occurrence of the Effective Time. PFG shall provide SMBK with evidence that the such participation has been terminated and provide copies of the appropriate resolutions terminating participation (the form and substance of which shall be subject to review and approval by SMBK, which will not be unreasonably withheld) not later than the day immediately preceding the Effective Time. The accounts of all participants and beneficiaries in the Progressive Savings Bank F.S.B. 401(k) Plan and the Jo Ann Rains Employee Stock Ownership Plan shall become fully vested upon termination of participation in such plan. (d) Prior to the Effective Time, PFG shall take, and shall cause its Subsidiaries to take, all actions requested by SMBK that may be necessary or appropriate to, conditioned on the occurrence of the Effective Time, (i) cause one or more PFG Benefits Plans not covered above to terminate as of the Effective Time, or as of the date immediately preceding the Effective Time, (ii) cause benefit accruals and entitlements under any PFG Benefit Plan to cease as of the Effective Time, or as of the date immediately preceding the Effective Time, (iii) cause the continuation on and after the Effective Time of any contract, arrangement or insurance policy relating to any PFG Benefit Plan for such period as may be requested by SMBK, or (iv) facilitate the merger of any PFG Benefit Plan into any employee benefit plan maintained by SMBK. Additionally, PFG and Progressive Bank will take any and all actions reasonably requested by SMBK related to ensuring the compliance of all PFG Benefit Plans with applicable law, including but not limited to filing any necessary “top hat” filings or corrections. All resolutions, notices, or other documents issued, adopted or executed in connection with the implementation of thisSection 5.11(d) shall be subject to SMBK’s reasonable prior review and approval, which shall not be unreasonably withheld, conditioned or delayed. (e) Any employee of PFG or Progressive Bank that becomes an employee of SMBK or SmartBank at the Effective Time who is terminated within one year following the Effective Time (other than for cause, death, disability, normal retirement or voluntarily resignation) shall receive a severance payment calculated in accordance with the policy set forth onSMBK Disclosure Schedule 5.11(e). (f) Nothing in thisSection 5.11 shall be construed to limit the right of SMBK (including, following the Closing Date, PFG) to amend or terminate any PFG Benefit Plan or other employee benefit plan, to the extent such amendment or termination is permitted by the terms of the applicable plan, nor shall anything in this Section 5.11 be construed to require SMBK (including, following the Closing Date, PFG) to retain the employment of any particular Covered Employee for any fixed period of time following the Closing Date, and the continued retention (or termination) by SMBK of any Covered Employee subsequent to the Effective Time shall be subject in all events to SMBK’s normal and customary employment procedures and practices, including customary background screening and evaluation procedures, and satisfactory employment performance. (g) For purposes of thisSection 5.11, (i) “employees of PFG” shall include employees of PFG or any of its Subsidiaries, (ii) “employees of SMBK” shall include employees of SMBK or any of its Subsidiaries, (iii) all references to PFG shall include each of the Subsidiaries of PFG, and (iv) all references to SMBK shall include each of the Subsidiaries of SMBK. (h) SMBK shall use its commercially reasonable efforts to enter into the Required Employment Arrangements as soon as practicable after the date hereof and shall negotiate such Required Employment Arrangements in good faith and on commercially reasonable terms. Section 5.12 Notification of Certain Changes. SMBK and PFG shall promptly advise the other Party of any change or event having, or which could reasonably be expected to have, a Material Adverse Effect or which it believes would, or which could reasonably be expected to, cause or constitute a material breach of any of its or its respective Subsidiaries’ representations, warranties or covenants contained herein and PFG shall provide on a periodic basis written notice to SMBK of any matters that PFG becomes aware of that should be disclosed on a supplement or amendment to the PFG Disclosure Schedule;provided, that any failure to give notice in accordance with the foregoing shall not be deemed to constitute a violation of thisSection 5.12or the failure of any condition set forth inSection 6.01,Section 6.02 orSection 6.03 to be satisfied, or otherwise constitute a breach of this Agreement by the party failing to give such notice, in each case unless the underlying breach would independently result in a failure of the conditions set forth inSection 6.01,Section 6.02orSection 6.03 to be satisfied.
Section 5.13 Transition; Informational Systems Conversion. From and after the date hereof, SMBK and PFG will use their commercially reasonable efforts to facilitate the integration of PFG with the business of SMBK following consummation of the transactions contemplated hereby, and shall meet on a regular basis to discuss and plan for the conversion of the data processing and related electronic informational systems of PFG and each of its Subsidiaries (the “Informational Systems Conversion”) to those used by SMBK, which planning shall include, but not be limited to, (a) discussion of third-party service provider arrangements of PFG and each of its Subsidiaries; (b) non-renewal or changeover, after the Effective Time, of personal property leases and software licenses used by PFG and each of its Subsidiaries in connection with the systems operations; (c) retention of outside consultants and additional employees to assist with the conversion; (d) outsourcing, as appropriate after the Effective Time, of proprietary or self-provided system services; and (e) any other actions necessary and appropriate to facilitate the conversion, as soon as practicable following the Effective Time. SMBK shall promptly reimburse PFG on request for any reasonable and documented out-of-pocket fees, expenses or charges that PFG may incur as a result of taking, at the request of SMBK, any action prior to the Effective Time to facilitate the Informational Systems Conversion. Section 5.14 No Control of Other Party’s Business. Nothing contained in this Agreement shall give SMBK, directly or indirectly, the right to control or direct the operations of PFG or its Subsidiaries prior to the Effective Time, and nothing contained in this Agreement shall give PFG, directly or indirectly, the right to control or direct the operations of SMBK or its Subsidiaries prior to the Effective Time. Prior to the Effective Time, each of PFG and SMBK shall exercise, consistent with the terms and conditions of this Agreement, control, and supervision over its and its Subsidiaries’ respective operations. Section 5.15 Certain Litigation. Each Party shall promptly advise the other Party orally and in writing of any actual or threatened shareholder litigation against such Party or any of its Subsidiaries and/or the members of the boards of directors of PFG or the board of directors of SMBK or their respective Subsidiaries related to this Agreement or the Merger and the other transactions contemplated by this Agreement. PFG shall: (i) permit SMBK to review and discuss in advance, and consider in good faith the views of SMBK in connection with, any proposed written or oral response to such shareholder litigation; (ii) furnish SMBK’s outside legal counsel with all non-privileged information and documents which outside counsel may reasonably request in connection with such shareholder litigation; (iii) consult with SMBK regarding the defense or settlement of any such shareholder litigation, shall give due consideration to SMBK’s advice with respect to such shareholder litigation and shall not settle any such litigation prior to such consultation and consideration;provided,however, that PFG shall not settle any such shareholder litigation if such settlement requires the payment of money damages, without the written consent of SMBK (such consent not to be unreasonably withheld, conditioned or delayed) unless the payment of any such damages by PFG is reasonably expected by PFG, following consultation with outside counsel, to be fully covered (disregarding any deductible to be paid by PFG) under PFG’s existing director and officer insurance policies, including any tail policy. Section 5.16 Director Resignations. PFG will cause to be delivered to SMBK resignations of all the directors of PFG and its Subsidiaries, such resignations to be effective as of the Effective Time. Section 5.17 Non-Competition and Non-Disclosure Agreement. Concurrently with the execution and delivery of this Agreement and effective upon Closing, PFG has caused each casedirector of PFG and Progressive Bank to execute and deliver the Non-Competition and Non-Disclosure Agreement in the form attached hereto asExhibit C.
Section 5.18 Claims Letters. Concurrently with the execution and delivery of this Agreement and effective upon the Closing, PFG has caused each director of PFG and Progressive Bank to execute and deliver the Claims Letter in the form attached hereto asExhibit D. Section 5.19 [Reserved]. Section 5.20 Coordination. (a) Prior to the Effective Time, subject to applicable Laws, PFG and its Subsidiaries shall take any actions SMBK may reasonably request from time to time to better prepare the parties for integration of the operations of PFG and its Subsidiaries with SMBK and its Subsidiaries, respectively. Without limiting the foregoing, senior officers of PFG and SMBK shall meet from time to time as SMBK may reasonably request, and in any event not less frequently than monthly, to review the financial and operational affairs of PFG and its Subsidiaries, and PFG shall give due consideration to SMBK’s input on such matters, with the understanding that, notwithstanding any other provision contained in this Agreement, neither SMBK nor SmartBank shall under any circumstance be permitted to exercise control of PFG or any of its Subsidiaries prior to the Effective Time. PFG shall permit representatives of SmartBank to be onsite at PFG and its Subsidiaries to facilitate integration of operations and assist with any other coordination efforts as necessary, provided such efforts shall be done without undue disruption to normal business operations, during normal business hours and at the expense of SMBK or SmartBank (not to include PFG’s or its Subsidiaries’ regular employee payroll). (b) Prior to the Effective Time, subject to applicable Laws, PFG and its Subsidiaries shall take any actions SMBK may reasonably request in connection with negotiating any amendments, modifications or terminations of any Leases or PFG Material Contracts that SMBK may request, including, but not limited to, actions necessary to cause any such amendments, modifications, or terminations to become effective prior to (to the extent that the conditions set forth in Article VI of this Agreement have already been satisfied), or immediately upon, the Closing, and shall cooperate with SMBK and will use its commercially reasonable efforts to negotiate specific provisions that may be requested by SMBK in connection with any such amendment, modification, or termination. (c) From and after the date hereof, subject to applicable Laws, the Parties shall reasonably cooperate (provided that the Parties shall cooperate to reasonably minimize disruption to PFG’s or its Subsidiaries’ respective businesses) with the other in preparing for the prompt conversion or consolidation of systems and business operations promptly after the Effective Time (including by entering into customary confidentiality, non-disclosure, and similar agreements with the other party and appropriate service providers) and PFG shall, upon SMBK’s reasonable request, introduce SMBK and its representatives to suppliers of PFG and its Subsidiaries for the purpose of facilitating the integration of PFG and its business into that of SMBK. In addition, after satisfaction of the conditions set forth inSection 6.01(a) andSection 6.01(b), subject to applicable Laws, PFG shall, upon SMBK’s reasonable request, introduce SMBK and its representatives to customers of PFG and its Subsidiaries for the purpose of facilitating the integration of PFG and its business into that of SMBK. Any interaction between SMBK and PFG’s and any of its Subsidiaries’ customers and suppliers shall be coordinated by PFG. PFG shall have the right to participate in any discussions between SMBK and PFG’s customers and suppliers.
(d) SMBK and PFG agree to take all action necessary and appropriate to cause Progressive Bank to merge with SmartBank in accordance with applicable Laws and the terms of the Plan of Bank Merger immediately following the Effective Time or as promptly as practicable thereafter. Section 5.21 Transactional Expenses. PFG shall use its commercially reasonable efforts to cause the aggregate amount of all PFG Expenses (as previously provided to SMBK and referenced in Section 3.35) to not materially exceed the total expenses disclosed in such estimate. PFG shall promptly notify SMBK if or when it determines that it expects to exceed its total budget for PFG Expenses. Notwithstanding anything to the contrary in thisSection 5.21, PFG shall not incur any investment banking, brokerage, finders, or other similar financial advisory fees in connection with the transactions contemplated by this Agreement other than those expressly disclosed to SMBK. The PFG Expenses shall be paid on or after the Closing Date and the corresponding Tax deductions shall be allocated to the Tax period of the SMBK consolidated group which includes the Closing Date. Section 5.22 Confidentiality. Prior to the execution of this Agreement and prior to the consummation of the Merger, subject to applicable Laws, each of SMBK and PFG, and their respective Subsidiaries, affiliates, officers, directors, agents, employees, consultants, and advisors have provided, and will continue to provide one another with information which may be deemed by the party providing the information to be non-public, proprietary and/or confidential, including, but not limited to, trade secrets of the disclosing party. Each Party agrees that it will, and will cause its representatives to, hold any information obtained pursuant to thisArticle Vin accordance with the terms of the Mutual Non-Disclosure Agreement, dated as of June 14, 2019 by and among SMBK and PFG. Section 5.23 AAA Dividend. PFG will be permitted to make a one-time dividend (the “AAA Dividend”) immediately prior to the Effective Time equal to (i) the balance of the Company’s accumulated adjustment account as of December 31, 2019 minus (ii) the amount of any Tax Distributions made pursuant to Section 5.24 (the “AAA Balance”) subject to a maximum of $14,595,354.37, less any adjustments to the Aggregate Cash Consideration for losses on Pre-Closing Divestitures pursuant to Section 2.01(d)(i) of this Agreement, and subject to the approval of SMBK, which approval will not be unreasonably withheld. PFG will deliver a statement to SMBK no later than fifteen (15) Business Days prior to the Closing Date, which statement will set forth the AAA Balance and a detailed calculation thereof, for SMBK’s review and approval. Section 5.24 Tax Matters. (a) Tax Returns. SMBK shall prepare and timely file, or cause to be prepared and timely filed, all income Tax Returns of the PFG and its Subsidiaries for any Taxable Period (or portion thereof) ending before the Closing Date (the “Pre-Closing Tax Period”), which are filed after the Closing Date. Such Tax Returns shall be prepared in a manner consistent with the prior practices of PFG unless otherwise required by applicable Law. (b) Payment of Taxes. The PFG shareholders shall be responsible for and shall timely pay, or cause to be timely paid, any Taxes attributable to the Pre-Closing Tax Period.
(c) Cooperation. The parties will provide each other with such cooperation and information as they may reasonably request of each other in preparing or filing any Tax Return, in determining a liability or right of refund, or in conducting any audit or other proceeding, in respect of Taxes attributable to the Pre-Closing Tax Period. SMBK agrees to retain all books and records with respect to Tax matters pertinent to the PFG and its Subsidiaries relating to any taxable period beginning before the Closing Date until expiration of the statute of limitations (and any extensions thereof) of the respective taxable periods. (d) Tax Contest. SMBK shall promptly provide written notice to the PFG Shareholder Representative of an audit, administrative or judicial proceeding or examination of a Pre-Closing Tax Period that may give rise to a Tax liability for the PFG shareholders (a “Tax Claim”). SMBK shall determine in consultation with the PFG Shareholder Representative whether to contest such Tax Claim but in no event shall SMBK be required to begin or continue a contest of the Tax Claim if, in the reasonable opinion of SMBK, such contest would result in the possibility of the imposition of a Lien on the assets of SMBK or otherwise result in significant adverse consequences to SMBK. If SMBK contests a Tax Claim, SMBK shall (i) permit the PFG Shareholder Representative to participate in such contest, at the expense of the PFG shareholders, (ii) keep the PFG Shareholder Representative reasonably informed of all proceedings, communications and correspondence and (iii) make available all relevant documents in connection therewith. SMBK shall not enter into any settlement or compromise of a Tax Claim without the prior written consent of the PFG Shareholder Representative, which consent shall not be unreasonably withheld or delayed. (e) Tax Distributions. Consistent with past practice, PFG will be permitted to make a one-time Tax distribution on or before February 29, 2020 (the “2019 Tax Distribution”) for the Holders to satisfy their respective Tax obligations in connection with their pro rata share of the income of PFG for the Taxable period ended December 31, 2019. Such Tax Distribution shall be paid in accordance withPFG Disclosure Schedule 5.24(e) and shall be reduced by any Tax distributions made by PFG during the 2019 tax year. PFG will also be permitted to make a one-time Tax distribution immediately prior to Closing (the “2020 Tax Distribution”) for the Holders to satisfy their respective Tax obligations in connection with their pro rata share of the income of PFG for the Taxable period between January 1, 2020 and the Closing Date, provided, however, that (i) the amount of the 2020 Tax Distribution will be subject to SMBK’s consent (based on a verification of the PFG’s estimated Taxable income for the period between January 1, 2020 and the Closing Date), which consent will not be unreasonably withheld, conditioned or delayed, (ii) PFG will provide SMBK with the amount of the proposed Tax Distribution, including a reasonably detailed calculation of the PFG’s estimated Taxable income for the period between January 1, 2020 and the Closing Date (the “2020Tax Estimate”) at least ten days prior to the Closing Date, and (iii) SMBK and PFG will cooperate in good faith to resolve any disagreements regarding the calculation of the 2020 Tax Distribution and the 2020 Tax Estimate. The 2019 Tax Distribution and the 2020 Tax Distribution are collectively referred to herein as the “Tax Distributions.” (f) Tax Treatment. The Parties intend that the Merger shall qualify as a “reorganization” within the meaning of Section 368(a) of the Code and the Regulations promulgated thereunder, and that this Agreement shall constitute a “plan of reorganization” within the meaning of Sections 354 and 361 of the Code. Except as expressly contemplated or permitted by this Agreement, from and after the date of this Agreement, each of SMBK and PFG shall use their respective reasonable best efforts to cause the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, and will not take any action, cause any action to be taken, fail to take any action or cause any action to fail to be taken which action or failure to act is intended or is reasonably likely to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER Section 6.01 Conditions to Obligations of the Parties to Effect the Merger. The respective obligations of the Parties to consummate the Merger are subject to the fulfillment or, to the extent permitted by applicable Law, written waiver by the Parties prior to the Closing Date of each of the following conditions: (a) Shareholder Vote. This Agreement and the transactions contemplated hereby, as applicable, shall have received the Requisite PFG Shareholder Approval at the PFG Meeting. (b) Regulatory Approvals; No Burdensome Condition. All Regulatory Approvals required to consummate the Merger and the Bank Merger in the manner contemplated herein shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof, if any, shall have expired or been terminated, and no such Regulatory Approval includes or contains, or shall have resulted in the imposition of, any Burdensome Condition. (c) No Injunctions or Restraints; Illegality. No judgment, order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of any of the transactions contemplated hereby shall be in effect. No statute, rule, regulation, order, injunction, or decree shall have been enacted, entered, promulgated or enforced by any Governmental Authority that prohibits or makes illegal the consummation of any of the transactions contemplated hereby. (d) Effective Registration Statement. The Registration Statement shall have become effective and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC or any other Governmental Authority. (e) NASDAQ Listing. the shares of SMBK Common Stock to be issued in connection with the transactions contemplated by this Agreement shall be approved for listing on the NASDAQ. (f) Tax Opinions Relating to the Merger. SMBK and PFG, respectively, shall have received opinions from Alston & Bird LLP and Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, respectively, each dated as of the Closing Date, in substance and form reasonably satisfactory to SMBK and PFG, respectively, to the effect that, on the basis of the facts, representations and assumptions set forth in such opinions, the Merger will be treated for federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code. In rendering their opinions, Alston & Bird LLP and Baker, Donelson, Bearman, Caldwell & Berkowitz, PC may require and rely upon representations as to certain factual matters contained in certificates of officers of each of SMBK and PFG or any subsidiary thereof, in form and substance reasonably acceptable to such counsel.
Section 6.02 Conditions to Obligations of PFG. The obligations of PFG to consummate the Merger also are subject to the fulfillment or written waiver by PFG prior to the Closing Date of each of the following conditions: (a) Representations and Warranties. The representations and warranties of SMBK (i) set forth inSection 4.09 shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date with the same effect as though made as of the Closing Date, (ii)Section 4.01,Section 4.02,Section 4.03(a), andSection 4.04 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date with the same effect as though made as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such date) and (iii) set forth in this Agreement, other than those sections specifically identified in clauses (i) or (ii) of thisSection 6.02(a), shall be true and correct (disregarding all qualifications or limitations as to “materiality”, “Material Adverse Effect” and words of similar import set forth therein) as of the date of this Agreement and as of the Closing Date with the same effect as though made as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such date), except, in the case of this clause (iii), where the failure to be true and correct would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect with respect to SMBK. PFG shall have received a certificate signed on behalf of SMBK by the Chief Executive Officer or the Chief Financial Officer of SMBK to the foregoing effect. (b) Performance of Obligations of SMBK. SMBK shall have performed and complied with all of its obligations under this Agreement in all material respects at or prior to the Closing Date except where the failure of the performance of, or compliance with, such obligation has not had and does not have a Material Adverse Effect on SMBK, and PFG shall have received a certificate, dated the Closing Date, signed on behalf of SMBK by its Chief Executive Officer and the Chief Financial Officer to such effect. (c) No Material Adverse Effect. Since the date of this Agreement no change, development, effect, event or circumstance has occurred which has resulted in SMBK or SmartBank being subject to a Material Adverse Effect. Section 6.03 Conditions to Obligations of SMBK. The obligations of SMBK to consummate the Merger also are subject to the fulfillment or written waiver by SMBK prior to the Closing Date of each of the following conditions: (a) Representations and Warranties. The representations and warranties of PFG (i) set forth inSection 3.02 andSection 3.09(b) shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made as of the Closing Date, (ii) the first sentence ofSection 3.01,Section 3.04(a),Section 3.05,Section 3.08,Section 3.14, andSection 3.34 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date with the same effect as though made as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such date) and (iii) set forth in this Agreement, other than those sections specifically identified in clauses (i) or (ii) of thisSection 6.03(a), shall be true and correct (disregarding all qualifications or limitations as to “materiality”, “Material Adverse Effect” and words of similar import set forth therein) as of the date of this Agreement and as of the Closing Date with the same effect as though made as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such date), except, in the case of this clause (iii), where the failure to be true and correct would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect with respect to PFG. SMBK shall have received a certificate signed on behalf of PFG by the Chief Executive Officer or the Chief Financial Officer of PFG to the foregoing effect.
(b) Performance of Obligations of PFG. PFG shall have performed and complied with all of its obligations under this Agreement in all material respects at or prior to the Closing Date, and SMBK shall have received a certificate, dated the Closing Date, signed on behalf of PFG by PFG’s Chief Executive Officer and Chief Financial Officer, to such effect. (c) No Material Adverse Effect. Since the date of this Agreement (i) no change or event has occurred which has resulted in PFG or any of its Subsidiaries being subject to a Material Adverse Effect and (ii) no condition, event, fact, circumstance or other occurrence has occurred that may reasonably be expected to have or result in such parties being subject to a Material Adverse Effect. (d) Bank Plan of Merger. Except as otherwise contemplated bySection 1.03, the Bank Plan of Merger shall have been executed and delivered. (e) Dissenting Shares. Dissenting Shares shall be less than 7.5% of the issued and outstanding shares of PFG Common Stock. (f) Pre-Closing Divestitures. PFG or its applicable Subsidiaries shall have completed the Required Pre-Closing Divestitures in a manner that is reasonably acceptable to SMBK. (g) Employee Arrangements. SMBK and / or PFG, as applicable, shall have entered into employment arrangements with the PFG employees listed onSMBK Disclosure Schedule 6.03(g) on commercially reasonable terms that are substantially consistent with those listed onSMBK Disclosure Schedule 6.03(g) (the “Required Employment Arrangements”). (h) Consents and Approvals. PFG has received, in form and substance satisfactory to PFG and SMBK, all consents, approvals, waivers and other assurances from all non-governmental third parties which are required to be obtained under the terms of any contract, agreement or instrument to which PFG or any of its Subsidiaries is a party or by which any of their respective properties is bound in order to prevent the consummation of the transactions contemplated by this Agreement from constituting a default under such contract, agreement or instrument or creating any lien, claim or charge upon any of the assets of PFG or any of its Subsidiaries. (i) Certification of Non-Foreign Status. SMBK shall have received from PFG, under penalties of perjury, (i) a notice to the IRS conforming to the requirements of Regulations Section 1.897-2(h) executed (which, for the avoidance of doubt, shall be mailed to the IRS by SMBK within thirty (30) days of receipt from PFG) by PFG and (ii) a certificate stating that PFG is not and has not been a United States real property holding corporation, pursuant to Regulations Section 1.1445-2(c)(3) and in form and in substance required under Regulations Section 1.897-2(h), dated as of the Closing Date, and as reasonably acceptable to SMBK.
Section 6.04 Frustration of Closing Conditions. Neither SMBK nor PFG may rely on the failure of any condition set forth inSection 6.01,Section 6.02 orSection 6.03, as the case may be, to be satisfied if such failure was caused by such Party’s failure to use its reasonable best efforts to consummate any of the transactions contemplated hereby, as required by and subject toSection 5.03. ARTICLE VII
TERMINATION Section 7.01 Termination. This Agreement may be terminated, and the transactions contemplated hereby may be abandoned: (a) Mutual Consent. At any time prior to the Effective Time, by the mutual consent, in writing, of SMBK and PFG if the board of directors of SMBK and the board of directors of PFG each so determines by vote of a majority of the members of its entire board. (b) No Regulatory Approval. By SMBK or PFG, if either of their respective boards of directors so determines by a vote of a majority of the members of its entire board, in the event any Regulatory Approval required for consummation of the transactions contemplated by this Agreement shall have been denied by final, non-appealable action by such Governmental Authority or an application therefor shall have been permanently withdrawn at the request of a Governmental Authority. (c) No Shareholder Approval. By either SMBK or PFG (provided, in the case of PFG, that it shall not be in breach of any of its obligations underSection 5.04), if the Requisite PFG Shareholder Approval at the PFG Meeting shall not have been obtained by reason of the failure to obtain the required vote at a duly held meeting of such shareholders or at any adjournment or postponement thereof. (d) Breach of Representations and Warranties. This Agreement may be terminated at any time prior to the Effective Time by action of either the board of directors of SMBK or the board of directors of PFG (provided, that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there shall have been a material breach of any of the covenants or agreements or any of the representations or warranties (or any such representation or warranty shall cease to be true) set forth in this Agreement on the part of PFG, in the case of a termination by SMBK, or SMBK, in the case of a termination by PFG, which breach or failure to be true, either individually or in the aggregate with all other breaches by such Party (or failures of such representations or warranties to be true), would constitute, if occurring or continuing on the Closing Date, the failure of a condition set forth inSection 6.02, in the case of a termination by PFG, orSection 6.03, in the case of a termination by SMBK, and which is not cured by the earlier of the (i) two business days prior to the Termination Date or (ii) 30 days following written notice to the PFG, in the case of a termination by SMBK, or to SMBK, in the case of a termination by the PFG, or by its nature or timing cannot be cured during such period.
(e) Delay. By either SMBK or PFG if the Merger shall not have been consummated on or before June 30, 2020,provided,however, that such date will be automatically extended to September 30, 2020, if the only outstanding condition to Closing underArticle VI is the receipt of all Regulatory Approvals (the “Expiration Date”), unless the failure of the Closing to occur by such date shall be due to a material breach of this Agreement by the Party seeking to terminate this Agreement. (f) Failure to Recommend; Etc. In addition to and not in limitation of SMBK’s termination rights underSection 7.01(e), by SMBK if (i) there shall have been a material breach ofSection 5.04 orSection 5.09 by PFG, or (ii) the board of directors of PFG takes an Adverse Recommendation Action. (g) Superior Proposal. By PFG at any time before obtaining the Requisite PFG Shareholder Approval if the board of directors of PFG authorizes PFG, in compliance with the terms of this Agreement, to enter into a binding definitive agreement in respect of a Superior Proposal with a third party, provided, that PFG shall have paid any amounts due pursuant toSection 7.02 in accordance with the terms, and at the times, specified therein;provided,further, that, in the event of such termination, PFG concurrently enters into such binding definitive agreement. Section 7.02 Termination Fee. (a) In recognition of the efforts, expenses and other opportunities foregone by SMBK while structuring and pursuing the Merger, PFG shall pay to SMBK a termination fee equal to $2,000,000 (“Termination Fee”), by wire transfer of immediately available funds to an account specified by SMBK in the event of any of the following: (i) if PFG terminates this Agreement pursuant toSection 7.01(g), then PFG shall pay SMBK the Termination Fee prior to and as a condition of such termination in accordance withSection 7.01(g); (ii) if SMBK terminates this Agreement pursuant toSection 7.01(f), then PFG shall pay SMBK the Termination Fee within one Business Day after notification of such termination has been provided to the other Party; or (iii) if, after the date of this Agreement and prior to the termination of this Agreement, an Acquisition Proposal shall have been made known to senior management of PFG or has been made directly to its shareholders generally or any Person shall have publicly announced (and not withdrawn) an Acquisition Proposal with respect to PFG and (A) thereafter this Agreement is terminated (x) by either SMBK or PFG pursuant toSection 7.01(c) because the Requisite PFG Shareholder Approval shall not have been obtained or (y) by SMBK pursuant toSection 7.01(d), and (B) prior to the date that is twelve months after the date of such termination, PFG enters into any agreement or consummates a transaction with respect to an Acquisition Proposal (whether or not the same Acquisition Proposal as that referred to above), then PFG shall, on the earlier of the date it enters into such agreement and the date of consummation of such transaction, pay SMBK the Termination Fee,provided, that for purposes of thisSection 7.02(a)(iii), all references in the definition of Acquisition Proposal to “20%” shall instead refer to “50%”. (b) PFG and SMBK each agree that the agreements contained in thisSection 7.02 are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, SMBK would not enter into this Agreement; accordingly, if PFG fails promptly to pay any amounts due under thisSection 7.02, PFG shall pay interest on such amounts from the date payment of such amounts were due to the date of actual payment at the rate of interest equal to the sum of (i) the rate of interest published from time to time in The Wall Street Journal, Eastern Edition (or any successor publication thereto), designated therein as the prime rate on the date such payment was due, plus (ii) 200 basis points, together with the costs and expenses of SMBK (including reasonable legal fees and expenses) in connection with such suit.
(c) Notwithstanding anything to the contrary set forth in this Agreement, the Parties agree that if PFG pays or causes to be paid to SMBK the Termination Fee in accordance withSection 7.02(a), PFG (or any successor in interest of PFG) will not have any further obligations or liabilities to SMBK with respect to this Agreement or the transactions contemplated by this Agreement. Section 7.03 Effect of Termination. Except as set forth inSection 7.02(c), termination of this Agreement will not relieve a breaching party from liability for any breach of any covenant, agreement, representation or warranty of this Agreement (a) giving rise to such termination and (b) resulting from fraud or any willful and material breach. ARTICLE VIII
DEFINITIONS Section 8.01 Definitions. The following terms are used in this Agreement with the meanings set forth below: “AAA Balance” has the meaning set forth inSection 5.23. “AAA Dividend” has the meaning set forth inSection 5.23. “Acquisition Proposal” has the meaning set forth inSection 5.09(a). “Acquisition Transaction” has the meaning set forth inSection 5.09(a). “Adverse Recommendation Action” Has the meaning set forth inSection 5.09(d). “Affiliate” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, iscontrolling, controlled by or is under common control with such Person. ForAs used in this purpose, the terms “controls,”definition, “control” (including, with its correlative meanings, “controlled by,”by” and “under common control with” shall mean) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person whether through the ownership of voting securities, by contract or otherwise. “Aggregate Cash Consideration” has the meaning set forth inBancshares CommonSection 2.01(d). “Aggregate Stock Consideration” has the meaning set forth inSection 2.01(d). “Agreement” has the meaning set forth in the preamble to this Agreement. “Articles of Merger” has the meaning set forth inSection 1.04(a).
“ASC 320” means the common stock, par value $1.00 per share, of Bancshares.GAAP Accounting Standards Codification Topic 320. “Bancshares Director Stock PlanAssociate” when used to indicate a relationship with any Person means (1) any corporation or organization (other than PFG or any of its Subsidiaries) of which such Person is an officer or partner or is, directly or indirectly, the 2016 Director Stock Planbeneficial owner of Bancshares. “Bancshares DRIP” means the 2015 Dividend Reinvestment Plan10% or more of Bancshares.
“Bancshares Financial Statements” means, collectively, the Audited Bancshares Financials and the Interim Bancshares Financials.
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“Bancshares Loan Property” means any propertyclass of equity securities, (2) any trust or other estate in which Bancshares orsuch Person has a Subsidiary of Bancshares holds a security interest, and, where required by the context, includes the owner or operator of such property, but only with respect to such property.
“Bancshares Material Adverse Effect” means an effect, circumstance, occurrence, event, development, or change that, individually or in the aggregate with one or more other effects, circumstances, occurrences, events, developments, or changes, (i) has had or could reasonably be expected to have a material and adverse effect on the business, condition (financial or otherwise), operations, or results of operations of Bancshares and its Subsidiaries taken as a whole or (ii) materially impairs the ability of Bancshares or the Bank to perform its obligations under this Agreement or prevents or materially impedes the consummation by Bancshares or the Bank of the transactions contemplated by this Agreement; provided, however, that, with respect to clause (i), the term Bancshares Material Adverse Effect shall not be deemed to include the impact of any effect, circumstance, occurrence, event, development, or change resulting from (A) changes after the date of this Agreement in Laws of general applicability that apply to insured depository institutions and/or registered bank holding companies generally, or interpretations thereof by Governmental Entities, (B) changes after the date of this Agreement in GAAP or regulatory accounting requirements applicable to insured depository institutions and/or registered bank holding companies generally, (C) changes in economic conditions, or changes in global, national, or regional political or market conditions (including changes in prevailingsubstantial beneficial interest or exchange rates), in either case affecting the banking and financial services industry generally, (D) any failure by Bancshares or the Bank to meet any internal or published industry analyst projections, forecasts, or estimates of revenue, earnings, or other financial or operating metrics for any period (it being understood that any facts or circumstances giving rise to or contributing to any such failure that are not otherwise excluded from the definition of Bancshares Material Adverse Effect may be taken into account in determining whether there exists or has occurred a Bancshares Material Adverse Effect), or (E) actions or omissions of SmartFinancial, Bancshares, and the Bank required under this Agreement or taken or omitted to be taken with the prior written consent of SmartFinancial (in the case of actions or omissions by the Bancshares Parties) or the Bancshares Parties (in the case of actions or omissions by SmartFinancial); provided that effects, circumstances, occurrences, events, developments, and changes resulting from the changes or other matters described in clauses (A), (B), and (C) shall not be excluded in determining whether there exists or has occurred a Bancshares Material Adverse Effect to the extent of any materially disproportionate impact they have on Bancshares and its Subsidiaries taken as a whole as measured relative to similarly situated companies in the banking and financial services industry.
“Bancshares Participation Facility” means any facility in which Bancshares or a Subsidiary of Bancshares participates in the management thereof (including all property heldserves as trustee or in a similar fiduciary capacity, or (3) any other fiduciary capacity), and, where required by the context, includes the ownerrelative or operatorfamily member of such property, but only with respect to such property.Person.
“Bancshares PartiesBank Merger” means, collectively, Bancshares andhas the Bank.meaning set forth inSection 1.03. “Bank Common StockPlan of Merger” meanshas the common stock, par value $1.00 per share, of the Bank.meaning set forth inSection 1.03. “BankingBank Secrecy Act” means the Tennessee Banking Act, Tenn. Code Ann. § 45-1-101 et seq. “BHCA” means the Bank Holding CompanySecrecy Act of 1956,1970, as amended (12 U.S.C. § 1841 et seq.)amended.
“BOLI” has the meaning set forth inSection 3.32(b). “Book-Entry Shares” means any non-certificated shares of Bancshares Common Stockshare held by book entry in PFG’s stock transfer book, which immediately prior to the Effective Time.Time represents an outstanding share of PFG Common Stock. “Burdensome Condition” has the meaning set forth inSection 5.06(a). “Business Day” means Monday through Friday of each week, excludingexcept a legal holidaysholiday recognized as such by the United StatesU.S. government andor any day on which banking institutions in the State of Tennessee are authorized or obligated to close. “Certificate” means aany outstanding certificate, which immediately prior to the Effective Time, represents sharesan outstanding share of BancsharesPFG Common Stock. “Claim” has the meaning set forth inConfidentiality AgreementSection 5.10(a). “Closing” and “Closing Date” have the meanings set forth inSection 1.04(b). “Code” has the meaning set forth in the Recitals. “Community Reinvestment Act” means that certain Mutual Confidentiality Agreement dated November 29, 2017, by and among SmartFinancial, SmartBank (as defined below), Bancshares, and the Bank.Community Reinvestment Act of 1977, as amended. “ContractControlled Group Members” means any contract, lease, deed, deed of trust, mortgage, license, instrument, note, commitment, undertaking, indenture, or other agreement, understanding, or legally binding arrangement, whether written or oral.PFG’s related organizations described in Code Sections 414. TABLE OF CONTENTS
“Disclosure Memoranda” means, collectively, the SmartFinancial Disclosure Memorandum and the Bancshares Disclosure Memorandum.
“Covered Employees” has the meaning set forth inEnvironmental LawSection 5.11(a). “D&O Insurance” has the meaning set forth inSection 5.10(d). “Derivative Transaction” means any swap transaction, option, warrant, forward purchase or sale transaction, futures transaction, cap transaction, floor transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, catastrophe events, weather-related events, credit-related events or conditions or any indexes, or any other similar transaction (including any option with respect to any of these transactions) or combination of any of these transactions, including collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to any such transaction or transactions.
“Determination Date” means the date that is five (5) days prior to the Closing Date. “Dissenting Shareholder” has the meaning set forth inSection 2.01(c). “Dissenting Shares” has the meaning set forth inSection 2.01(c). “Dodd-Frank Act” means the Dodd-Frank Wall Street Reform and Consumer Protection Act. “Effective Time” has the meaning set forth inSection 1.04(a). “Enforceability Exception”has the meaning set forth inSection 3.05. “Environmental Law” means any federal, state or local Law relating to (i)to: (a) pollution, the protection preservation, or restoration of the indoor or outdoor environment, human health and safety, or natural resources, (ii)(b) the handling, use, storage, recycling, treatment, generation, transportation, processing, production, presence, disposal, release or threatened release of or exposure to any Hazardous Substance, or (iii)(c) any injury or threat of injury to persons or property in connection with any Hazardous Substance. The term Environmental Law includes, without limitation, (i)but is not limited to, the following statutes, as amended, any successorssuccessor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar matters: theissues: (a) Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986, as amended, 42 U.S.C. § 9601 et seq.seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. § 6901, et seq.seq.; the Clean Air Act, as amended, 42 U.S.C. § 7401, et seq.seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. § 1251, et seq.seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. § 2601, et seq.seq.; the Emergency Planning and Community Right to Know Act, 42 U.S.C. § 1101, et seq.seq.; the Safe Drinking Water Act,Act; 42 U.S.C. § 300f, et seq.seq.; and the Occupational Safety and Health Act, 29 U.S.C. § 651, et seq., and (ii) anyseq.; (b) common Law that may impose Liabilityliability (including without limitation strict liability) or obligations for injuries or damages due to the presence of or exposure to any Hazardous Substance. “Equal Credit Opportunity Act” means the Equal Credit Opportunity Act, as amended. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended. “ERISA Affiliate” means any Person that is considered one employer with a Party or any of such Party’s Subsidiaries under has the meaning set forth inSection 4001(b)(1) of ERISA or Section 414 of the Code.3.15(a). “Exchange Act” means the Securities Exchange Act of 1934, as amended.amended, and the rules and regulations promulgated thereunder.
“Excluded SharesExchange Agent” means sharessuch exchange agent as may be designated by SMBK (which shall be SMBK’s transfer agent), and reasonably acceptable to PFG, to act as agent for purposes of Bancshares Common Stock that, immediately prior toconducting the Effective Time, are owned or held, other thanexchange procedures described in a bona fide fiduciary or agency capacity, by SmartFinancial, Bancshares, or the Bank, or any Subsidiary of SmartFinancial, Bancshares, or the Bank, including shares of Bancshares Common Stock held by Bancshares as treasury stock.Article II. “Exchange Fund” has the meaning set forth inSection 2.07(a). “Expiration Date” has the meaning set forth inSection 7.01(f). “Fair Credit Reporting Act” means the Fair Credit Reporting Act, as amended. “Fair Housing Act” means the Fair Housing Act, as amended. “FDIA” has the meaning set forth inSection 3.27. “FDIC” means the Federal Deposit Insurance Corporation. “FFIEC” means the Federal ReserveFinancial Institutions Examination Council. “Financial Statements” has the meaning set forth inSection 3.07(a). “FRB” means the Board of Governors of the Federal Reserve System. “GAAP” means generally accepted accounting principles generally accepted in the United States.States of America, applied consistently with past practice, including with respect to quantity and frequency. “Governmental EntityAuthority” means any U.S. or foreign federal, state provincial,or local governmental commission, board, body, bureau or foreign court, agency, arbitrator, mediator, tribunal, commission, governmental orother regulatory authority or agency, including, without limitation, courts and other governmentaljudicial bodies, bank regulators, insurance regulators, applicable state securities authorities, the SEC, the IRS or administrativeany self-regulatory body instrumentality, or authority, including without limitationany instrumentality or entity designed to act for or on behalf of the SEC, the Federal Trade Commission, the United States Department of Justice, the United States Department of Labor, the IRS, the Federal Reserve, the FDIC, and the TDFI.foregoing. “Hazardous Substance” means any and all substances (whether solid, liquid or gas) defined, listed, designated, classified, or otherwise regulated as pollutants, hazardous or toxic wastes, hazardous or toxic substances, hazardous or toxic materials, extremely hazardous or toxic wastes, flammable or explosive materials, radioactive materials or words of similar meaning or regulatory effect under any present or future Environmental Law or that may have a negative impact on human health or the environment, including, without limitation oil,but not limited to, petroleum and petroleum products, asbestos and asbestos-containing materials, urea formaldehyde foam insulation, polychlorinated biphenyls, lead, radon, radioactive materials, flammables and explosives, mold, mycotoxins, microbial matter and airborne pathogens (naturally occurring or otherwise). Hazardous Substance does not include substances of kinds and in amounts ordinarily and customarily used or stored for the purposes of cleaning or other maintenance or operations. “Intellectual PropertyHolder” means (i) all inventions, whether or not patentablethe holder of record of shares of PFG Common Stock.
“Home Mortgage Disclosure Act” means Home Mortgage Disclosure Act of 1975, as amended. “Indemnified Parties” and whether or not reduced to practice,“Indemnifying Party” have the meanings set forth inSection 5.10(a). “Informational Systems Conversion” has the meaning set forth inSection 5.13. “Insurance Policies” has the meaning set forth inSection 3.32(a). “Intellectual Property” means (a) trademarks, service marks, trade names, Internet domain names, designs, logos, slogans, and all improvements thereon, and all patents, patent applications, and patent disclosures,general intangibles of like nature, together with all re-issues, continuations, continuations-in-part, divisions, extensions, and re-examinations thereof; (ii) all trademarks, whether registered or unregistered, service marks, logos, domain names, rights in or to Internet web sites, and corporate, fictitious, assumed, and trade names; (iii) all copyrights, whether registered or unregistered, and all applications,goodwill, registrations and applications related to the foregoing; (b) patents and industrial designs (including any continuations, divisionals, continuations-in-part, renewals, relative thereto; (iv) all datasets, databases,reissues, and relatedapplications for any of the foregoing); (c) copyrights (including any registrations and applications for any of the foregoing); (d) Software (excluding off-the-shelf Software); and (e) technology, trade secrets and other confidential information, know-how, proprietary processes, formulae, algorithms, models, and documentation; and (v) any and all other intellectual property and proprietary rights.methodologies. TABLE OF CONTENTS
“IRS” means the United States Internal Revenue Service. “Knowledge” means, with respect to a Party,PFG, the actual knowledge, of the Persons set forth inPFG Disclosure Schedule 8.01, after reasonabledue inquiry of the chairman, president, chief executive officer, chief financial officer, chief operating officer, chief lending officer, and chief credit officertheir direct subordinates who would be likely to have knowledge of such Party, as applicable,matter, and other Persons performing similar functions for such Party. In addition, with respect to the Bancshares Parties, the term “Knowledge” shall also includeSMBK, the actual knowledge of the Persons set forth inSMBK Disclosure Schedule 8.01, after reasonabledue inquiry of Clifton N. Miller,their direct subordinates who serves on the boardswould be likely to have knowledge of directors of Bancshares and the Bank.such matter. “LawsLaw” means any and all federal, state, provincial, local andor foreign laws, constitutions, common law principles, ordinances, codes, statutes, judgments, determinations, injunctions, decrees, orders, rules, and regulations.Law, statute, ordinance, rule, regulation, judgment, order, injunction, decree, arbitration award, agency requirement, license or permit of any Governmental Authority that is applicable to the referenced Person. “Leases” has the meaning set forth inLiabilitySection 3.30(b). “Letter of Transmittal” has the meaning set forth inSection 2.06. “Liens” means any debt, liability, commitment,charge, mortgage, pledge, security interest, restriction, claim, lien or obligationencumbrance, conditional and installment sale agreement, charge, claim, option, rights of first refusal, encumbrances, or security interest of any kind character, or nature whatsoever (whether accrued, contingent, absolute, known, unknown, or otherwise and whether due or to become due). “Lien” means(including any lien, claim, attachment, garnishment, imperfection of title, defect, pledge, mortgage, deed of trust, hypothecation, security interest, charge, option, restriction, easement, reversionary interest, right of refusal,limitation on voting, trust arrangement, buy-sell agreement, preemptive right,sale, transfer or other adverse claim, encumbrance,disposition or rightexercise of any nature whatsoever.other attribute of ownership).
“LoanLoans” means a loan, commitment, lease, advance, credit enhancement, guarantee, or other extension of credit or borrowing arrangement.has the meaning set forth inSection 3.22(a).
“NasdaqMaterial Adverse Effect” means The Nasdaq Capital Market. “Parties” means, collectively, SmartFinancial, Bancshares, and the Bank.
“Permitted Exceptions” means (i) Liens for Taxes or other governmental charges not yet due and payable or the amount or validity of which is being contested in good faith by appropriate proceedings being diligently conducted (provided appropriate reserves required pursuant to GAAP have been made in respect thereof); (ii) mechanics’, materialmen’s, and similar inchoate liens arising or incurred in the ordinary course of business for amounts which are not delinquent or which are being contested in good faith by appropriate proceedings being diligently conducted (provided appropriate reserves required pursuant to GAAP have been made in respect thereof); (iii) zoning, entitlement, building, and other land use regulations imposed by Governmental Entities having jurisdiction over the subject property, which are not violated by the current use and operation of the subject property; (iv) covenants, conditions, restrictions, easements, and other similar non-monetary matters of record affecting title to the subject property, which do not materially impair the occupancy or use of the subject property for the purposes for which it is currently used; (v) any right of way or easement related to public roads and highways, which does not materially impair the occupancy or use of the subject property for the purposes for which it is currently used; and (vi) inchoate liens arising or incurred in the ordinary course of business under workers’ compensation, unemployment insurance, social security, retirement, and similar legislation for amounts that are not delinquent.
“Person” means an individual, a corporation, a limited liability company, a partnership, an association, a trust, and any other entity or organization, whether or not incorporated, including without limitation any Governmental Entity.
“Proxy Statement/Prospectus” means the proxy statement prepared by Bancshares to solicit approval of this Agreement and the transactions contemplated hereby by the shareholders of Bancshares, which will include the prospectus of SmartFinancial relating to the issuance by SmartFinancial of SmartFinancial Common Stock to holders of Bancshares Common Stock pursuant to and in accordance with Article III of this Agreement.
“Registration Statement” means the registration statement on Form S-4, or other appropriate form, including any pre-effective or post-effective amendments or supplements thereto, filed by SmartFinancial with the SEC under the Securities Act with respect to the shares of SmartFinancial Common Stock to be issued by SmartFinancial to the holders of Bancshares Common Stock in connection with the transactions contemplated by this Agreement.
“SEC”any Party means the United States Securities and Exchange Commission.
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“Securities Act” means the Securities Act of 1933, as amended.
“SmartBank Common Stock” means the common stock, par value $1.00 per share, of SmartBank.
“SmartBank Preferred Stock” means the preferred stock, par value $1.00 per share, of SmartBank.
“SmartBank Stock” means, collectively, the SmartBank Common Stock and the SmartBank Preferred Stock.
“SmartFinancial Common Stock” means the common stock, par value $1.00 per share, of SmartFinancial.
“SmartFinancial Material Adverse Effect” means an(i) any change, development, effect, circumstance, occurrence, event, development, or changecircumstance that individually or in the aggregate with oneis, or more other effects, circumstances, occurrences, events, developments, or changes, (i) has had, or couldis reasonably be expectedlikely to have, abe, material and adverse effect onto the business, condition (financial or otherwise), operations, or results of operations, liquidity, assets, deposits, liabilities, properties, or business of SmartFinancialsuch party and its Subsidiaries, taken as a whole, or (ii) any change, development or effect that individually or in the aggregate would, or would be reasonably likely to, materially impairsimpair the ability of SmartFinancialsuch Party to perform its obligations under this Agreement or preventsotherwise materially impairs, or is reasonably likely to materially impedesimpair, the consummation by SmartFinancialability of such Party to consummate the Merger and the transactions contemplated by this Agreement; hereby;provided,however, that, with respect toin the case of clause (i), the term SmartFinancial only, a Material Adverse Effect shall not be deemed to include the impact of any effect, circumstance, occurrence, event development, or change resulting from (A) changes after the date of this Agreement in banking and similar Laws of general applicability that apply to insured depository institutions and/or registered bank holding companies generally, or interpretations thereof by Governmental Entities,Authorities (except to the extent that such change disproportionately adversely affects PFG and its Subsidiaries or SMBK and its Subsidiaries, as the case may be, compared to other companies of similar size operating in the same industry in which PFG and SMBK operate, in which case only the disproportionate effect will be taken into account), (B) changes after the date of this Agreement in GAAP or regulatory accounting requirements applicable to insured depository institutions and/banks or registered bank holding companies generally (except to the extent that such change disproportionately adversely affects PFG and its Subsidiaries or SMBK and its Subsidiaries, as the case may be, compared to other companies of similar size operating in the same industry in which PFG and SMBK operate, in which case only the disproportionate effect will be taken into account), (C) changes in economic conditions, or changesafter the date of this Agreement in global, national, or regional political conditions (including the outbreak of war or acts of terrorism) or in economic or market conditions (including equity, credit and debt markets, as well as changes in prevailing interest or exchange rates), in either case conditions affecting the banking and financial services industry generally (except to the extent that such change disproportionately adversely affects PFG and its Subsidiaries or SMBK and its Subsidiaries, as the case may be, compared to other companies of similar size operating in the same industry in which PFG and SMBK operate, in which case only the disproportionate effect will be taken into account), (D) public disclosure of the transactions contemplated hereby or actions expressly required by this Agreement or actions or omissions of SmartFinancial, Bancshares, and the Bank required under this Agreement or taken or omitted to bethat are taken with the prior written consent of SmartFinancial (in the case of actionsother Party, or omissionsas otherwise expressly permitted or contemplated by the Bancshares Parties) or the Bancshares Parties (in the case of actions or omissions by SmartFinancial),this Agreement, (E) any failure by SmartFinancialPFG or SmartBankSMBK to meet any internal or published industry analyst projections or forecasts or estimates of revenue,revenues or earnings or other financial or operating metrics for any period (it being understood and agreed that anythe facts orand circumstances giving rise to or contributing to any such failure that are not otherwise excluded from the definition of SmartFinancial Material Adverse Effect may be taken into account in determining whether there exists or has occurredbeen a SmartFinancial Material Adverse Effect), or (F) changes in the trading price or trading volume of the SmartFinancialSMBK Common Stock (it being understood and agreed that anythe facts orand circumstances giving rise to or contributing to any change in the trading price of the SmartFinancial Common Stocksuch changes that are not otherwise excluded from the definition of SmartFinancial Material Adverse Effect may be taken into account in determining whether there exists or has occurredbeen a SmartFinancial Material Adverse Effect); provided that effects, circumstances, occurrences, events, developments, and changes resulting from the changes or other matters described in clauses (A), (B), and (C) shall not be excluded in determining whether there exists or has occurred a SmartFinancial Material Adverse Effect to(G) the extent of any materially disproportionate impact they have on SmartFinancial and its Subsidiaries taken as a whole as measured relative to similarly situated companies in the banking and financial services industry.
“SmartFinancial Option” means an option to acquire shares of SmartFinancial Common Stock under the Cornerstone Bancshares, Inc. Statutory-NonStatutory Stock Option Plan, as amended; the Cornerstone Bancshares, Inc. 2002 Long Term Incentive Plan, as amended; the SmartBank Stock Option Plan, as amended; the SmartFinancial, Inc. 2010 Incentive Plan, as amended; the SmartFinancial, Inc. 2015 Stock Incentive Plan, as amended; or the Capstone Bancshares, Inc. 2008 Long-Term Equity Incentive Plan, as amended.
“SmartFinancial Parties” means, collectively, SmartFinancial and SmartBank.
“SmartFinancial Preferred Stock” means the preferred stock, par value $1.00 per share, of SmartFinancial, including the SmartFinancial Series B Stock.
“SmartFinancial Series B Stock” means the Non-Cumulative Perpetual Preferred Stock, Series B, par value $1.00 per share, of SmartFinancial.
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“SmartFinancial Stock” means, collectively, the SmartFinancial Common Stock and the SmartFinancial Preferred Stock.
“Subsidiary” means any corporation, limited liability company, partnership, joint venture, or other entity in which SmartFinancial, Bancshares, or the Bank, as the case may be, has, directly or indirectly, an equity or ownership interest representing 50% or more of any class of the capital stock thereof or other equity or ownership interests therein.
“Superior Proposal” means any bona fide written Acquisition Proposal which the Bancshares board of directors determines in good faith, after taking into account all legal, financial, regulatory, and other aspects of the proposal (including without limitation the amount, form, and timing of payment of consideration, the financing thereof, any associated break-up or termination fees, including those provided for in this Agreement, expense reimbursement provisions, and all conditions to consummation) and the Person making the proposal, and after taking into account the advice of Bancshares’ financial advisor (which shall be a nationally recognized investment banking firm) and outside legal counsel, is (i) more favorable from a financial point of view to the shareholders of Bancshares than the transactions contemplated by this Agreement and (ii) is reasonably likely to be consummated on the terms set forth; provided, however, that for purposes of this definition of Superior Proposal, references to “10% or more” in the definition of Acquisition Proposal shall be deemed to be references to “a majority.”
“Tax” or “Taxes” means any and all federal, state, provincial, local, and foreign taxes, including without limitation (i) any income, profits, alternative or add-on minimum, gross receipts, sales, use, value-added, ad valorem, transfer, franchise, license, withholding, payroll, employment, unemployment, excise, severance, stamp, occupation, net worth, premium, real property, personal property, vehicle, airplane, boat, vessel, or other title or registration, environmental, or windfall profit tax, custom, or duty, or any other tax, fee, assessment, levy, tariff, or charge of any kind whatsoever, together with any interest or penalty, addition to tax, or other additional amount imposed by any Governmental Entity or other Person responsible for the imposition or collection of any such tax, and (ii) any Liability for the payment of any amounts of the type described in clause (i) above as a result of any express or implied agreement or obligation to indemnify any other Person or any contractual arrangement or agreement.
“Tax Return” means any return (including any amended return), declaration, or other report, including without limitation elections, claims for refunds, schedules, estimates, and information returns and statements, with respect to any Taxes (including estimated Taxes).
“TDFI” means the Tennessee Department of Financial Institutions.
“Tennessee Corporation Act” means the Tennessee Business Corporation Act, Tenn. Code Ann. § 48-11-101 et seq.
“USA PATRIOT Act” means the USA PATRIOT Act of 2001, as amended.
Section 1.2 Other Definitions. Capitalized terms used in this Agreement and not defined in Section 1.1, but otherwise defined in this Agreement, shall have the meanings otherwise ascribed thereto.
ARTICLE II
THE MERGERS
Section 2.1 The Parent Merger. Subject to and upon the terms and conditions set forth in this Agreement, at the Effective Time (as defined below), Bancshares shall be merged with and into SmartFinancial in accordance with, and with the effects provided in, this Agreement and applicable provisions of the Tennessee Corporation Act (the “Parent Merger”). At the Effective Time, the separate corporate existence of Bancshares shall cease and SmartFinancial shall continue, as the surviving corporation of the Parent Merger, as a corporation chartered under the laws of the State of Tennessee unaffected and unimpaired by the Parent Merger (SmartFinancial in such capacity as the surviving corporation of the Parent Merger is sometimes referred to herein as the “Surviving Corporation”).
Section 2.2 Closing. Subject to the satisfaction or waiver (subject to applicable Law) of the conditions precedent set forth in Article VIII hereof (other than those conditions that by their nature are to be satisfied at the Closing), the closing of the transactions contemplated by this Agreement, including without limitation the Parent Merger (the “Closing”), shall take place at the offices of Butler Snow LLP, The Pinnacle at Symphony Place,
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Suite 1600, 150 3rd Avenue South, Nashville, Tennessee 37201, at 10:00 a.m. Central Time on such date as shall be mutually agreed upon by the Parties, provided that such date shall be not more than 30 days after the satisfaction or waiver (subject to applicable Law) of all of the conditions precedent set forth in Article VIII hereof (other than those conditions that by their nature are to be satisfied at the Closing), or at such other place, at such other time, or on such other date as the Parties may otherwise agree. Notwithstanding the foregoing, the Parties expressly agree that the Closing may take place by the electronic, facsimile, and/or overnight courier exchange of executed documents. The actual date on which the Closing shall occur is referred to in this Agreement as the “Closing Date.”
Section 2.3 Effective Time. Prior to or at the Closing, and in order to effect the Parent Merger, SmartFinancial and Bancshares shall duly execute and deliver articles of merger for filing with the Tennessee Secretary of State (the “Articles of Merger”), such articles of merger to be in such form and of such substance as is consistent with applicable provisions of the Tennessee Corporation Act and otherwise mutually agreed upon by SmartFinancial and Bancshares. The Parent Merger shall become effective on such date and at such time as set forth in the Articles of Merger (the date and time the Parent Merger becomes effective being referred to in this Agreement as the “Effective Time”).
Section 2.4 Effects of the Parent Merger. The Parent Merger shall have the effects set forth in this Agreement and applicable provisions of the Tennessee Corporation Act. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all property, rights, interests, privileges, powers, and franchises of Bancshares shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities, and duties of Bancshares shall become and be debts, liabilities, obligations, restrictions, disabilities, and duties of the Surviving Corporation.
Section 2.5 Name of Surviving Corporation. The legal name of the Surviving Corporation at and after the Effective Time of the Parent Merger will be “SmartFinancial, Inc.”
Section 2.6 Charter and Bylaws of Surviving Corporation. The charter and bylaws of SmartFinancial as in effect immediately prior to the Effective Time shall at and after the Effective Time be the charter and bylaws of the Surviving Corporation until such time as the same shall be amended and/or restated in accordance with applicable Law.
Section 2.7 The Bank Merger. Simultaneously with the Parties’ execution of this Agreement, SmartBank, a Tennessee-chartered commercial bank and wholly owned Subsidiary of SmartFinancial (“SmartBank”), and the Bank have executed and delivered an agreement and plan of merger dated the date hereof (the “Bank Merger Agreement”), which provides for the merger of the Bank with and into SmartBank immediately following the Parent Merger in accordance with the terms and conditions of, and with the effects provided by, the Bank Merger Agreement and applicable provisions of the Banking Act and the Tennessee Corporation Act (the “Bank Merger”). SmartBank will be the banking corporation to survive the Bank Merger, and at the effective time of the Bank Merger, the separate corporate existence of the Bank will cease. As soon as reasonably practicable following the date of this Agreement, SmartFinancial shall approve the Bank Merger Agreement as the sole shareholder of SmartBank and Bancshares shall approve the Bank Merger Agreement as the sole shareholder of the Bank. Prior to or at the Closing, SmartFinancial shall cause SmartBank, and Bancshares shall cause the Bank, to execute and deliver such articles or certificates of merger and such other documents and certificates as are necessary or appropriate to effectuate the Bank Merger (the “Bank Merger Certificates”).
ARTICLE III
MERGER CONSIDERATION
Section 3.1 Conversion of Bancshares Common Stock. Subject to the other provisions of this Article III, solely by virtue and as a result of the Parent Merger, each share of Bancshares Common Stock issued and outstanding immediately prior to the Effective Time (other than Excluded Shares and Dissenting Shares) shall at the Effective Time, automatically and without any action on the part of the holder(s) thereof, be converted into and canceled in exchange for 0.8065 (the “Exchange Ratio”) shares of SmartFinancial Common Stock. The SmartFinancial Common Stock issuable by SmartFinancial to holders of Bancshares Common Stock as consideration for the Parent Merger in accordance with this Agreement, together with any cash payable by SmartFinancial to holders of Bancshares Common Stock in lieu of fractional shares pursuant to Section 3.6, is referred to herein as the “Merger Consideration.”
Section 3.2 [Reserved]
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Section 3.3 [Reserved]
Section 3.4 Exchange Procedures.
(a) Deposit with Exchange Agent. At or prior to the Closing, SmartFinancial shall deliver or cause to be delivered to an exchange agent mutually agreed upon by SmartFinancial and Bancshares, which the Parties agree may be SmartFinancial’s customary stock transfer agent (the “Exchange Agent”), for the benefit of holders of Bancshares Common Stock (other than holders of Excluded Shares and holders of Dissenting Shares), (i) a certificate or certificates or, at SmartFinancial’s option, evidence of shares in book entry form representing the number of shares of SmartFinancial Common Stock issuable to holders of Bancshares Common Stock (other than holders of Excluded Shares and holders of Dissenting Shares) in the form of Merger Consideration and (ii) cash in an amount sufficient to make payment in respect of fractional share interests pursuant to Section 3.6. The Exchange Agent shall not be entitled to vote or exercise any other rights of ownership with respect to the shares of SmartFinancial Common Stock held by it from time to time hereunder, provided that the Exchange Agent shall receive and hold all dividends and other distributions payable or distributable with respect to such shares for the account of the Persons entitled thereto.
(b) Letter of Transmittal. Provided that Bancshares has delivered or caused to be delivered to the Exchange Agent all information which is necessary for the Exchange Agent to perform its obligations as specified herein, as soon as reasonably practicable after the Effective Time, SmartFinancial shall cause the Exchange Agent to mail or deliver to each holder of record of shares of Bancshares Common Stock (other than holders of Excluded Shares and holders of Dissenting Shares) a letter of transmittal in customary form and containing such provisions as SmartFinancial shall reasonably require (including provisions confirming that delivery of Certificates and Book-Entry Shares shall be effected, and that risk of loss of and title to Certificates and Book-Entry Shares shall pass, only upon proper delivery of the Certificates or Book-Entry Shares to the Exchange Agent) and instructions for use in effecting the surrender of Certificates and Book-Entry Shares in exchange for that portion of the Merger Consideration payable or issuable in respect of the shares of Bancshares Common Stock previously represented by such Certificates or in respect of such Book-Entry Shares, as applicable, pursuant to the provisions of this Agreement.
(c) Payment of Merger Consideration. Upon proper surrender of a Certificate or Book-Entry Shares to the Exchange Agent for exchange and cancellation, together with a properly completed and duly executed letter of transmittal (or an “agent’s message” in the case of Book-Entry Shares held in street name) and such other documents as may reasonably be required by the Exchange Agent, (i) the holder of such Certificate or Book-Entry Shares shall be entitled to receive in exchange therefor, and the Exchange Agent shall deliver to such holder, the Merger Consideration to which such holder shall have become entitled pursuant to the provisions of this Article III, in full satisfaction of all rights pertaining to the shares of Bancshares Common Stock formerly represented by such Certificate or to such Book-Entry Shares, as applicable, and (ii) the Certificate or Book-Entry Shares so surrendered shall be canceled. In the event the Merger Consideration or any other amounts issuable or payable under this Agreement to a holder of shares of Bancshares Common Stock is to be issued in the name of or paid to a Person other than the Person in whose name such shares are registered, it shall be a condition to the issuance or payment of such Merger Consideration or other amounts that the Certificate formerly representing such shares, or, in the case of non-certificated shares, the Book-Entry Shares, be presented to the Exchange Agent, together with evidence of or appropriate documents or instruments for transfer and evidence that any applicable stock transfer or other Taxes have been paid or are not applicable, all in such form as the Exchange Agent shall reasonably require.
(d) Closing of Stock Transfer Books. At the Effective Time, the stock transfer books of Bancshares shall be closed and there shall thereafter be no further transfers of shares of Bancshares Common Stock on the books or records of Bancshares, and, if any shares of Bancshares Common Stock are thereafter presented to SmartFinancial or the Exchange Agent for transfer, such shares shall be cancelled against delivery of that portion of the Merger Consideration payable or issuable in respect thereof as herein provided. Until duly surrendered to the Exchange Agent in accordance with the provisions of this Agreement, Certificates and Book-Entry Shares shall, at and after the Effective Time, evidence and represent only the right to receive that portion of the Merger Consideration payable or issuable in respect thereof (or the Bancshares Common Stock previously represented thereby) in accordance with this Agreement. No dividends or other distributions payable or distributable on or with respect to shares of SmartFinancial Common Stock that are issued or issuable in connection with the Parent Merger in accordance with this Agreement will be remitted to any Person entitled to receive such shares of
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SmartFinancial Common Stock until such Person surrenders his or her Certificate(s) previously representing the shares of Bancshares Common Stock converted into such SmartFinancial Common Stock, or his or her Book-Entry Shares converted into such SmartFinancial Common Stock, as applicable, at which time such dividends and other distributions shall be remitted to such Person, without interest. No interest will be paid or will accrue on any amounts payable to holders of Bancshares Common Stock under or in accordance with this Agreement.
(e) Lost, Stolen, or Destroyed Certificates. In the event any Certificate shall have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen, or destroyed and the execution by such Person of an indemnity agreement and/or the posting by such Person of a bond in such form and amount as SmartFinancial or the Exchange Agent may reasonably require as indemnity against any claim that may be made against them with respect to such Certificate, the Exchange Agent will deliver in exchange for such lost, stolen, or destroyed Certificate that portion of the Merger Consideration deliverable in respect of the shares of Bancshares Common Stock previously represented thereby pursuant to this Agreement.
(f) Unclaimed Merger Consideration. Any portion of the Merger Consideration, and any other amounts payable by SmartFinancial to the holders of shares of Bancshares Common Stock in accordance with this Agreement, in each case that remain(s) unclaimed by former shareholders of Bancshares for nine months after the Effective Time (as well as any dividends or other distributions payable in respect thereof) shall at the request of SmartFinancial be delivered by the Exchange Agent to SmartFinancial. Any former shareholder of Bancshares who has not theretofore complied with the exchange procedures provided for in this Agreement shall thereafter look only to SmartFinancial for that portion of the Merger Consideration (and any other amounts) deliverable in respect of the shares of Bancshares Common Stock previously held by such shareholder, as determined pursuant to this Agreement, without any interest thereon. If the Merger Consideration or any other amounts payable under this Agreement in respect of any shares of Bancshares Common Stock is not claimed prior to the date on which such Merger Consideration or other amounts would otherwise escheat to any Governmental Entity, such Merger Consideration or other amounts shall, to the extent permitted by abandoned property, escheat, and other applicable Laws, become the property of SmartFinancial (and to the extent not in its possession shall be delivered to it), free and clear of all claims or interests of any Person previously entitled to such property. Neither the Exchange Agent nor any Party to this Agreement shall be liable to any holder of Bancshares Common Stock for any portion of the Merger Consideration (or any other amounts) properly paid to a Governmental Entity pursuant to applicable abandoned property, escheat, or similar Laws. SmartFinancial and the Exchange Agent shall be entitled to rely upon the stock transfer books and records of Bancshares to establish the identity of those Persons entitled to receive the Merger Consideration (and any other amounts) specified in this Agreement, which books and records shall be conclusive with respect thereto. In the event of a dispute regarding the ownership of Bancshares Common Stock, SmartFinancial and the Exchange Agent shall be entitled to deposit any portion of the Merger Consideration (or any other amounts) payable in respect thereof in escrow with an independent third party and thereafter be relieved with respect to any claims thereto.
Section 3.5 Rights as Bancshares Shareholders. Holders of Bancshares Common Stock immediately prior to the Effective Time shall, at and after the Effective Time, cease to be shareholders of Bancshares and have no further rights as shareholders of Bancshares, other than the right to receive the Merger Consideration and any other amounts payable or issuable in respect of such holders’ Bancshares Common Stock in accordance with this Article III.
Section 3.6 No Fractional Shares. Notwithstanding any other provision of this Agreement to the contrary, no fraction of a share of SmartFinancial Common Stock, and no certificate or scrip therefor, will be issued in connection with the Parent Merger to any holder of shares of Bancshares Common Stock. Instead, SmartFinancial shall pay to each holder of Bancshares Common Stock who would otherwise be entitled to a fraction of a share of SmartFinancial Common Stock (after aggregating and taking into account all Certificates and/or Book-Entry Shares delivered by such holder) cash, without interest, in an amount (rounded to the nearest whole cent) determined by multiplying (a) the fractional share interest (rounded to the nearest thousandth when expressed in decimal form) to which such holder would otherwise be entitled by (b) the volume weighted average closing price per share of SmartFinancial Common Stock on Nasdaq (or such other securities market or stock exchange on which the SmartFinancial Common Stock then principally trades) for the 10 consecutive trading days ending on and including the Business Day immediately preceding the Closing Date.
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Section 3.7 Availability of Dissenters’ Rights; Dissenting Shares.
(a) Holders of shares of Bancshares Common Stock shall have such rights to dissent from the Parent Merger and obtain payment of the fair value of their shares as are afforded to such holders by Chapter 23 of the Tennessee Corporation Act.
(b) Notwithstanding any provision of this Agreement to the contrary, but subject to Section 3.7(c), each issued and outstanding share of Bancshares Common Stock the holder of which has perfected his or her right to dissent from the Parent Merger pursuant to Chapter 23 of the Tennessee Corporation Act and has not effectively withdrawn or lost such right as of the Effective Time (collectively, the “Dissenting Shares”) shall not be converted into and canceled in exchange for, or represent a right to receive, any portion of the Merger Consideration hereunder, and the holder thereof shall be entitled only to such rights as are afforded to such holder by the Tennessee Corporation Act. SmartFinancial shall be entitled to retain any Merger Consideration not paid on account of Dissenting Shares, and the shareholders of Bancshares shall not be entitled to any portion of such retained Merger Consideration. Any payments made in respect of Dissenting Shares shall be made by SmartFinancial within the time periods set forth in, and otherwise in accordance with, the Tennessee Corporation Act.
(c) If any holder of shares of Bancshares Common Stock who asserts such holder’s right to dissent from the Parent Merger pursuant to Chapter 23 of the Tennessee Corporation Act shall have effectively withdrawn or lost his or her right to dissent (through failure to perfect or otherwise), then, as of the Effective Time or the occurrence of such event, whichever occurs later, the shares of Bancshares Common Stock held by such holder shall be converted into and canceled in exchange for, on a share by share basis, the right to receive the Merger Consideration payable or issuable in respect thereof in accordance with the applicable provisions of this Agreement.
Section 3.8 Excluded Shares. At the Effective Time, each Excluded Share shall, for no consideration, be automatically canceled and retired and shall cease to exist, and, for the avoidance of doubt, no exchange or payment shall be made with respect thereto or in respect thereof.
Section 3.9 Adjustments Upon Change in Capitalization. If during the period from the date of this Agreement until immediately prior to the Effective Time the outstanding shares of SmartFinancial Common Stock or Bancshares Common Stock are increased, decreased, or changed into or exchanged for a different number or kind of securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other similar change in capitalization, an equitable and proportionate adjustment shall be made to the Exchange Ratio and, therefore, the Merger Consideration issuable or payable pursuant to this Agreement. For the avoidance of doubt, neither the issuance of shares of SmartFinancial Common Stock upon the exercise of SmartFinancial Options, the grant of or lapse of restrictions on restricted stock awards in respect of shares of SmartFinancial Common Stock, nor the issuance of shares of SmartFinancial Common Stock in settlement of stock appreciation rights or under or pursuant to a SmartFinancial Benefit Plan shall cause or result in an adjustment of or to the Exchange Ratio or the Merger Consideration issuable or payable pursuant to this Agreement.
Section 3.10 [Reserved]
Section 3.11 Withholding Rights. SmartFinancial (through the Exchange Agent, if applicable) shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement to any holder or former holder of shares of Bancshares Common Stock such amounts as SmartFinancial is required under the Code or any other applicable Law to deduct and withhold. Any amounts so deducted and withheld shall be timely remitted to the appropriate Governmental Entity and, to the extent so remitted, shall be treated for all purposes of this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.
Section 3.12 SmartFinancial Stock. The shares of SmartFinancial Stock issued and outstanding immediately prior to the Effective Time shall not be affected by the Parent Merger, and, accordingly, each share of SmartFinancial Stock issued and outstanding immediately prior to the Effective Time shall, at and after the Effective Time, remain issued and outstanding.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BANCSHARES PARTIES
Section 4.1 Bancshares Disclosure Memorandum. Prior to or simultaneously with the Parties’ execution and delivery of this Agreement, Bancshares and the Bank have delivered to SmartFinancial a confidential memorandum (the “Bancshares Disclosure Memorandum”) setting forth, among other things, items the disclosure of which is necessary either in response to an express disclosure requirement contained in a provision of this Agreement or as an exception to one or more representations or warranties of the Bancshares Parties contained in this Article IV or to one or more covenants of the Bancshares Parties contained in Article VI, making specific reference in such Bancshares Disclosure Memorandum to the Section(s) of this Agreement to which such items relate.
Section 4.2 Bancshares and Bank Representations and Warranties. Each of Bancshares and the Bank hereby represents and warrants to SmartFinancial as follows:
(a) Organization and Qualification. Bancshares is a corporation duly organized, validly existing, and in good standing under the laws of the State of Tennessee and is duly registered as a bank holding company under the BHCA. The Bank is a banking corporation duly organized, validly existing, and in good standing under the laws of the State of Tennessee. Each of Bancshares and the Bank has the power and authority to own, lease, and operate its properties and assets and to conduct its respective business as presently conducted. Each of Bancshares and the Bank is duly licensed and qualified to transact business and is in good standing in each jurisdiction in which the character of the properties or assets owned or leased by it or the nature of the business conducted by it makes such licensing and qualification necessary, except, as to good standing only, where the failure to be in good standing has not had and would not reasonably be expected to have, individually or in the aggregate, a Bancshares Material Adverse Effect. The copies of the charter, bylaws, and other organizational documents of Bancshares and the Bank and their respective Subsidiaries previously provided or made available to SmartFinancial are true, correct, and complete copies of such documents as in effect as of the date of this Agreement. Neither Bancshares or the Bank nor any Subsidiary of Bancshares or the Bank is in violation of its respective articles of organization, bylaws, or other organizational documents. The minute books of Bancshares and the Bank and their Subsidiaries previously provided or made available to the SmartFinancial Parties constitute a true, complete, and correct record of all meetings of and material corporate actions taken by their respective boards of directors (and each committee thereof), shareholders, and other governing bodies for the periods covered thereby.
(b) Subsidiaries and Other Interests. Set forth on Schedule 4.2(b) of the Bancshares Disclosure Memorandum is a true, correct, and complete list of all Subsidiaries of Bancshares (other than the Bank) and/or the Bank, as well as each such Subsidiary’s jurisdiction of incorporation, organization, or formation and Bancshares’ and/or the Bank’s percentage ownership of each such Subsidiary. Each of Bancshares and the Bank owns beneficially and of record the capital stock or other equity or ownership interest it owns in each of its respective Subsidiaries free and clear of any and all Liens. There are no Contracts relating to the right of Bancshares or the Bank to vote or dispose of any capital stock or other equity or ownership interest of any Subsidiary of Bancshares or the Bank. The ownership interests of Bancshares and the Bank in their respective Subsidiaries are in compliance with all applicable Laws. Each of the Subsidiaries of Bancshares and/or the Bank (i) is a corporation, limited liability company, or other entity duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, organization, or formation, (ii) has all requisite power and authority to own, lease, and operate its properties and assets and to conduct its business as presently conducted, and (iii) is duly licensed and qualified to transact business and is in good standing in each jurisdiction in which the character of the properties or assets owned or leased by it or the nature of the business conducted by it makes such licensing or qualification necessary, except, for purposes of this clause (iii) only, where the failure to be so licensed or qualified or to be in good standing has not had and would not reasonably be expected to have, individually or in the aggregate, a Bancshares Material Adverse Effect. The outstanding capital stock or other outstanding equity or ownership interests of each Subsidiary of Bancshares and/or the Bank have been validly authorized and are validly issued, fully paid, and non-assessable. No shares of capital stock or other equity or ownership interests of any Subsidiary of Bancshares and/or the Bank are or may be required to be issued by virtue of any options, warrants, or other rights; no securities exist that are convertible into or exchangeable for any shares of capital stock or other equity or ownership interests of any Subsidiary of Bancshares and/or the Bank, or any other debt or equity security of any Subsidiary of Bancshares and/or the Bank; and there are no Contracts for the issuance of any additional capital stock or other equity or ownership
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interests, or any other debt or equity securities, of any Subsidiary of Bancshares and/or the Bank or any options, warrants, or other rights with respect to such securities. Except (i) as set forth on Schedule 4.2(b) of the Bancshares Disclosure Memorandum and (ii) for securities and other interests held in a fiduciary capacity and beneficially owned by third parties, neither Bancshares nor the Bank owns, beneficially or of record, directly or indirectly, any equity securities of or any other equity or ownership interest in any Person.
(c) Capitalization. The authorized capital stock of Bancshares consists of 10,000,000 shares of Bancshares Common Stock, of which 1,809,282 shares were issued and outstanding as of the date of this Agreement. The authorized capital stock of the Bank consists of 10,000,000 shares of Bank Common stock, of which 1,292,761 shares were issued and outstanding as of the date of this Agreement and are owned by Bancshares. There are no other classes or series of authorized, issued, or outstanding capital stock of Bancshares or the Bank. Except as set forth on Schedule 4.2(c) of the Bancshares Disclosure Memorandum, no shares of Bancshares Common Stock are held in treasury by Bancshares or otherwise owned, directly or indirectly, by Bancshares, and no shares of the Bank Common Stock are held in treasury by the Bank or otherwise owned, directly or indirectly, by the Bank. All of the issued and outstanding shares of Bancshares Common Stock and Bank Common Stock have been duly and validly authorized and issued in full compliance with all applicable Laws and are fully paid and non-assessable with no personal Liability attaching to the ownership thereof, and none of the issued and outstanding shares of Bancshares Common Stock or Bank Common Stock have been issued in violation of the preemptive or other rights of any Person. Except as set forth on Schedule 4.2(c) of the Bancshares Disclosure Memorandum, (i) there are no outstanding options, warrants, subscriptions, agreements, contracts, rights, calls, or commitments, of any kind or character, that require or obligate or could require or obligate Bancshares to issue, deliver, or sell, or cause to be issued, delivered, or sold, any additional shares of Bancshares capital stock, or securities convertible into or exercisable for shares of Bancshares capital stock, or that require or obligate or could require or obligate Bancshares to grant, extend, or enter into any such option, warrant, subscription, agreement, contract, right, call, or commitment, and (ii) there are no outstanding options, warrants, subscriptions, agreements, contracts, rights, calls, or commitments, of any kind or character, that require or obligate or could require or obligate the Bank to issue, deliver, or sell, or cause to be issued, delivered, or sold, any additional shares of Bank Common Stock, or securities convertible into or exercisable for shares of Bank Common Stock, or that require or obligate or could require or obligate the Bank to grant, extend, or enter into any such option, warrant, subscription, agreement, contract, right, call, or commitment. There are no outstanding obligations of Bancshares or the Bank to repurchase, redeem, or otherwise acquire any shares of its capital stock. No bonds, debentures, notes, or other indebtedness having the right to vote on any matters on which shareholders of Bancshares or the Bank may vote are issued or outstanding. Set forth on Schedule 4.2(c) of the Bancshares Disclosure Memorandum is a listing of all cash, stock, and other dividends or distributions on or with respect to Bancshares Common Stock or Bank Common Stock that have been declared, set aside, or paid since January 1, 2015, as well as all shares of Bancshares capital stock and all shares of Bank Common Stock that have been purchased, redeemed, or otherwise acquired, directly or indirectly, by Bancshares and the Bank, respectively, since January 1, 2015. Prior to the Parties’ execution of this Agreement, Bancshares and its board of directors have taken all action necessary to terminate or suspend the Bancshares Director Stock Plan and the Bancshares DRIP in order that no shares of Bancshares Common Stock will be issuable or payable under or pursuant to the Bancshares Director Stock Plan or the Bancshares DRIP after the date of this Agreement.
(d) Authority. Each of Bancshares and the Bank has all requisite corporate power and authority to execute and deliver this Agreement and, subject to the consents, approvals, waivers, and filings referred to in Section 4.2(f), to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Bancshares Parties and the consummation by the Bancshares Parties of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the boards of directors of Bancshares and the Bank, and no other corporate actions or proceedings on the part of Bancshares or the Bank are necessary to authorize the execution and delivery of this Agreement by the Bancshares Parties and the consummation by the Bancshares Parties of the transactions contemplated hereby, other than the approval of this Agreement by the shareholders of Bancshares in accordance with the charter and bylaws of Bancshares and applicable Law and the approval of the Bank Merger Agreement by Bancshares as the sole shareholder of the Bank in accordance with the charter and bylaws of the Bank and applicable Law. The board of directors of Bancshares has determined that this Agreement and the transactions contemplated hereby are advisable and in the best interests of Bancshares and its shareholders and has directed that this Agreement be submitted to Bancshares’ shareholders for approval, and has duly and validly adopted
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resolutions to the foregoing effect and to recommend that the shareholders of Bancshares approve this Agreement. This Agreement has been duly and validly executed and delivered by each of Bancshares and the Bank and constitutes a valid and legally binding obligation of each of Bancshares and the Bank enforceable against each of Bancshares and the Bank in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization, and similar Laws affecting creditors’ rights and remedies generally or general principles of equity, whether applied in a court of law or a court of equity (collectively, the “Enforceability Exceptions”).
(e) No Violations. Neither the execution, delivery, or performance of this Agreement by Bancshares or the Bank nor the consummation of the transactions contemplated by this Agreement will (i) assuming the approval of this Agreement by the shareholders of Bancshares in accordance with the charter and bylaws of Bancshares and applicable Law and the approval of the Bank Merger Agreement by Bancshares as the sole shareholder of the Bank in accordance with the charter and bylaws of the Bank and applicable Law, violate the charter, bylaws, or other organizational documents of Bancshares or the Bank or any of their Subsidiaries or (ii) assuming that the consents, approvals, waivers, and filings referred to in Section 4.2(f) have been obtained and made and all applicable waiting periods have expired, (A) violate any Law, permit, or license to which the Bancshares Parties or any of their Subsidiaries (or the properties or assets of the Bancshares Parties or any of their Subsidiaries) are subject or by which the Bancshares Parties or any of their Subsidiaries (or the properties or assets of the Bancshares Parties or any of their Subsidiaries) are bound or (B) constitute a breach or violation of or a default under (or an event which, with notice or lapse of time or both, could constitute a default under), or result in the termination of, accelerate the performance required by, or result in the creation of any Lien upon any of the properties or assets of Bancshares or the Bank or any of their Subsidiaries under, any of the terms, conditions, or provisions of any Contract to which Bancshares or the Bank, or any of their Subsidiaries, is a party or to or by which any of the properties or assets of Bancshares or the Bank, or any of their Subsidiaries, may be subject or bound.
(f) Consents and Approvals. No consents or approvals of, waivers by, notices to, or filings or registrations with any Governmental Entity or other Person are required to be obtained, given, or made by Bancshares or the Bank, or any of their Subsidiaries, in connection with the execution and delivery of this Agreement by the Bancshares Parties or the consummation by the Bancshares Parties of the Parent Merger, the Bank Merger, or the other transactions contemplated hereby, except (i) applications, notices, and waiver requests required to be filed with or given or made to and consents, approvals, and waivers required from, and the expiration of related waiting periods imposed by, the Federal Reserve, the TDFI, and the United States Department of Justice (collectively, the “Regulatory Approvals”); (ii) the filing of the Articles of Merger with the Tennessee Secretary of State and the filing of the Bank Merger Certificates; (iii) the approval of this Agreement by the shareholders of Bancshares and the approval of the Bank Merger Agreement by Bancshares as the sole shareholder of the Bank; and (iv) as set forth on Schedule 4.2(f) of the Bancshares Disclosure Memorandum. As of the date hereof, neither Bancshares nor the Bank is aware of any reason why any of the consents, approvals, or waivers referred to in this Section 4.2(f) will not be obtained or received in a timely manner without the imposition of any Burdensome Condition (as defined in Section 8.1(b)).
(g) Reports. Bancshares and the Bank, and each of their Subsidiaries, have timely filed or furnished, as applicable, all reports, notices, applications, schedules, registration and proxy statements, and other filings, documents, and instruments (together with any amendments required to be made with respect thereto) that they have been required to file or furnish since January 1, 2015, with or to the Federal Reserve, the FDIC, the TDFI, or any other Governmental Entity, and have paid all fees and assessments due and payable in connection therewith. Except as set forth on Schedule 4.2(g) of the Bancshares Disclosure Memorandum, as of their respective dates, such reports, notices, applications, schedules, registration and proxy statements, and other filings, documents, and instruments were complete and accurate in all material respects and complied in all material respects with all applicable Laws.
(h) Securities Filings. Bancshares and the Bank, and each of their Subsidiaries, have filed with or furnished to the SEC, the Federal Reserve, the FDIC, and state securities commissions and authorities all reports, schedules, registration statements, definitive proxy statements, exhibits, and other filings and materials, if any, that they have been required to file or furnish under the Securities Act or the Exchange Act, or the rules and regulations promulgated thereunder, or applicable state securities Laws since January 1, 2015 (collectively, the “Bancshares Securities Filings”). None of the Bancshares Securities Filings contained any untrue statement of a
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material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. As of their respective dates of filing, all of the Bancshares Securities Filings complied in all material respects with applicable requirements of the Securities Act and the Exchange Act, and the rules and regulations promulgated thereunder, as applicable, and applicable state securities Laws.
(i) Financial Statements. The Bancshares Parties have previously delivered to SmartFinancial true, complete, and correct copies of (i) the consolidated balance sheets of Bancshares and its Subsidiaries as of the fiscal years ended December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the fiscal years then ended, together with the notes thereto, accompanied by the audit reports of Bancshares’ independent registered public accounting firm (the “Audited Bancshares Financials”), and (ii) the unaudited consolidated balance sheet of Bancshares and its Subsidiaries as of September 30, 2017 (the “Interim Financials Date”), and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the nine-month period ended September 30, 2017 (the “Interim Bancshares Financials”). The Bancshares Financial Statements were prepared from and in accordance with the books and records of Bancshares and its Subsidiaries, fairly present in all material respects the consolidated financial position of Bancshares and its Subsidiaries in each case at and as of the dates indicated and the consolidated results of operations, changes in stockholders’ equity, and cash flows of Bancshares and its Subsidiaries for the periods indicated, and, except as otherwise set forth in the notes thereto, were prepared in accordance with GAAP consistently applied throughout the periods covered thereby; provided, however, that unaudited financial statements for interim periods are subject to normal year-end adjustments (which will not be material individually or in the aggregate) and lack footnotes to the extent permitted under applicable regulations. No financial statements of any entity or enterprise other than Bancshares and its Subsidiaries are required by GAAP to be included in the financial statements of Bancshares. The books and records of Bancshares and its Subsidiaries have been, and are being, maintained in accordance with GAAP consistently applied and other legal, accounting, and regulatory requirements and reflect only actual transactions. True, complete, and correct copies of the Bancshares Financial Statements are included as Schedule 4.2(i) of the Bancshares Disclosure Memorandum.
(j) Undisclosed Liabilities. Neither Bancshares nor any of its Subsidiaries has, or has incurred, any Liability required to be reflected or disclosed on, or reserved against in, a balance sheet prepared in accordance with GAAP or a Consolidated Report of Condition and Income (Call Report), other than (i) Liabilities reflected on or reserved against in the Interim Bancshares Financials, (ii) Liabilities incurred since the Interim Financials Date in the ordinary course of business consistent with past practice that, either individually or in the aggregate, have not had, and would not reasonably be expected to have, a Bancshares Material Adverse Effect; (iii) Liabilities incurred in connection with this Agreement or the transactions contemplated hereby, or (iv) as set forth on Schedule 4.2(j) of the Bancshares Disclosure Memorandum.
(k) Absence of Certain Changes or Events.
(i) Since December 31, 2016, there has been no effect, circumstance, occurrence, event, development, or change that, individually or taken together with all other effects, circumstances, occurrences, events, developments, and changes, has had or could reasonably be expected to have a Bancshares Material Adverse Effect.
(ii) Since December 31, 2016, Bancshares and the Bank and their Subsidiaries have conducted their respective businesses only in the ordinary and usual course consistent with past practices. Since December 31, 2016, neither Bancshares nor the Bank, nor any of their Subsidiaries, has taken or permitted, or entered into any Contract with respect to, or otherwise agreed or committed to do or take, or failed or omitted to take, any action that, if taken or omitted after the date hereof, would constitute a breach of any of the covenants set forth in Section 6.1, except as set forth on Schedule 4.2(k)(ii) of the Bancshares Disclosure Memorandum.
(l) Litigation. Except as set forth on Schedule 4.2(l)(i) of the Bancshares Disclosure Memorandum, there are no suits, actions, claims, investigations, or legal, administrative, arbitration, or other proceedings pending or, to the Knowledge of the Bancshares Parties, threatened against or affecting Bancshares or the Bank or any of their Subsidiaries or any property, asset, right, or interest of Bancshares or the Bank or any of their Subsidiaries, which, if adversely determined, would, individually or in the aggregate, reasonably be expected to have a Bancshares Material Adverse Effect, and, to the Knowledge of the Bancshares Parties, there are no facts
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or circumstances that could reasonably be expected to give rise to any such suit, action, claim, investigation, or legal, administrative, arbitration, or other proceeding. Set forth on Schedule 4.2(l)(ii) of the Bancshares Disclosure Memorandum is a true, correct, and complete list, as of the date of this Agreement, of each suit, action, claim, investigation, or legal, administrative, arbitration, or other proceeding pending or, to the Knowledge of the Bancshares Parties, threatened against or affecting Bancshares or the Bank or any of their Subsidiaries or any property, asset, right, or interest of Bancshares or the Bank or any of their Subsidiaries. Neither Bancshares or the Bank nor any of their Subsidiaries, nor any of the properties or assets of Bancshares or the Bank or any of their Subsidiaries, is a party or subject to or bound by any judgment, decree, injunction, order, or ruling of any Governmental Entity.
(m) Regulatory Actions. Except as set forth on Schedule 4.2(m) of the Bancshares Disclosure Memorandum, since January 1, 2015, neither Bancshares nor the Bank, nor any of their Subsidiaries, has been a party to or subject to any cease and desist order, prompt correction action directive, written agreement, or memorandum of understanding issued by or with, or any commitment letter or similar undertaking to, or has been subject to any action, proceeding, order, or directive by, any Governmental Entity, or has adopted any board resolutions at the request of any Governmental Entity, or has been advised by any Governmental Entity that such Governmental Entity is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such action, proceeding, order, directive, cease and desist order, prompt correction action directive, written agreement, memorandum of understanding, commitment letter, board resolutions, or similar undertaking. To the Knowledge of the Bancshares Parties, there are no facts or circumstances which could reasonably be expected to result in any Governmental Entity issuing or requesting any such action, proceeding, order, directive, cease and desist order, prompt correction action directive, written agreement, memorandum of understanding, commitment letter, board resolutions, or similar undertaking. There are no material unresolved violations, criticisms, or exceptions noted by any Governmental Entity in or with respect to any report or statement relating to any examination or inspection of Bancshares or the Bank or any of their Subsidiaries. Since January 1, 2015, there have been no material formal or informal inquires by (other than in the ordinary course of routine regulatory examinations and visitations), or material disagreements or disputes with, any Governmental Entity with respect to the business, operations, policies, or procedures of Bancshares or the Bank or any of their Subsidiaries.
(n) Compliance with Laws; Deposit Insurance.
(i) Except as set forth on Schedule 4.2(n)(i) of the Bancshares Disclosure Memorandum, the Bancshares Parties and their Subsidiaries have at all times since January 1, 2015, complied with, and are currently in compliance with, in all material respects, all applicable Laws, including without limitation Section 23A and Section 23B of the Federal Reserve Act and the regulations promulgated pursuant thereto; the Equal Credit Opportunity Act, as amended; the Fair Housing Act, as amended; the Fair Credit Reporting Act, as amended; the Truth in Lending Act of 1968, as amended; the Community Reinvestment Act of 1977, as amended (the “CRA”); the Home Mortgage Disclosure Act of 1975, as amended; the Bank Secrecy Act of 1970, as amended; the USA PATRIOT Act; the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended; all Laws relating to data protection or privacy; and all other applicable anti-money laundering Laws, fair lending Laws, and Laws relating to discriminatory lending, financing, leasing, or business practices or the origination, sale, or servicing of mortgage loans. Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Bancshares Material Adverse Effect, the Bancshares Parties and their Subsidiaries have, and have at all times had, all permits, licenses, franchises, certificates of authority, orders, authorizations, and approvals, and have made all filings, applications, and registrations with all Governmental Entities, that are required in order to permit them to own, lease, and operate their properties and assets and to carry on their respective businesses as heretofore or presently conducted, and all such permits, licenses, franchises, certificates of authority, orders, authorizations, and approvals are in full force and effect and, to the Knowledge of the Bancshares Parties, no suspension or cancellation of any of them is threatened.
(ii) The deposits of the Bank are insured by the FDIC in accordance with the Federal Deposit Insurance Act (the “FDIA”) to the full extent permitted by Law, and the Bank has paid all premiums and assessments and filed all reports required by the FDIA. No proceeding for the revocation or termination of such deposit insurance is pending or, to the Knowledge of the Bancshares Parties, threatened.
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(o) Taxes.
(i) The Bancshares Parties and their Subsidiaries have timely filed all Tax Returns required to be filed by or with respect to them (the “Bancshares Returns”). Neither the Bancshares Parties nor any of their Subsidiaries currently are the beneficiary of any extension of time within which to file any Bancshares Returns. All of the Bancshares Returns are true, correct, and complete in all material respects, and all Taxes due and payable by the Bancshares Parties and their Subsidiaries with respect to the periods covered by such Bancshares Returns have been paid (whether or not shown on any Bancshares Returns). The accruals and reserves for Taxes reflected in the Interim Bancshares Financials are adequate, in accordance with GAAP, to cover all unpaid Taxes of Bancshares and its Subsidiaries for periods ending on or prior to the date(s) of the Interim Bancshares Financials, and all such accruals and reserves for Taxes, as adjusted for operations and transactions and the passage of time for periods ending on or prior to the Closing Date in accordance with past custom and practice of Bancshares and its Subsidiaries, will be adequate, in accordance with GAAP, to cover all unpaid Taxes of Bancshares and its Subsidiaries accruing through the Closing Date. No claim (whether formal or informal) has ever been made against the Bancshares Parties or any of their Subsidiaries by an authority in a jurisdiction where Bancshares or the Bank or their Subsidiaries do not file Tax Returns that Bancshares or the Bank or any of their Subsidiaries are or may be subject to taxation in that jurisdiction. No outstanding agreement, arrangement, extension, or waiver of or with respect to the limitation period applicable to any Bancshares Return has been agreed to or entered into or granted (by the Bancshares Parties or any other Person), and no such agreement, arrangement, extension, or waiver has been requested, formally or informally, by or from the Bancshares Parties or any of their Subsidiaries, and neither the Bancshares Parties nor any of their Subsidiaries has executed or is bound by any extension or waiver of any statute of limitations on the assessment or collection of any Tax.
(ii) All estimated Taxes required to be paid by or with respect to, or in respect of the operations of, the Bancshares Parties or any of their Subsidiaries have been paid to the proper taxing authorities. All Taxes that the Bancshares Parties or any of their Subsidiaries are or were required to withhold or collect in connection with any amounts paid or owing to any employee, director, independent contractor, shareholder, nonresident, creditor, or other third party (including amounts paid or owing by or to the Bancshares Parties or any of their Subsidiaries and any such Taxes due as a result of a plan intended to be a “nonqualified deferred compensation plan” under Section 409A(d)(1) of the Code that has not been operated in good faith compliance with Section 409A of the Code and associated guidance) have been duly withheld or collected and have been paid, to the extent required, to the proper taxing authorities; the Bancshares Parties and their Subsidiaries have complied in all material respects with all information reporting and backup withholding requirements, including the maintenance of required records, with respect to such amounts; and the Bancshares Parties and their Subsidiaries have paid all employer contributions and premiums and filed all Tax Returns with respect to any employee income Tax withholding, and social security and unemployment Taxes and premiums, all in compliance in all material respects with the withholding provisions of the Code and other applicable Laws.
(iii) Except as set forth on Schedule 4.2(o)(iii) of the Bancshares Disclosure Memorandum, all of the Bancshares Returns have been examined and closed or are Tax Returns with respect to which the applicable period for assessment under applicable Law, after giving effect to extensions or waivers, has expired. The Bancshares Parties have delivered or made available to SmartFinancial true, correct, and complete copies of all audit reports, statements of deficiencies, and similar documents issued by a Governmental Entity relating to the Bancshares Returns which the Bancshares Parties have in their possession or control. Set forth on Schedule 4.2(o)(iii) of the Bancshares Disclosure Memorandum is a true, correct, and complete list of all deficiencies proposed as a result of Governmental Entity audits, all of which have been paid or, as set forth on such schedule, have been settled or are being contested in good faith in appropriate proceedings. Set forth on Schedule 4.2(o)(iii) of the Bancshares Disclosure Memorandum is a true, correct, and complete list of all Bancshares Returns filed by or with respect to the Bancshares Parties or any of their Subsidiaries during the past five years.
(iv) No audit, investigation, examination, deficiency assessment, refund litigation, or other proceeding is pending or, to the Knowledge of the Bancshares Parties, threatened against or with respect to the Bancshares Parties or any of their Subsidiaries in respect of any Taxes or Tax matters, and to the Knowledge of the Bancshares Parties there are no facts or circumstances that could reasonably be expected to give rise to any such audit, investigation, examination, deficiency assessment, refund litigation, or other proceeding. There are no unsatisfied Liabilities for Taxes with respect to any written notice of deficiency or similar document received by
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the Bancshares Parties or any of their Subsidiaries with respect to any Taxes. No deficiencies have been asserted against the Bancshares Parties or any of their Subsidiaries as a result of an examination by a taxing authority and no issue has been raised by any examination conducted by any taxing authority that, by application of the same principles, might result, individually or in the aggregate, in a proposed material deficiency for any other period not so examined. There are no Liens for Taxes upon any of the properties or assets of the Bancshares Parties or any of their Subsidiaries, other than statutory Liens for current Taxes not yet due and payable for which adequate reserves have been established.
(v) Neither Bancshares nor the Bank, nor any of their Subsidiaries, has granted to any Person a power of attorney with respect to any Taxes or Tax matters that is currently in effect. Neither Bancshares nor the Bank, nor any of their Subsidiaries, is subject to any private letter ruling of the IRS or any comparable ruling of any other taxing authority, and no request for any such ruling is pending. No closing agreement pursuant to Section 7121 of the Code (or any predecessor provision), or any similar provision of Law, has been entered into by or with respect to Bancshares or the Bank or any of their Subsidiaries.
(vi) There is no Contract or plan (including without limitation this Agreement and the arrangements contemplated hereby) covering any director, officer, employee, or independent contractor, or any former director, officer, employee, or independent contractor, of Bancshares or the Bank or any of their Subsidiaries that, individually or collectively with any other such Contracts or plans, will, or could reasonably be expected to, (A) give rise, directly or indirectly, to the payment of any amount that would not be deductible pursuant to Section 280G or Section 162 of the Code (as determined without regard to Section 280G(b)(4) of the Code), except those payments that will not be made in the absence of shareholder approval in accordance with the requirements of Section 280G(b)(5)(B) of the Code, or (B) subject any such Person to additional taxes under Section 409A of the Code. Neither Bancshares nor the Bank, nor any of their Subsidiaries, is a party to or bound by any Contract or plan, or has any obligation (current or contingent), to compensate any Person for Tax-related payments, including Taxes paid pursuant to Section 4999 of the Code and Taxes under Section 409A of the Code. All disqualified individuals (as defined in Section 280G(c) of the Code) with respect to Bancshares and the Bank and each of their Subsidiaries are set forth on Schedule 4.2(o)(vi) of the Bancshares Disclosure Memorandum.
(vii) Except as set forth on Schedule 4.2(o)(vii) of the Bancshares Disclosure Memorandum, (A) neither Bancshares nor the Bank, nor any of their Subsidiaries, has at any time been a member of a group with which it has filed or been included in a combined, consolidated, or unitary Tax Return; (B) neither Bancshares nor the Bank, nor any of their Subsidiaries, is or has ever been a party to or bound by any Tax indemnity agreement, Tax sharing agreement, Tax allocation agreement, or similar Contract; and (C) neither Bancshares nor the Bank, nor any of their Subsidiaries, is liable for the Taxes of any other Person, whether as a transferee or successor, by Contract (including any Tax allocation agreement, Tax sharing agreement, or Tax indemnity agreement), or otherwise.
(viii) The Bancshares Parties and their Subsidiaries are, and have at all times been, in compliance with the provisions of Section 6011, Section 6111, and Section 6112 of the Code relating to tax shelter disclosure, registration, list maintenance, and record keeping, and with the Treasury Regulations thereunder (including any predecessor or successor Code provisions or Treasury Regulations, as applicable), and neither the Bancshares Parties nor their Subsidiaries have at any time engaged in or entered into (A) any transaction that would be defined as a “reportable transaction” within the meaning of Treasury Regulations Section 1.6011-4(b), (B) any confidential corporate tax shelter within the meaning of Treasury Regulations Section 1.6111-2, or (C) any “listed transaction” within the meaning of Treasury Regulations Section 1.6011, Section 301.6111, or Section 301.6112, or any transaction that would have been such a “listed transaction” if current Law was in effect at the time the transaction was entered into. No IRS Form 8886 has been filed with respect to the Bancshares Parties or any of their Subsidiaries. Neither Bancshares nor the Bank, nor any of their Subsidiaries, has entered into any tax shelter or listed transaction with the sole or dominant purpose of the avoidance or reduction of a Tax Liability in a jurisdiction outside the United States with respect to which there is a significant risk of challenge of such transaction by a Governmental Entity in a jurisdiction outside the United States. The Bancshares Parties and their Subsidiaries have disclosed on all Bancshares Returns all positions taken
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therein that could give rise to a substantial understatement of Tax within the meaning of Section 6662 of the Code. Neither Bancshares nor the Bank, nor any of their Subsidiaries, has incurred, and no state of affairs exist that could result in Bancshares or the Bank, or any of their Subsidiaries, incurring, any penalty under Section 6662(e) of the Code.
(ix) None of the assets, properties, or rights of the Bancshares Parties or their Subsidiaries (A) are “tax-exempt use property” within the meaning of Section 168(h) of the Code, (B) are assets, properties, or rights required to be treated as owned by any other Person pursuant to the so-called “safe harbor lease” provisions of Section 168(f)(8) of the Internal Revenue Code of 1954 as in effect after the Economic Recovery Tax Act of 1981 and before the Tax Reform Act of 1986, or (C) directly or indirectly secure any debt the interest on which is Tax-exempt under Section 103(a) of the Code. Neither the Bancshares Parties nor any of their Subsidiaries have participated in or cooperated with an international boycott within the meaning of Section 999 of the Code. Neither Bancshares nor the Bank, nor any of their Subsidiaries, has a “permanent establishment” within the meaning of any applicable Tax law in any foreign jurisdiction, nor is Bancshares or the Bank, or any of their Subsidiaries, required to file any Tax Returns in any foreign jurisdiction. No Subsidiary of Bancshares or the Bank which is not a “United States Person” within the meaning of Section 7701(a)(30) of the Code has a permanent establishment within the United States or derives any income effectively connected with the conduct of a trade or business within the United States.
(x) Set forth on Schedule 4.2(o)(x) of the Bancshares Disclosure Memorandum is a true, correct, and complete list of (i) all Tax abatement, Tax reduction, Tax credit, and similar agreements or programs to which the Bancshares Parties or their Subsidiaries are parties or in which the Bancshares Parties or their Subsidiaries participate and (ii) the amount of each Tax abatement, Tax reduction, Tax credit, or similar benefit that the Bancshares Parties or their Subsidiaries have received as of the date hereof and the period(s) to which each such Tax abatement, Tax reduction, Tax credit, or similar benefit applied. The consummation of the transactions contemplated by this Agreement will not result in any recoupment, claw-back, or decrease in any such Tax abatement, Tax reduction, Tax credit, or similar benefit.
(xi) Neither Bancshares or the Bank nor any of their Subsidiaries has ever distributed stock of another Person or had its stock distributed by another Person in a transaction that purported or was intended to be governed in whole or in part by Section 355 or Section 361 of the Code. Neither Bancshares or the Bank nor any of their Subsidiaries is required to include in income any adjustment pursuant to Section 481 of the Code by reason of a voluntary change in accounting method initiated by the Bancshares Parties or their Subsidiaries, and the IRS has not proposed any such change in accounting method. Neither Bancshares or the Bank nor any of their Subsidiaries is or, during the five-year period immediately preceding the date of this Agreement, has been an “S” corporation within the meaning of Section 1361(a)(1) of the Code.
(xii) For purposes of this Section 4.2(o), (A) references to Bancshares shall be deemed to include any predecessor to Bancshares, any Person which merged or was liquidated with or into Bancshares, any direct or indirect Subsidiary of Bancshares, and any Person from which Bancshares has incurred any Liability for Taxes as a result of transferee liability and (B) references to the Bank shall be deemed to include any predecessor to the Bank, any Person which merged or was liquidated with or into the Bank, any direct or indirect Subsidiary of the Bank, and any Person from which the Bank has incurred any Liability for Taxes as a result of transferee liability.
(p) Material Contracts.
(i) Set forth on Schedule 4.2(p)(i) of the Bancshares Disclosure Memorandum is a true, correct, and complete list of the following Contracts to which Bancshares or the Bank, or any of their Subsidiaries, is a party, by which Bancshares or the Bank, or any of their Subsidiaries, is bound, or to which Bancshares or the Bank, or any of their Subsidiaries, or any of the properties or assets of Bancshares or the Bank, or any of their Subsidiaries, are subject (whether or not actually set forth on such schedule, collectively, the “Bancshares Material Contracts”):
(A) Any Contract (other than Contracts for Bancshares Loans made in the ordinary course of business) that involves, or could reasonably be expected to involve, annual receipts or disbursements of $25,000 or more;
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(B) Any Contract that requires Bancshares or the Bank, or any of their Subsidiaries, to purchase all of its requirements for a given product, good, or service from a given Person;
(C) Any Contract that provides for the indemnification by Bancshares or the Bank, or any of their Subsidiaries, of any Person, or the express assumption by Bancshares or the Bank, or any of their Subsidiaries, of any Tax, environmental, or other Liability of any Person;
(D) Any Contract relating to the disposition or acquisition, directly or indirectly (by merger or otherwise), by Bancshares or the Bank, or any of their Subsidiaries, after the date of this Agreement of properties, assets, or securities with a fair market value of $25,000 or more;
(E) Any employment agreement, consulting agreement, severance agreement, change of control agreement, bonus agreement, salary continuation agreement, deferred compensation agreement, stock option agreement, restricted stock agreement, non-competition agreement, non-solicitation agreement, confidentiality or non-disclosure agreement, or other Contract with any current or former director, officer, employee, or independent contractor of or to Bancshares or the Bank or any of their Subsidiaries (excluding commercially standard confidentiality and non-disclosure provisions included in vendor agreements entered into by the Bancshares Parties in the ordinary course of business);
(F) Any Contract not disclosed under Section 4.2(p)(i)(E) with or for the benefit of any shareholder, director, officer, employee, independent contractor, or Affiliate of Bancshares or the Bank or any of their Subsidiaries, or any Affiliate of or member of the immediate family of any such Person;
(G) Any Contract under which any payment (whether change of control, severance, or otherwise) will become due to any current or former director, officer, employee, independent contractor, or other service provider as of result of or upon the execution or delivery of this Agreement or the consummation of the any of the transactions contemplated by this Agreement (either alone or upon the occurrence of any additional acts or events);
(H) Any Contract that provides for compensation or benefits that will be increased, or under which compensation or benefits will be accelerated, as of result of or upon the execution or delivery of this Agreement or the consummation of the any of the transactions contemplated by this Agreement (either alone or upon the occurrence of any additional acts or events), or that provides for compensation or benefits the value of which will be calculated on the basis of any of the transactions contemplated by this Agreement;
(I) Any Contract that provides for any payments by Bancshares or the Bank, or any of their Subsidiaries, upon a change of control;
(J) Any Contract that limits or purports to limit the right of Bancshares or the Bank, or any of their Subsidiaries, to engage in any line of business, compete with any Person, or operate in any geographic location;
(K) Any partnership, joint venture, limited liability company, or similar Contract;
(L) Any Contact with respect to the ownership, occupancy, management, lease, or operation of real property;
(M) Any data processing or information technology Contract;
(N) Any Contract that grants to any Person any right of first refusal, right of first offer, or similar right with respect to any assets, rights, properties, or securities of Bancshares or the Bank or any of their Subsidiaries;
(O) Any Contract that relates to indebtedness of or borrowings of money by Bancshares or the Bank, or any of their Subsidiaries, in excess of $25,000 (other than Federal Home Loan Bank borrowings and repurchase agreements with customers entered into in the ordinary course of business);
(P) Any Contract relating to the acquisition, transfer, sale, or issuance of, or affecting or dealing with, any securities of Bancshares or the Bank or any of their Subsidiaries, including without limitation any voting, shareholders, or underwriting agreement;
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(Q) Any Contract not terminable on 30 days or less notice without any payment or penalty and involving disbursements or payments by Bancshares or the Bank or any of their Subsidiaries in excess of $25,000 per annum; and
(R) Any other Contract not disclosed pursuant to subsections (A)-(Q) of this Section 4.2(p)(i) that is material to Bancshares or the Bank or any of their Subsidiaries or the business, operations, or financial condition of Bancshares or the Bank or any of their Subsidiaries.
(ii) A true, correct, and complete copy (or, in the case of any oral Contract, a complete and accurate written description) of each Bancshares Material Contract, as amended through the date of this Agreement, has been previously provided or made available to SmartFinancial. Each of the Bancshares Material Contracts is in full force and effect and is a valid and binding obligation of Bancshares or the Bank or their Subsidiaries, as applicable, and each of the other parties thereto, enforceable against Bancshares or the Bank or their Subsidiaries, as applicable, and each of the other parties thereto in accordance with its terms. Bancshares and the Bank and their Subsidiaries have performed all duties and obligations required to be performed by them under each Bancshares Material Contract. Neither Bancshares or the Bank or any of their Subsidiaries nor any other party thereto is in breach or violation of or default under any Bancshares Material Contact, and there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a breach, violation, or default. No event has occurred and no circumstance or condition exists that, with or without notice or lapse of time or both, gives any Person, or will or could give any Person, (A) the right to declare a breach or default or exercise any remedy under any Bancshares Material Contract, (B) the right to accelerate the maturity of or performance under any Bancshares Material Contract, or (C) the right to cancel, terminate, or modify any Bancshares Material Contract.
(iii) Except as set forth on Schedule 4.2(p)(iii) of the Bancshares Disclosure Memorandum, (A) no consents, approvals, waivers, or notices are required to be obtained, given, or delivered pursuant to the terms of any Bancshares Material Contract as a result of the Bancshares Parties’ execution, delivery, or performance of this Agreement or the consummation of the transactions contemplated hereby and (B) assuming the consents, approvals, waivers, and notices referred to in clause (A) are obtained, given, and delivered, neither the Bancshares Parties’ execution, delivery, or performance of this Agreement nor the consummation of the transactions contemplated hereby will result in any Person having the right to declare a breach or default or exercise any remedy under any Bancshares Material Contract; accelerate the maturity of or performance under any Bancshares Material Contract; or cancel, terminate, or modify any Bancshares Material Contract.
(q) Intellectual Property; Information Technology Systems.
(i) Set forth on Schedule 4.2(q)(i) of the Bancshares Disclosure Memorandum is a true, correct, and complete list, and where appropriate a description, of all of the Intellectual Property owned, leased, or licensed by Bancshares or the Bank or any of their Subsidiaries, or used by Bancshares or the Bank or any of their Subsidiaries in the conduct of their respective businesses (collectively, the “Bancshares Intellectual Property”). All required filings and fees related to Bancshares Intellectual Property registrations have been timely filed with and paid to the relevant Governmental Entities and authorized registrars, and all Bancshares Intellectual Property registrations are in good standing.
(ii) Set forth on Schedule 4.2(q)(ii) of the Bancshares Disclosure Memorandum is a true, correct, and complete list of all licenses and other Contracts relating to or affecting the Bancshares Intellectual Property. There is no breach or default or alleged breach or default by the Bancshares Parties or their Subsidiaries or, to the Knowledge of the Bancshares Parties, any third party of or under any such license or other Contract, and to the Knowledge of the Bancshares Parties there is no state of facts or circumstances which, with or without notice or lapse of time or both, would constitute such a breach or default. The Bancshares Parties have previously provided to SmartFinancial true, correct, and complete copies (or, in the case of any oral Contract, a complete and accurate written description) of the above-mentioned licenses and other Contracts, including all modifications, amendments, and supplements thereto and waivers thereunder.
(iii) Bancshares or the Bank, or one of their Subsidiaries, is the sole and exclusive owner of all of the Bancshares Intellectual Property not leased or licensed to Bancshares or the Bank or one of their Subsidiaries, free and clear of any Liens, and, with respect to any Bancshares Intellectual Property leased or licensed to Bancshares or the Bank or one of their Subsidiaries, has a valid and enforceable lease, license, or other right to use such Bancshares Intellectual Property, and except as set forth on Schedule 4.2(q)(iii) of the
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Bancshares Disclosure Memorandum, no leases, licenses, or other rights have been granted by Bancshares or the Bank or their Subsidiaries to third Persons with respect to any such Bancshares Intellectual Property. Bancshares and the Bank and their Subsidiaries own or possess all requisite rights to use all of the Bancshares Intellectual Property required or necessary for the conduct of the business of Bancshares and the Bank and their Subsidiaries as presently conducted, without any conflict with the rights of others or any known use by others which conflicts with the rights of Bancshares or the Bank or any of their Subsidiaries. Neither Bancshares nor the Bank, nor any of their Subsidiaries, owes any royalties, honoraria, or fees to any Person by reason of the use by Bancshares or the Bank or any of their Subsidiaries of any of the Bancshares Intellectual Property. Neither Bancshares nor the Bank, nor any of their Subsidiaries, has received notice of, and to the Knowledge of the Bancshares Parties there is no basis for, any claimed conflict with respect to any of the Bancshares Intellectual Property or any claim against Bancshares or the Bank or any of their Subsidiaries that their respective operations, activities, products, publications, goods, or services infringe upon any patent, trademark, trade name, copyright, or other intellectual property or proprietary right of a third party, or that Bancshares or the Bank or any of their Subsidiaries is illegally or otherwise impermissibly using any patent, trademark, trade name, copyright, trade secret, or other intellectual property or proprietary right of others, nor has there been any claim or assertion that any of the Bancshares Intellectual Property is invalid or defective in any way.
(iv) Set forth on Schedule 4.2(q)(iv) of the Bancshares Disclosure Memorandum is a true, correct, and complete list of all consents, waivers, authorizations, and approvals with respect to or involving the Bancshares Intellectual Property that must be obtained, and all filings that must be made and all other actions that must be taken in respect of the Bancshares Intellectual Property, in connection with the Parties’ execution, delivery, or performance of this Agreement or the consummation of the transactions contemplated by this Agreement; provided that the need to record the transactions contemplated by this Agreement against all registered or recorded Bancshares Intellectual Property does not have to be expressly identified on Schedule 4.2(q)(iv) of the Bancshares Disclosure Memorandum.
(v) All information technology and computer systems (including software, information technology and telecommunications hardware, and other equipment) relating to or for the transmission, storage, maintenance, organization, presentation, generation, processing, or analysis of data and information, whether or not in electronic format, necessary for or used in the conduct of the businesses of the Bancshares Parties and their Subsidiaries (collectively, the “Bancshares IT Systems”) have, to the Knowledge of the Bancshares Parties, been properly maintained by technically competent personnel, in accordance with standards set by manufacturers or otherwise in accordance with standards in the industry, to ensure proper operation, monitoring, and use. The Bancshares IT Systems are in good working condition to effectively perform all information technology (including data processing) operations necessary to conduct business as currently conducted. Except as set forth on Schedule 4.2(q)(v) of the Bancshares Disclosure Memorandum, since January 1, 2015, neither Bancshares nor the Bank, nor any of their Subsidiaries, has experienced any material disruption to, or material interruption in, the conduct of its business attributable to a defect, bug, breakdown, or other failure or deficiency in or of the Bancshares IT Systems. The Bancshares Parties and their Subsidiaries have taken reasonable measures to provide for the back-up and recovery of the data and information necessary for the conduct of their respective businesses (including such data and information that is stored on magnetic or optical media in the ordinary course) without material disruption to, or material interruption in, the conduct of their respective businesses. Neither Bancshares nor the Bank, nor any of their Subsidiaries, is in breach of or default under any Contract relating to any of the Bancshares IT Systems.
(vi) The Bancshares Parties and their Subsidiaries have in place commercially reasonable data protection and privacy policies and procedures to protect, safeguard, and maintain the confidentiality, integrity, and security of (A) their information technology systems and software owned or purported to be owned by them and (B) all information, data, and transactions stored or contained therein or transmitted thereby, including personally identifiable information, financial information, and credit card data (as such information or terms are defined and/or regulated under applicable Laws (the “Bancshares Data”), against any unauthorized or improper use, access, transmittal, interruption, modification, or corruption. The Bancshares Parties and their Subsidiaries are in compliance with applicable federal and state confidentiality and data security Laws, including without limitation Title V of the Gramm-Leach-Bliley Act of 1999 and regulations promulgated thereunder, as well as the provisions of the information security program adopted by the Bancshares Parties pursuant to 12 C.F.R. Part 364, and all industry standards applicable to the Bancshares Data, including card association rules and the payment card industry data security standards. There currently are not any, and since January 1, 2015, there have not been
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any, pending or, to the Knowledge of the Bancshares Parties, threatened claims or written complaints with respect to unauthorized access to or breaches of the security of (A) any of the Bancshares Parties’ or their Subsidiaries’ information technology systems or (B) Bancshares Data or any other such information collected, maintained, or stored by or on behalf of the Bancshares Parties or their Subsidiaries (or any unlawful acquisition, use, loss, destruction, compromise, or disclosure thereof).
(r) Labor and Employment Matters.
(i) The Bancshares Parties and their Subsidiaries are in compliance in all material respects with all applicable Laws respecting employment, retention of independent contractors, employment practices, terms and conditions of employment, and wages and hours. Neither Bancshares nor the Bank, nor any of their Subsidiaries, is or has ever been a party to, or is or has ever been bound by, any collective bargaining agreement or contract or other agreement or understanding with a labor union or labor organization with respect to its employees, nor is Bancshares or the Bank, or any of their Subsidiaries, the subject of any proceeding in which it is asserted that Bancshares or the Bank, or any of their Subsidiaries, has committed an unfair labor practice or seeking to compel Bancshares or the Bank, or any of their Subsidiaries, to bargain with any labor organization as to wages and conditions of employment, nor, to the Knowledge of the Bancshares Parties, has any such proceeding been threatened, nor is there any strike, labor dispute, or organizational effort involving Bancshares or the Bank, or any of their Subsidiaries, pending or, to the Knowledge of the Bancshares Parties, threatened.
(ii) Set forth on Schedule 4.2(r)(ii) of the Bancshares Disclosure Memorandum is (A) a true, correct, and complete list of all employees (including any leased or temporary employees) of the Bancshares Parties and their Subsidiaries; (B) each such employee’s current rate of compensation and bonus or incentive compensation arrangements; and (C) each such employee’s date of hire and accrued vacation, sick leave, personal leave, and paid time off, as applicable. Set forth or identified on Schedule 4.2(r)(ii) of the Bancshares Disclosure Memorandum are the names of any employees of the Bancshares Parties or any of their Subsidiaries who are absent from work due to a leave of absence (including without limitation in accordance with the requirements of the Family and Medical Leave Act or the Uniformed Services Employment and Reemployment Rights Act) or a work-related injury, or who are receiving workers’ compensation or disability compensation. There are no unpaid wages, salaries, bonuses, commissions, or other amounts owed to any employee or former employee of Bancshares or the Bank or any of their Subsidiaries.
(iii) To the Knowledge of the Bancshares Parties, no director, officer, employee, or independent contractor of or to Bancshares or the Bank or any of their Subsidiaries is a party to or otherwise bound by any Contract, including without limitation any confidentiality, non-competition, non-solicitation, or proprietary rights agreement, that could adversely affect the ability of Bancshares or the Bank or any of their Subsidiaries to conduct its business as currently conducted or the ability of such Person to perform and carry out such Person’s duties or responsibilities.
(iv) Neither Bancshares nor the Bank, nor any of their Subsidiaries, has classified any Person as an “independent contractor” or any similar status who, under applicable Law or the provisions of any Bancshares Benefit Plan (as defined below), should have been classified as an employee. Neither Bancshares nor the Bank, nor any of their Subsidiaries, has any Liability for improperly excluding any Person who provides or has provided services to Bancshares or the Bank or any of their Subsidiaries in any capacity from participating in any Bancshares Benefit Plan.
(v) Except as set forth on Schedule 4.2(r)(v) of the Bancshares Disclosure Memorandum, as of the date of this Agreement, none of the officers or other employees of Bancshares or the Bank (or any of their Subsidiaries) with a title of branch manager or higher have informed Bancshares or the Bank (or any of their Subsidiaries) of their intent, and the Bancshares Parties do not have Knowledge that any of the officers or other employees of Bancshares or the Bank (or any of their Subsidiaries) with a title of branch manager or higher have an intention, to terminate their employment with Bancshares or the Bank (or any of their Subsidiaries) during the next 12 months, including in connection with the transactions contemplated by this Agreement.
(vi) There is no pending or, to the Knowledge of the Bancshares Parties, threatened suit, action, claim, or legal, administrative, arbitration, or other proceeding by or on behalf of any current or former employee of Bancshares or the Bank or any of their Subsidiaries, including without limitation any suit, action, claim, or legal, administrative, arbitration, or other proceeding alleging noncompliance with applicable Laws respecting employment, employment practices, wages and hours, or terms and conditions of employment (but excluding
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workers’ compensation matters), which if adversely determined would, individually or in the aggregate, reasonably be expected to have a Bancshares Material Adverse Effect, and to the Knowledge of the Bancshares Parties there are no facts or circumstances that could reasonably be expected to give rise to any such suit, action, claim, or legal, administrative, arbitration, or other proceeding.
(s) Benefit Plans.
(i) Set forth on Schedule 4.2(s)(i) of the Bancshares Disclosure Memorandum is a true, correct, and complete list of all pension, retirement, salary continuation, stock option, restricted stock, stock purchase, stock ownership, savings, stock appreciation right, profit sharing, deferred compensation, consulting, bonus, group insurance, disability, severance, change of control, fringe benefit, incentive, cafeteria or Code Section 125, welfare, and other benefit plans, contracts, agreements, and arrangements, including without limitation “employee benefit plans” as defined in Section 3(3) of ERISA, incentive and welfare policies, contracts, plans, and arrangements, including split dollar life insurance arrangements, and all trust agreements and funding arrangements related thereto, which are or have been maintained by, contributed to (or required to be contributed to), or sponsored by Bancshares or the Bank or an ERISA Affiliate for the benefit of or with respect to any present or former directors, officers, or employees of Bancshares or the Bank or any of their Subsidiaries (herein referred to collectively as the “Bancshares Benefit Plans”), including any and all plans or policies offered to employees of Bancshares or the Bank, or any of their Subsidiaries, with respect to which Bancshares or the Bank or an ERISA Affiliate has claimed or is claiming the safe harbor for “voluntary plans” under ERISA for group and group-type insurance arrangements (“Bancshares Voluntary Plans”). The Bancshares Parties have previously delivered or made available to SmartFinancial true, correct, and complete copies of all plans, contracts, agreements, arrangements, and other documents required to be set forth in Schedule 4.2(s)(i) of the Bancshares Disclosure Memorandum, along with, where applicable, copies of the IRS Form 5500 for the most recently completed year. There has been no announcement or commitment by Bancshares or the Bank, or any of their Subsidiaries, to create any additional Bancshares Benefit Plan, to amend any Bancshares Benefit Plan (except for amendments required by applicable Law which do not materially increase the cost of such Bancshares Benefit Plan), or to terminate any Bancshares Benefit Plan. Each Bancshares Benefit Plan that provides for the payment of “deferred compensation,” including any employment, change of control, stock option, or salary continuation agreement between Bancshares or the Bank or any of their Subsidiaries and any current or former director, officer, or employee, complies with Section 409A of the Code.
(ii) Except as set forth on Schedule 4.2(s)(ii) of the Bancshares Disclosure Memorandum, other than routine claims for benefits, there is no pending or, to the Knowledge of the Bancshares Parties, threatened, or suspected claim, litigation, action, administrative action, suit, audit, arbitration, mediation, or other proceeding relating to any Bancshares Benefit Plan. All of the Bancshares Benefit Plans comply in all material respects with applicable requirements of ERISA and the Code and other applicable Laws (including without limitation the portability, privacy, and security provisions of the Health Insurance Portability and Accountability Act of 1996, as amended; the Patient Protection and Affordable Care Act of 2009, as amended; the coverage continuation requirements of Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended; the Family and Medical Leave Act, as amended; the Mental Health Parity Act of 1996, as amended; the Mental Health Parity and Addiction Equity Act of 2008, as amended; the Uniformed Services Employment and Reemployment Rights Act, as amended; the Newborns’ and Mothers’ Health Protection Act of 1996, as amended; the Women’s Health and Cancer Rights Act, as amended; and the Genetic Information Nondiscrimination Act of 2008, as amended), and have been established, maintained, and administered in compliance, in all material respects, with all applicable requirements of ERISA and the Code and other applicable Laws and the terms and provisions of all documents, contracts, or agreements establishing the Bancshares Benefit Plans or pursuant to which they are maintained or administered. There are no existing circumstances and no event has occurred that would reasonably be expected to adversely affect the qualified status of any Bancshares Benefit Plan. No audit of any Bancshares Benefit Plan by the IRS or the United States Department of Labor is ongoing or, to the Knowledge of the Bancshares Parties, threatened or was ongoing or closed, or to the Knowledge of the Bancshares Parties threatened, at any time during the past five years. There has occurred no “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) with respect to any Bancshares Benefit Plan that is likely to result in, or has already resulted in, the imposition of any penalties or Taxes upon Bancshares or the Bank or any of their Subsidiaries under Section 502(i) of ERISA or Section 4975 of the Code.
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(iii) No Liability to the Pension Benefit Guaranty Corporation has been, or is expected by the Bancshares Parties or their Subsidiaries to be, incurred with respect to any Bancshares Benefit Plan that is subject to Title IV of ERISA (a “Bancshares Pension Plan”), or with respect to any “single-employer plan” (as defined in Section 4001(a) of ERISA) currently or formerly maintained by Bancshares or the Bank or any ERISA Affiliate. No Bancshares Pension Plan had an “accumulated funding deficiency” (as defined in Section 302 of ERISA), whether or not waived, as of the last day of the end of the most recent plan year ending prior to the date hereof; the fair market value of the assets of each Bancshares Pension Plan exceeds the present value of the “benefit liabilities” (as defined in Section 4001(a)(16) of ERISA) under such Bancshares Pension Plan as of the end of the most recent plan year ending prior to the date hereof, calculated on the basis of the actuarial assumptions used in the most recent actuarial valuation for such Bancshares Pension Plan as of the date hereof; and no notice of a “reportable event” (as defined in Section 4043 of ERISA) for which the reporting requirement has not been waived has been required to be filed for any Bancshares Pension Plan within the 12-month period ending on the date of this Agreement. Neither Bancshares nor the Bank, nor any of their Subsidiaries, has provided or is required to provide security to any Bancshares Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code. Neither Bancshares nor the Bank, nor any of their Subsidiaries or any ERISA Affiliate, has contributed to or been obligated to contribute to any “multiemployer plan” as defined in Section 3(37) of ERISA.
(iv) Each Bancshares Benefit Plan that is an “employee pension benefit plan” (as defined in Section 3(2) of ERISA) and which is intended to be qualified under Section 401(a) of the Code (a “Bancshares Qualified Plan”) has received a current favorable determination letter from the IRS (or, in the case of an IRS pre-approved plan, the pre-approved plan has a current IRS opinion or advisory letter upon which the Bancshares Parties are entitled to rely under applicable IRS guidance), and to the Knowledge of the Bancshares Parties there are no facts or circumstances that could result in the revocation of any such favorable determination letter. Each Bancshares Qualified Plan, if any, that is an “employee stock ownership plan” (as defined in Section 4975(e)(7) of the Code) has satisfied all of the applicable requirements of Sections 409 and 4975(e)(7) of the Code and the regulations thereunder in all material respects, and any assets of any such Bancshares Qualified Plan that, as of the end of the most recent plan year, are not allocated to participants’ individual accounts are pledged as security for, and may be applied to satisfy, any securities acquisition indebtedness.
(v) Except as set forth on Schedule 4.2(s)(v) of the Bancshares Disclosure Memorandum, neither Bancshares nor the Bank, nor any of their Subsidiaries, has any obligations for post-retirement or post-employment benefits under any Bancshares Benefit Plan that cannot be amended or terminated upon 60 days or less notice without incurring any Liability thereunder, except for coverage required by Part 6 of Title I of ERISA or Section 4980B of the Code or similar state Laws, the cost of which is borne by the insured individuals.
(vi) Except as set forth on Schedule 4.2(s)(vi) of the Bancshares Disclosure Memorandum, all contributions and payments (both employer and employee) required to be made with respect to any Bancshares Benefit Plan by applicable Law or by any plan document or other contractual undertaking, and all premiums due or payable (both employer and employee) with respect to insurance policies funding any Bancshares Benefit Plan, for any period through the date hereof have been timely made or paid in full by the applicable due date, with extensions, or to the extent not required to be made or paid on or before the date hereof, have been fully reflected or reserved against in the Interim Bancshares Financials to the extent required by GAAP or regulatory accounting requirements. Each Bancshares Benefit Plan that is an employee welfare benefit plan under Section 3(1) of ERISA either (A) is funded through an insurance company contract and is not a “welfare benefit fund” within the meaning of Section 419 of the Code or (B) is unfunded. Any unfunded Bancshares Benefit Plan pays benefits solely from the general assets of Bancshares or the Bank, or their applicable Subsidiary, for which arrangement the establishment of a trust under ERISA is not required. All unfunded benefits for which claims have been filed under a Bancshares Benefit Plan have been or are being processed for payment or otherwise adjudicated in accordance with the terms of the applicable Bancshares Benefit Plan and paid (to the extent payment is due), or will be paid, within the customary, normal, and routine claims processing and payment time frames followed by the Bancshares Benefit Plan and as required by ERISA. No unfunded Bancshares Benefit Plan is delinquent in the payment of benefits, and neither Bancshares nor the Bank, nor any of their Subsidiaries, is delinquent in making its required contributions to any such unfunded Bancshares Benefit Plan so that the Bancshares Benefit Plan can pay benefits on a timely basis.
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(vii) All required reports, notice, disclosures, and descriptions (including without limitation Form 5500 annual reports and required attachments, Forms 1099-R, summary annual reports, Forms PBGC-1, and summary plan descriptions) have been timely filed or distributed in accordance with applicable Law with respect to each Bancshares Benefit Plan. All required Tax filings with respect to each Bancshares Benefit Plan have been made, and any Taxes due in connection with such filings have been paid. Since January 1, 2015, neither Bancshares nor the Bank, nor any of their Subsidiaries, has filed or been required to file with the IRS a Form 8928 in order to self-report any health plan violations which are subject to excise taxes under applicable provisions of the Code, and there are no facts or circumstances that could reasonably be expected to result in Bancshares or the Bank, or any of their Subsidiaries, being required by the Code to file any such Form 8928.
(viii) Except as set forth on Schedule 4.2(s)(viii) of the Bancshares Disclosure Memorandum, neither Bancshares nor the Bank, nor any of their Subsidiaries, is a party to or bound by any Contract (including without limitation any severance, change of control, salary continuation, or employment agreement) that will, as a result or consequence of the execution or delivery of this Agreement, shareholder approval of this Agreement or the transactions contemplated hereby, or the consummation of the transactions, including the Parent Merger or the Bank Merger, contemplated hereby, either alone or in connection with any other event, (A) entitle any current or former director, officer, employee, or independent contractor of Bancshares or the Bank, or of any of their Subsidiaries, to severance pay or change of control or other benefits, or any increase in severance pay or other benefits (whether upon termination of employment or termination of such Contract after the date hereof or otherwise), (B) accelerate the time of payment or vesting or trigger any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable under, or trigger any withdrawal liability under or any other material obligation pursuant to any of the Bancshares Benefit Plans, (C) result in any breach or violation of, or a default under, any of the Bancshares Benefit Plans, or (D) result in the payment of any “excess parachute payments” within the meaning of Section 280G of the Code or the imposition of any Tax under Section 409A of the Code or the forgiveness of any indebtedness.
(ix) Each Bancshares Benefit Plan that is a “nonqualified deferred compensation plan” (as defined in Section 409A(d)(1) of the Code) is in documentary compliance with Section 409A of the Code and has been administered (A) in good faith compliance with Section 409A of the Code during the period beginning October 1, 2004, through December 31, 2008, and (B) in compliance with Section 409A of the Code since January 1, 2009.
(x) Persons being provided coverage under each Bancshares Benefit Plan are described in such Bancshares Benefit Plan as being eligible for coverage under such Bancshares Benefit Plan, and neither Bancshares nor the Bank, nor any of their Subsidiaries, has any Liability for improperly including any Person as a participant in any Bancshares Benefit Plan in which such Person is or was not eligible for coverage.
(xi) No Person is entitled to receive any additional payment (including without limitation any Tax gross-up or similar payment) from Bancshares or the Bank or any of their Subsidiaries as a result of the imposition of any excise Taxes under Section 4999 of the Code or any Taxes required by Section 409A of the Code.
(xii) All of the Bancshares Benefit Plans are nondiscriminatory with respect to eligibility and benefits to the extent required under applicable provisions of the Code and other applicable Laws. To the extent required by applicable Law, all of the Bancshares Benefit Plans have been approved by the shareholders of Bancshares or the Bank, as applicable, or the shareholders of corporations Bancshares or the Bank has acquired.
(xiii) All Bancshares Voluntary Plans satisfy the regulatory safe-harbor requirements provided by ERISA in order for such Bancshares Voluntary Plans to be considered not to be or to have been established, sponsored, or maintained by Bancshares or the Bank or any of their Subsidiaries and not to constitute an “employee benefit plan” subject to ERISA.
(t) Real and Personal Property.
(i) Set forth on Schedule 4.2(t)(i) of the Bancshares Disclosure Memorandum is a true, correct, and complete list (by street address) as of the date of this Agreement of all real property owned by Bancshares or the Bank or any of their Subsidiaries, including without limitation property carried on the books of the Bank as “Other Real Estate Owned” (the “Bancshares Properties”). No real property is leased by Bancshares or the Bank or any of their Subsidiaries. Set forth on Schedule 4.2(t)(i) of the Bancshares Disclosure Memorandum is a
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true, correct, and complete list of all Contracts under or pursuant to which Bancshares or the Bank or any of their Subsidiaries leases, as lessor, any real property, and the Bancshares Parties have previously delivered or made available to SmartFinancial a true, correct, and complete copy of each such Contract, including any amendments thereto. Except for the Bancshares Properties, as of the date of this Agreement, neither Bancshares nor the Bank nor any of their Subsidiaries holds any interest (fee, leasehold, or otherwise) in any real property. Bancshares and the Bank and their Subsidiaries have good and marketable title to all of the Bancshares Properties (including any property acquired in a judicial foreclosure proceeding or by way of a deed in lieu of foreclosure or similar transfer), in each case free and clear of any and all Liens, except Permitted Exceptions. There are no unpaid bills or claims for work performed on or at the Bancshares Properties other than bills for work that has been performed but which are not yet due and payable. Each of the Bancshares Properties is in good condition (normal wear and tear excepted), conforms with all applicable ordinances, regulations, and zoning and other Laws, and is reasonably considered by the Bancshares Parties to be adequate for the current business of the Bancshares Parties and their Subsidiaries. To the Knowledge of the Bancshares Parties, none of the buildings, structures, or other improvements located on any of the Bancshares Properties encroaches upon or over any adjoining parcel of real estate or any easement or right-of-way and none of the buildings, structures, or other improvements located on any parcel adjoining the Bancshares Properties encroaches upon or over any portion of the Bancshares Properties.
(ii) Except as set forth on Schedule 4.2(t)(i) of the Bancshares Disclosure Memorandum, the Bancshares Properties are not subject to any legally binding lease, tenancy, or license or any legally binding agreement to grant any such lease, tenancy, or license that materially interferes with the Bancshares Parties’ or their Subsidiaries’ use of the Bancshares Properties. There is no Person in possession or occupation of, or who has any current right to possession or occupation of, the Bancshares Properties other than the Bancshares Parties and their Subsidiaries. There are no easements of any kind on, in respect of, or affecting the Bancshares Properties that materially and adversely affect the rights of the Bancshares Parties and their Subsidiaries to use the Bancshares Properties for the conduct of their business.
(iii) None of the Bancshares Properties, nor any building, structure, fixture, or improvement thereon, is the subject of, or affected by, any condemnation, taking, eminent domain, or inverse condemnation proceeding currently instituted or pending, and the Bancshares Parties have no Knowledge that any of the Bancshares Properties, or any such building, structure, fixture, or improvement, will or may the subject of, or affected by, any such proceeding. There are no special, general, or other assessment proceedings affecting the Bancshares Properties which, if as a result of which a special, general, or other assessment were imposed, would materially increase the cost of using and operating the Bancshares Properties as currently used and operated by the Bancshares Parties and their Subsidiaries.
(iv) None of the Bancshares Properties are located in any special flood hazard area or zone on any official flood hazard map published by the United States Federal Emergency Management Agency or in any wetland area as designated by the United States Army Corps of Engineers, the United States Environmental Protection Agency, or any applicable state or local agency. The Bancshares Properties are appropriately zoned for each of the purposes for which they are being used by the Bancshares Parties and their Subsidiaries.
(v) Neither Bancshares nor the Bank, nor any of their Subsidiaries, has experienced any material restriction in access to or from public roads or any material restriction in access to any utilities, including without limitation water, sewer, drainage, gas, electric, telephone, cable, and internet, used by Bancshares or the Bank or any of their Subsidiaries in the operation of their business as presently conducted; there is no pending or, to the Knowledge of the Bancshares Parties, threatened governmental action that could prohibit or materially interfere with such access; and, to the Knowledge of the Bancshares Parties, no fact or condition exists which, with the passage of time or the giving of notice, or both, may result in the termination of or material reduction or impairment of such access. All existing utilities provided at the Bancshares Properties are adequate in all material respects for the Bancshares Parties’ and their Subsidiaries’ existing use and operation of the Bancshares Properties.
(vi) Bancshares and the Bank and their Subsidiaries have good and marketable title to all personal property owned by them, in each case free and clear of any and all Liens other than Permitted Exceptions. Each lease pursuant to which Bancshares or the Bank, or any of their Subsidiaries, leases personal property is valid, binding, enforceable (subject to the Enforceability Exceptions), and in full force and effect, and neither Bancshares nor the Bank, nor any of their Subsidiaries, nor to the Knowledge of the Bancshares Parties
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any other party to any such lease, is in default under or in breach or violation of any provision of any such lease. The personal property owned or leased by Bancshares and the Bank and their Subsidiaries is in good condition, normal wear and tear excepted, and is sufficient for the carrying on of the business of Bancshares and the Bank and their Subsidiaries in the ordinary course consistent with past practice.
(u) Environmental Matters.
(i) Each of the Bancshares Properties, each of the Bancshares Participation Facilities, and, to the Knowledge of the Bancshares Parties, each of the Bancshares Loan Properties is, and as applicable has been during the period of Bancshares’ or the Bank’s or their Subsidiaries’ ownership or operation thereof, in compliance with all Environmental Laws. There is no suit, claim, action, demand, executive or administrative order, investigation, directive, or proceeding pending or, to the Knowledge of the Bancshares Parties, threatened against Bancshares or the Bank or any of their Subsidiaries, or any Bancshares Participation Facility, (A) for alleged noncompliance (including by any predecessor) with or Liability under any Environmental Law or (B) relating to the presence of or release into the environment of any Hazardous Substance, whether or not occurring at or on a site owned, leased, or operated by Bancshares or the Bank or any of their Subsidiaries, or any Bancshares Participation Facility. To the Knowledge of the Bancshares Parties, there is no suit, claim, action, demand, executive or administrative order, directive, investigation, or proceeding pending or threatened against or relating to any Bancshares Loan Property (or Bancshares or the Bank or any of their Subsidiaries in respect of any Bancshares Loan Property) and (A) relating to alleged noncompliance (including by any predecessor) with or Liability under any Environmental Law or (B) relating to the presence of or release into the environment of any Hazardous Substance, whether or not occurring at or on a Bancshares Loan Property. Neither Bancshares nor the Bank, nor any of their Subsidiaries, has received any notice, demand letter, executive or administrative order, directive, or request for information from any Governmental Entity or other third party indicating that it is or may be in material violation of or have any material Liability under any Environmental Law.
(ii) To the Knowledge of the Bancshares Parties, there are no underground storage tanks at or on any of the Bancshares Properties, any other property operated by Bancshares or the Bank or any of their Subsidiaries, or any Bancshares Participation Facility. Neither Bancshares nor the Bank nor any of their Subsidiaries, nor to the Knowledge of the Bancshares Parties any other Person, has closed or removed any underground storage tank on or from any of the Bancshares Properties, any other property operated by Bancshares or the Bank or any of their Subsidiaries, or any Bancshares Participation Facility. To the Knowledge of the Bancshares Parties, except as set forth on Schedule 4.2(u)(ii) of the Bancshares Disclosure Memorandum, (A) there are no underground storage tanks at or on any of the Bancshares Loan Properties, (B) no underground storage tank has been closed or removed on or from any of the Bancshares Loan Properties, and (C) none of the Bancshares Loan Properties is the site of or was formerly the site of a dry cleaning facility.
(iii) During the period of (A) the Bancshares Parties’ and their Subsidiaries’ ownership or operation of the Bancshares Properties and (B) the Bancshares Parties’ or their Subsidiaries’ participation in the management of any Bancshares Participation Facility, there has been no contamination by or release of Hazardous Substances in, on, under, or affecting such properties, except for releases of Hazardous Substances, individually or in the aggregate, in quantities below the level at which they were regulated under any Environmental Law in effect at the time of such release(s). To the Knowledge of the Bancshares Parties, prior to the period of (A) the Bancshares Parties’ and their Subsidiaries’ ownership or operation of the Bancshares Properties or (B) the Bancshares Parties’ or their Subsidiaries’ participation in the management of any Bancshares Participation Facility, there was no contamination by or release of Hazardous Substances in, on, under, or affecting such properties, except for releases of Hazardous Substances, individually or in the aggregate, in quantities below the level at which they were regulated under any Environmental Law in effect at the time of such release(s).
(iv) The Bancshares Parties and their Subsidiaries have all permits, licenses, consents, orders, authorizations, and approvals required by the Environmental Laws for the use and occupancy of, and for all operations and activities conducted on, any properties owned, leased, operated, or occupied by the Bancshares Parties or their Subsidiaries, and the Bancshares Parties and their Subsidiaries are in compliance in all material respects with all such permits, licenses, consents, orders, authorizations, and approvals. All such permits, licenses, consents, orders, authorizations, and approvals were duly issued, are in full force and effect, and will remain in full force and effect as of and after the Effective Time.
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(v) Except as set forth in this Section 4.2(u), no representations or warranties are being made with respect to environmental matters.
(v) Fairness Opinion. Prior to the Parties’ execution of this Agreement, the board of directors of Bancshares has received from Olsen Palmer LLC an opinion (which, if initially rendered verbally, has been or will be confirmed in a written opinion dated the same date) to the effect that, as of the date of such opinion and subject to the assumptions and qualifications set forth therein, the Merger Consideration is fair from a financial point of view to the holders of Bancshares Common Stock.
(w) Broker Fees. Except as set forth on Schedule 4.2(w) of the Bancshares Disclosure Memorandum, neither Bancshares or the Bank or any of their Subsidiaries, nor any of their respective officers, directors, employees, or agents, has engaged or employed any broker, investment banker, or finder or incurred any Liability for any financial advisory, investment banking, brokerage, or finder’s fees, commissions, or expenses, and no broker, investment banker, or finder has acted directly or indirectly for or on behalf of Bancshares or the Bank or any of their Subsidiaries, in connection with this Agreement or the transactions contemplated hereby.
(x) Loan Matters.
(i) No Loans have been made or originated or are held by Bancshares. All Loans made, originated, or held by the Bank or any of its Subsidiaries (collectively, the “Bank Loans”) (A) were made or originated for good, valuable, and adequate consideration in the ordinary course of business and (B) were solicited and originated, and are and have been administered and, where applicable, serviced, and the relevant Loan files are and have been being maintained in all material respects, in accordance with (1) the relevant notes or other credit or security documents, (2) the applicable underwriting and servicing standards of the Bank (and, in the case of Loans held for resale to investors, the underwriting standards, if any, of the applicable investors), and (3) all applicable Laws. To the Knowledge of the Bancshares Parties, none of the Bank Loans are subject to any defenses, setoffs, or counterclaims, including without limitation any of such as are afforded by usury or truth in lending Laws, subject, however, to the Enforceability Exceptions. The notes or other evidences of indebtedness evidencing the Bank Loans and all pledges, mortgages, deeds of trust, and other collateral documents and security agreements related thereto are legal, valid, binding, and enforceable (except as enforceability may be limited by the Enforceability Exceptions).
(ii) Except as set forth on Schedule 4.2(x)(ii) of the Bancshares Disclosure Memorandum, neither the terms of any Loan held, originated, made, administered, or serviced by the Bank or any of its Subsidiaries, any of the documentation for any such Loan, the manner in which any such Loan has been administered or serviced, nor the Bank’s or its Subsidiaries’ practices of approving or rejecting Loan applications violate any Law applicable thereto, including without limitation the Truth in Lending Act of 1968, as amended; Regulation B, Regulation O, and Regulation Z of the Federal Reserve; the CRA; the Equal Credit Opportunity Act, as amended; and any state Laws relating to consumer protection, installment sales, or usury.
(iii) The Bancshares Parties’ allowance for loan and lease losses is, and shall be as of the Effective Time, in compliance with their existing methodology for determining the adequacy of their allowance for loan and lease losses as well as the standards established by applicable Governmental Entities and the Financial Accounting Standards Board, and is and shall be adequate under all such standards.
(iv) Except as set forth on Schedule 4.2(x)(iv) of the Bancshares Disclosure Memorandum, none of the Contracts pursuant to which the Bank or any of its Subsidiaries has sold Loans or pools of Loans, or participations in Loans or pools of Loans, contain any Liability on the part of Bancshares or the Bank or any of their Subsidiaries to repurchase such Loans or interests therein.
(v) Set forth on Schedule 4.2(x)(v) of the Bancshares Disclosure Memorandum is a true, correct, and complete list of all Loans, as of the date hereof, by the Bank or any of its Subsidiaries to any director, executive officer, or principal shareholder (as such terms are defined in Regulation O of the Federal Reserve (12 C.F.R. Part 215)) of Bancshares or the Bank or any of their Subsidiaries. All such Loans are, and were originated, in compliance with all applicable Laws.
(vi) Set forth on Schedule 4.2(x)(vi) of the Bancshares Disclosure Memorandum is a true, correct, and complete listing, as of November 30, 2017, by account of (A) each borrower, customer, or other Person who has notified Bancshares or the Bank or any of their Subsidiaries during the past 12 months of, or has asserted against Bancshares or the Bank or any of their Subsidiaries, any “lender liability” or similar claim; and
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(B) all Loans of the Bank and its Subsidiaries (1) that are contractually past due 90 days or more in the payment of principal and/or interest, (2) that are on non-accrual status, (3) that are classified as “special mention,” “substandard,” “doubtful,” “loss,” or words of similar import, (4) where the interest rate terms have been reduced and/or the maturity dates have been extended subsequent to the origination of the Loans due to concerns regarding the borrowers’ ability to pay in accordance with the Loans’ original terms, or (5) where a specific reserve allocation exists in connection therewith; and (C) all assets classified by Bancshares or the Bank or any of their Subsidiaries as real estate acquired through foreclosure or in lieu of foreclosure, including in-substance foreclosures, and all other assets currently held that were acquired through foreclosure or in lieu of foreclosure, in each case including the book value thereof as of November 30, 2017.
(vii) Except as set forth on Schedule 4.2(x)(vii) of the Bancshares Disclosure Memorandum, each Loan held by the Bank or its Subsidiaries (A) is evidenced by notes, agreements, or other evidences of indebtedness that are true, genuine, and what they purport to be, (B) to the extent secured, has been secured by valid Liens which have been perfected and (C) is a legal, valid, and binding obligation of the obligor named therein, enforceable in accordance with its terms, except as enforceability may be limited by the Enforceability Exceptions.
(viii) There are no material oral modifications or amendments related to any Loans held by the Bank or its Subsidiaries that are not reflected in the written records of the Bancshares Parties or their Subsidiaries. All Loans held by the Bank or its Subsidiaries are owned by the Bank or its Subsidiaries free and clear of any Liens, except for Liens on Loans granted to the Federal Home Loan Bank of Cincinnati. No claims of defense as to the enforcement of any Loan held by the Bank or its Subsidiaries have been asserted in writing against the Bancshares Parties or their Subsidiaries for which there is a reasonable possibility of an adverse determination. None of the Loans held by the Bank or its Subsidiaries are presently serviced by third parties, and there is no obligation which could result in any such Loan becoming subject to any third party servicing.
(ix) Neither Bancshares or the Bank nor any of their Subsidiaries is now or has been since January 1, 2015, subject to any material fine, suspension, or settlement or other administrative agreement or sanction by, or any reduction in any loan purchase commitment from, any Governmental Entity relating to the origination, sale, or servicing of mortgage or consumer Loans.
(y) Material Interests of Certain Persons. Except for deposit and loan relationships entered into in the ordinary course of business in compliance with applicable Law and except as otherwise set forth on Schedule 4.2(y) of the Bancshares Disclosure Memorandum, no current or former officer or director of Bancshares or the Bank or any of their Subsidiaries, or any family member or Affiliate of any such Person, has any material direct or indirect interest in any Contract or property, real or personal, tangible or intangible, of, used in or pertaining to the business of, or owned or leased by Bancshares or the Bank or any of their Subsidiaries.
(z) Insurance. Set forth on Schedule 4.2(z) of the Bancshares Disclosure Memorandum is a true, correct, and complete list of all policies of insurance currently held or maintained by or providing coverage for Bancshares or the Bank or any of their Subsidiaries, including without limitation bank-owned life insurance (collectively, the “Bancshares Insurance Policies”), including for each such Bancshares Insurance Policy (i) the name of the insurer, (ii) the named insured(s), (iii) the nature of the coverage, (iv) the policy limits (on a per occurrence and aggregate basis), (v) the annual premiums, and (vi) the expiration date. Bancshares and the Bank and their Subsidiaries are insured with insurers against such risks and in such amounts as are customary and prudent in accordance with industry practices. All of the Bancshares Insurance Policies are in full force and effect. Neither Bancshares or the Bank nor any of their Subsidiaries is in default under any Bancshares Insurance Policy, and no event has occurred which, with notice or lapse of time or both, would constitute a default or permit a termination, modification, or acceleration under any of the Bancshares Insurance Policies. All premiums due and payable with respect to the Bancshares Insurance Policies have been timely and fully paid, and all claims thereunder have been filed in a timely fashion. There is no claim for coverage by Bancshares or the Bank or any of their Subsidiaries pending under any of the Bancshares Insurance Policies as to which coverage has been questioned, denied, or disputed. Neither Bancshares nor the Bank nor any of their Subsidiaries has received notice of any termination of (actual or threatened), material premium increase with respect to, or material alteration of coverage under any of the Bancshares Insurance Policies.
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(aa) Investment Securities. The Bancshares Parties and their Subsidiaries have good title to all securities and commodities owned by them (except those sold under repurchase agreements), free and clear of any Liens, except to the extent such securities or commodities are pledged in the ordinary course of business to secure obligations of the Bancshares Parties and their Subsidiaries. Such securities and commodities are valued on the books of the Bancshares Parties and their Subsidiaries in accordance with GAAP. The Bancshares Parties and their Subsidiaries employ investment, securities, commodities, risk management, and other policies, practices, and procedures that are prudent and reasonable in the context of their respective businesses, and prior to the date of this Agreement, the Bancshares Parties have made available to SmartFinancial true, correct, and complete copies of or the material terms of such policies, practices, and procedures. Except as set forth on Schedule 4.2(aa) of the Bancshares Disclosure Memorandum, and except for restrictions that exist for securities that are classified as “held to maturity,” none of the investment securities held by Bancshares or the Bank or any of their Subsidiaries are subject to any restriction (whether contractual, statutory, or otherwise) that could materially impair the ability of the entity holding such investment securities freely to dispose of such investment securities at any time. Neither Bancshares nor the Bank nor any of their Subsidiaries is a party to or has agreed to enter into any exchange-traded or over-the-counter equity, interest rate, foreign exchange, or other swap, forward, future, option, cap, floor, or collar, or any other Contract that is a derivative contract (including various combinations thereof), or owns securities that (i) are referred to generically as “structured notes,” “high risk mortgage derivatives,” “capped floating rate notes,” or “capped floating rate mortgage derivatives” or (ii) are likely to have changes in value as a result of interest or exchange rate changes that materially exceed normal changes in value attributable to interest or exchange rate changes.
(bb) Securities Transactions. All offers and sales of securities by Bancshares or the Bank were at all relevant times exempt from, or complied with, the registration requirements of the Securities Act, and the rules and regulations promulgated thereunder, and applicable state securities or “blue sky” Laws. Neither the Bancshares Parties nor, to the Knowledge of the Bancshares Parties, any director, officer, or employee of Bancshares or the Bank, any Person related to any such director, officer, or employee by blood, marriage, or adoption and residing in the same household, or any Person who has been knowingly provided material nonpublic information by any one or more of any of the foregoing Persons has purchased or sold, or caused to be purchased or sold, any shares of Bancshares Common Stock or the Bank Common Stock (or other securities issued by Bancshares or the Bank) in violation of any applicable provision of federal or state securities Laws.
(cc) Transactions with Affiliates. All “covered transactions” between the Bank and any “affiliate” within the meaning of Section 23A and Section 23B of the Federal Reserve Act and the regulations promulgated pursuant thereto have been in compliance with such provisions of Law.
(dd) Fiduciary Accounts. Bancshares and the Bank and their Subsidiaries have properly administered all accounts, if any, for which they serve or act as a fiduciary, including without limitation accounts for which they serve as trustee, agent, custodian, personal representative, guardian, conservator, or investment advisor, in accordance with the terms of all governing documents and applicable Laws. Neither Bancshares nor the Bank nor any of their Subsidiaries, nor to the Knowledge of the Bancshares Parties any of their or their Subsidiaries’ respective directors, officers, or employees, have committed any breach of trust with respect to any fiduciary account, and the records for each such fiduciary account are true and correct and accurately reflect the assets of such fiduciary account.
(ee) Tax Treatment of Transaction. The Bancshares Parties have no Knowledge of any fact or circumstance that would reasonably be expected to prevent the Parent Merger from qualifying as a “reorganization” under the provisions of Section 368(a) of the Code.
(ff) CRA, Anti-Money Laundering, OFAC, and Customer Information Security. The Bank received a rating of “Satisfactory” or better during its most recent examination or interim review with respect to the CRA. The Bancshares Parties do not have Knowledge of any facts or circumstances that would be expected to cause the Bank (i) to be deemed not to be in satisfactory compliance with the CRA and the regulations promulgated thereunder, or to be assigned a rating for CRA purposes by federal banking regulators of lower than “Satisfactory”; (ii) to be deemed to be operating in violation of the Bank Secrecy Act of 1970, as amended, the USA PATRIOT Act, any order issued with respect to anti-money laundering by the United States Department of the Treasury’s Office of Foreign Assets Control, or any other applicable anti-money laundering Law; or (iii) to be deemed not to be in satisfactory compliance with applicable privacy of customer or consumer information requirements contained in any federal or state privacy Laws, including without limitation in Title V of the
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Gramm-Leach-Bliley Act of 1999, as amended, and the regulations promulgated thereunder, as well as the provisions of the information security program adopted by the Bank. To the Knowledge of the Bancshares Parties, no non-public customer information has been disclosed to or accessed by an unauthorized third party in a manner which could, or could be expected to, cause the Bank to undertake any remedial action. The board of directors of the Bank has adopted, and the Bank has implemented, an anti-money laundering program that contains adequate and appropriate customer identification verification procedures that comply with Section 326 of the USA PATRIOT Act, and such anti-money laundering program meets the requirements of Section 352 of the USA PATRIOT Act and the regulations thereunder, and the Bank has complied in all material respects with any requirements to file reports and other necessary documents as required by the USA PATRIOT Act and the regulations thereunder.
(gg) Internal Controls. The records, systems, controls, data, and information of the Bancshares Parties and their Subsidiaries are recorded, stored, maintained, and operated under means (including any electronic, mechanical, or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of the Bancshares Parties and their Subsidiaries (including all means of access thereto and therefrom), except for any non-exclusive ownership and non-direct control that has not had and would not reasonably be expected to have a material adverse effect on the Bancshares Parties’ or their Subsidiaries’ system of internal accounting controls. Bancshares and the Bank and their Subsidiaries have devised and maintained a system of internal control over financial reporting sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, and (iii) access to assets is permitted only in accordance with management’s general or specific authorizations. There are no significant deficiencies or material weaknesses in the design or operation of internal controls over financial reporting which could adversely affect the ability of Bancshares or the Bank or their Subsidiaries to record, process, summarize, and report financial information. Since January 1, 2015, (i) neither the Bancshares Parties nor any of their Subsidiaries, nor any director, officer, or employee of the Bancshares Parties or any of their Subsidiaries, has received any complaint, allegation, assertion, or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies, or methods of the Bancshares Parties or any of their Subsidiaries or internal accounting controls, including any complaint, allegation, assertion, or claim that the Bancshares Parties or any of their Subsidiaries have engaged in questionable accounting or auditing practices, and (ii) no attorney representing the Bancshares Parties or any of their Subsidiaries, or any other Person, whether or not employed by the Bancshares Parties or any of their Subsidiaries, has reported evidence of a material violation of securities Laws, breach of fiduciary duty, or violation of banking or other Laws by the Bancshares Parties or any of their Subsidiaries, or any of the officers, directors, or employees of the Bancshares Parties or any of their Subsidiaries, to the board of directors of Bancshares or the Bank or any of their Subsidiaries (or any committee thereof) or, to the Knowledge of the Bancshares Parties, to any director or executive officer of Bancshares or the Bank or any of their Subsidiaries. There has occurred no fraud, whether or not material, that involves management or other employees who have a role in the Bancshares Parties’ internal controls over financial reporting.
(hh) Regulatory Capital. Bancshares and the Bank are “well-capitalized” as such term is defined in 12 C.F.R. 225.2 and 12 C.F.R. 325.103, respectively.
(ii) Required Shareholder Vote. The affirmative vote of a majority of the issued and outstanding shares of Bancshares Common Stock is required for the approval of this Agreement and the Parent Merger by the shareholders of Bancshares under the charter and bylaws of Bancshares and the Tennessee Corporation Act.
(jj) State Antitakeover Laws. Bancshares and the Bank have taken (through their respective boards of directors or otherwise) all action required to render inapplicable to this Agreement and the transactions contemplated hereby any otherwise applicable state antitakeover Laws, including without limitation any “moratorium,” “control share,” “fair price,” or “interested shareholder” Law.
(kk) No Further Representations. Except for the representations and warranties made by the Bancshares Parties in this Article IV (including the related portions of the Bancshares Disclosure Memorandum), neither Bancshares nor the Bank, nor any other Person, makes or has made any express or implied representation or warranty with respect to Bancshares or the Bank or their respective Subsidiaries or the respective businesses,
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operations, assets, liabilities, or conditions (financial or otherwise) of the Bancshares Parties and their Subsidiaries, and the Bancshares Parties hereby disclaim any such other representations or warranties. In particular, without limiting the foregoing disclaimer, neither Bancshares nor the Bank, nor any other Person, makes or has made any representation or warranty to SmartFinancial or any of its Affiliates or representatives with respect to (i) any financial projection, forecast, estimate, budget, or prospective information relating to the Bancshares Parties or any of their Subsidiaries or the respective businesses of the Bancshares Parties and their Subsidiaries or (ii) except for the representations and warranties made by the Bancshares Parties in this Article IV, any oral or written information presented, delivered, or made available to SmartFinancial or any of its Affiliates or representatives in the course of their due diligence investigation of the Bancshares Parties or their negotiation of this Agreement or otherwise in the course of the transactions contemplated hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SMARTFINANCIAL
Section 5.1 SmartFinancial Disclosure Memorandum. Prior to or simultaneously with the Parties’ execution and delivery of this Agreement, SmartFinancial has delivered to the Bancshares Parties a confidential memorandum (the “SmartFinancial Disclosure Memorandum”) setting forth, among other things, items the disclosure of which is necessary either in response to an express disclosure requirement contained in a provision of this Agreement or as an exception to one or more representations or warranties of SmartFinancial contained in this Article V, making specific reference in such SmartFinancial Disclosure Memorandum to the Section(s) of this Agreement to which such items relate.
Section 5.2 SmartFinancial Representations and Warranties. Subject to and except as disclosed in the SmartFinancial Securities Filings (as defined below) filed prior to the date hereof (but excluding any risk factor disclosures under the heading “Risk Factors,” any forward-looking statement disclosures or disclaimers, and any other disclosures that are cautionary, predictive, or forward-looking in nature), SmartFinancial hereby represents and warrants to the Bancshares Parties as follows:
(a) Organization and Qualification. SmartFinancial is a corporation duly organized, validly existing, and in good standing under the laws of the State of Tennessee and is duly registered as a bank holding company under the BHCA. SmartBank is a banking corporation duly organized, validly existing, and in good standing under the laws of the State of Tennessee. Each of SmartFinancial and SmartBank has the corporate power and authority to own, lease, and operate its properties and assets and to conduct its respective business as presently conducted. Each of SmartFinancial and SmartBank is duly licensed and qualified to transact business and is in good standing in each jurisdiction in which the character of the properties or assets owned or leased by it or the nature of the business conducted by it makes such licensing and qualification necessary, except where the failure to be so licensed, qualified, or in good standing would not have a SmartFinancial Material Adverse Effect. Neither SmartFinancial or SmartBank nor any Subsidiary of SmartFinancial or SmartBank is in violation of its respective charter, bylaws, or other organizational documents.
(b) Subsidiaries. Each Subsidiary of SmartFinancial (other than SmartBank) and each Subsidiary of SmartBank is a corporation, limited liability company, or other entity duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, organization, or formation; has all requisite corporate, limited liability company, or other power and authority to own, lease, and operate its properties and assets and to conduct its business as presently conducted; and is duly licensed and qualified to transact business and is in good standing in each jurisdiction in which the character of the properties or assets owned or leased by it or the nature of the business conducted by it makes such licensing or qualification necessary, except where the failure to be so licensed, qualified, or in good standing would not have a SmartFinancial Material Adverse Effect. The ownership interests of SmartFinancial and SmartBank in their respective Subsidiaries (other than the ownership interest of SmartFinancial in SmartBank) are in compliance with all applicable Laws. The outstanding capital stock or other outstanding equity or ownership interests of each Subsidiary of SmartFinancial (other than SmartBank) or SmartBank have been validly authorized and are validly issued, fully paid, and non-assessable
(c) Capitalization. As of the date of this Agreement, the authorized capital stock of SmartFinancial consists of (i) 40,000,000 shares of SmartFinancial Common Stock, of which 11,152,561 shares are issued and outstanding, and (ii) 2,000,000 shares of SmartFinancial Preferred Stock, of which 12,000 shares have been designated as SmartFinancial Series B Stock, no shares of which are issued and outstanding. As of the date of this Agreement, the authorized capital stock of SmartBank consists of (i) 8,000,000 shares of common stock, par value $1.00 per share, of which 3,552,171 shares are issued and outstanding and are owned by SmartFinancial,
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and (ii) 2,000,000 shares of preferred stock, par value $1.00 per share, no shares of which are issued and outstanding. As of the date of this Agreement, there are no other classes or series of authorized, issued, or outstanding capital stock of SmartFinancial or SmartBank. All of the issued and outstanding shares of SmartFinancial Stock and SmartBank Stock have been duly and validly authorized and issued in compliance in all material respects with all applicable Laws and are fully paid and non-assessable with no personal liability attaching to the ownership thereof, and none of the issued and outstanding shares of SmartFinancial Stock or SmartBank Stock have been issued in violation of the preemptive rights of any Person. Except as set forth on Schedule 5.2(c) of the SmartFinancial Disclosure Memorandum, as of the date of this Agreement, (i) there are no outstanding options, warrants, subscriptions, agreements, contracts, rights, calls, or commitments, of any kind or character, that require or obligate or could require or obligate SmartFinancial to issue, deliver, or sell, or cause to be issued, delivered, or sold, any additional shares of SmartFinancial Stock, or securities convertible into or exercisable for shares of SmartFinancial Stock, or that require or obligate or could require or obligate SmartFinancial to grant, extend, or enter into any such option, warrant, subscription, agreement, contract, right, call, or commitment, and (ii) there are no outstanding options, warrants, subscriptions, agreements, contracts, rights, calls, or commitments, of any kind or character, that require or obligate or could require or obligate SmartBank to issue, deliver, or sell, or cause to be issued, delivered, or sold, any additional shares of SmartBank Stock, or securities convertible into or exercisable for shares of SmartBank Stock, or that require or obligate or could require or obligate SmartBank to grant, extend, or enter into any such option, warrant, subscription, agreement, contract, right, call, or commitment. As of the date of this Agreement, no bonds, debentures, notes, or other indebtedness having the right to vote on any matters on which shareholders of SmartFinancial may vote are issued or outstanding.
(d) Authority. SmartFinancial has all requisite corporate power and authority to execute and deliver this Agreement and, subject to the consents, approvals, waivers, notices, and filings and registration referred to in Section 5.2(f), to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by SmartFinancial and the consummation by SmartFinancial of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the board of directors of SmartFinancial, and no other corporate actions or proceedings on the part of SmartFinancial are necessary to authorize the execution and delivery of this Agreement by SmartFinancial and the consummation by SmartFinancial of the transactions contemplated hereby. The board of directors of SmartFinancial has determined that this Agreement and the transactions contemplated hereby are advisable and in the best interests of SmartFinancial and its shareholders. This Agreement has been duly and validly executed and delivered by SmartFinancial and constitutes a valid and legally binding obligation of SmartFinancial enforceable against SmartFinancial in accordance with its terms, except as enforceability may be limited by the Enforceability Exceptions.
(e) No Violations. Neither the execution, delivery, or performance of this Agreement by SmartFinancial nor the consummation of the transactions contemplated by this Agreement will (i) violate the charter or bylaws of SmartFinancial or (ii) assuming that the consents, approvals, waivers, notices, and filings and registrations referred to in Section 5.2(f) have been obtained, given, and made and all applicable waiting periods have expired, violate any Law to which the SmartFinancial Parties or any of their Subsidiaries (or the properties or assets of the SmartFinancial Parties or any of their Subsidiaries) are subject or by which the SmartFinancial Parties or any of their Subsidiaries (or the properties or assets of the SmartFinancial Parties or any of their Subsidiaries) are bound.
(f) Consents and Approvals. No consents or approvals of, waivers by, notices to, or filings or registrations with any Governmental Entity are required to be obtained, given, or made by SmartFinancial or SmartBank in connection with the execution and delivery of this Agreement by SmartFinancial or the consummation of the Parent Merger, the Bank Merger, or the other transactions contemplated hereby, except (i) the Regulatory Approvals; (ii) the filing of the Articles of Merger with the Tennessee Secretary of State and the filing of the Bank Merger Certificates; (iii) the filing with the SEC of the Proxy Statement/Prospectus in definitive form and the Registration Statement (in which the Proxy Statement/Prospectus will be included as a prospectus), and declaration of effectiveness of the Registration Statement by the SEC; (iv) such other filings, notices, registrations, consents, declarations, and approvals as are required to be made, given, or obtained under or pursuant to applicable federal or state securities Laws or the rules of Nasdaq, including without limitation those required to be made, given, or obtained in connection with the issuance by SmartFinancial of shares of SmartFinancial Common Stock as Merger Consideration pursuant to this Agreement; (v) the approval of the
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listing on Nasdaq of the shares of SmartFinancial Common Stock to be issued as Merger Consideration; (vi) the approval of the Bank Merger Agreement by SmartFinancial as the sole shareholder of SmartBank; and (vii) as set forth on Schedule 5.2(f) of the SmartFinancial Disclosure Memorandum. As of the date hereof, SmartFinancial is not aware of any reason why any of the consents, approvals, or waivers referred to in this Section 5.2(f) will not be obtained or received without the imposition of any Burdensome Condition (as defined in Section 8.1(b)).
(g) Reports. SmartFinancial and SmartBank have timely filed or furnished, as applicable, all reports, notices, applications, schedules, registration and proxy statements, and other filings, documents, and instruments (together with any amendments required to be made with respect thereto) that they have been required to file or furnish since January 1, 2015, with or to the Federal Reserve, the FDIC, the TDFI, or any other Governmental Entity, and have paid all fees and assessments due and payable in connection therewith, except where the failure to file or furnish the same or pay such fees and assessments, individually or in the aggregate, would not reasonably be expected to have a SmartFinancial Material Adverse Effect. As of their respective dates, such reports, notices, applications, schedules, registration and proxy statements, and other filings, documents, and instruments were complete and accurate in all material respects and complied in all material respects with all applicable Laws.
(h) Securities Filings. SmartFinancial has filed with the SEC all reports, schedules, registration statements, definitive proxy statements, exhibits, and other filings and materials that SmartFinancial has been required to file under the Securities Act or the Exchange Act, or the rules and regulations promulgated thereunder, since January 1, 2015 (collectively, the “SmartFinancial Securities Filings”). True, correct, and complete copies of the SmartFinancial Securities Filings are publicly available in the Electronic Data Gathering, Analysis and Retrieval database of the SEC. As of their respective dates of filing with the SEC (or, if amended or superseded by a filing prior to the date hereof, as of the date of such filing), none of the SmartFinancial Securities Filings 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, in light of the circumstances under which they were made, not misleading. As of their respective dates of filing with the SEC (or, if amended or superseded by a filing prior to the date hereof, as of the date of such filing), the SmartFinancial Securities Filings complied in all material respects with applicable requirements of the Securities Act and/or the Exchange Act, as the case may be, and the rules and regulations promulgated thereunder applicable to such SmartFinancial Securities Filings.
(i) Financial Statements. The consolidated financial statements of SmartFinancial and its Subsidiaries included in the SmartFinancial Securities Filings (including the related notes, where applicable) (the “SmartFinancial Financial Statements”) fairly present in all material respects the financial position, results of operations, and cash flows of SmartFinancial and its Subsidiaries as of the respective dates or for the respective fiscal periods therein set forth (subject in the case of unaudited statements to year-end audit adjustments normal in nature and amount). Each of the SmartFinancial Financial Statements (including the related notes, where applicable) complies in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, and each of such SmartFinancial Financial Statements (including the related notes, where applicable) has been prepared in all material respects in accordance with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto. The books and records of SmartFinancial and its Subsidiaries have since January 1, 2015, been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements. Since January 1, 2015, no independent public accounting firm of SmartFinancial has resigned (or informed SmartFinancial that it intends to resign) or been dismissed as independent public accountants of SmartFinancial as a result of or in connection with any disagreements with SmartFinancial on a matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
(j) Undisclosed Liabilities. Except as would not reasonably be expected to have, either individually or in the aggregate, a SmartFinancial Material Adverse Effect, neither SmartFinancial nor any of its Subsidiaries has, or has incurred, any Liability required to be reflected or disclosed on, or reserved against in, a balance sheet prepared in accordance with GAAP or a Consolidated Report of Condition and Income (Call Report), other than (i) Liabilities reflected on or reserved against in the consolidated balance sheet of SmartFinancial and its
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Subsidiaries as of September 30, 2017, included in SmartFinancial’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2017, (ii) Liabilities incurred since September 30, 2017, in the ordinary course of business consistent with past practice, and (iii) Liabilities incurred in connection with this Agreement or the transactions contemplated hereby.
(k) Absence of Certain Changes or Events.
(i) Since December 31, 2016, there has been no effect, circumstance, occurrence, event, development, or change that, individually or taken together with all other effects, circumstances, occurrences, events, developments, and changes, has had or would reasonably be expected to have a SmartFinancial Material Adverse Effect.
(ii) Except as set forth on Schedule 5.2(k)(ii) of the SmartFinancial Disclosure Memorandum, since December 31, 2016, through the date of this Agreement, SmartFinancial and SmartBank have conducted their respective businesses only in the ordinary and usual course consistent with past practices.
(l) Litigation. There are no suits, actions, claims, investigations, or legal, administrative, arbitration, or other proceedings pending or, to the Knowledge of SmartFinancial, threatened against SmartFinancial or SmartBank or any of their Subsidiaries as to which there is a reasonable probability of an adverse determination and which if adversely determined would, individually or in the aggregate, reasonably be expected to have a SmartFinancial Material Adverse Effect, and to the Knowledge of the SmartFinancial Parties there are no facts or circumstances that would reasonably be expected to give rise to any such suit, action, claim, investigation, or legal, administrative, arbitration, or other proceeding. Neither SmartFinancial nor SmartBank nor any of their Subsidiaries, nor any of the properties or assets of SmartFinancial or SmartBank or any of their Subsidiaries, is a party or subject to or bound by any judgment, decree, injunction, order, or ruling of any Governmental Entity that, individually or in the aggregate, has had or would reasonably be expected to have a SmartFinancial Material Adverse Effect.
(m) Regulatory Actions. Except as set forth on Schedule 5.2(m) of the SmartFinancial Disclosure Memorandum, since January 1, 2015, neither SmartFinancial nor SmartBank has been a party to or subject to any cease and desist order, prompt correction action directive, written agreement, or memorandum of understanding issued by or with, or any commitment letter or similar undertaking to, or has been subject to any action, proceeding, order, or directive by, any Governmental Entity, or has adopted any board resolutions at the request of any Governmental Entity, or has been advised in writing by any Governmental Entity that such Governmental Entity is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such action, proceeding, order, directive, cease and desist order, prompt correction action directive, written agreement, memorandum of understanding, commitment letter, board resolutions, or similar undertaking. To the Knowledge of SmartFinancial, there are no facts or circumstances which would reasonably be expected to result in any Governmental Entity issuing or requesting any such action, proceeding, order, directive, cease and desist order, prompt correction action directive, written agreement, memorandum of understanding, commitment letter, board resolutions, or similar undertaking. There are no material unresolved violations, criticisms, or exceptions noted by any Governmental Entity in or with respect to any report or statement relating to any examination or inspection of SmartFinancial or SmartBank or any of their Subsidiaries. Since January 1, 2015, there have been no material formal or informal inquires by (other than in the ordinary course of routine regulatory examinations and visitations), or material disagreements or disputes with, any Governmental Entity with respect to the business, operations, policies, or procedures of SmartFinancial or SmartBank or any of their Subsidiaries.
(n) Compliance with Laws; Deposit Insurance.
(i) The SmartFinancial Parties and their Subsidiaries have at all times since January 1, 2015, complied with, and are currently in compliance with, all applicable Laws, including without limitation Section 23A and Section 23B of the Federal Reserve Act and the regulations promulgated pursuant thereto; the Equal Credit Opportunity Act, as amended; the Fair Housing Act, as amended; the Fair Credit Reporting Act, as amended; the Truth in Lending Act of 1968, as amended; the CRA; the Home Mortgage Disclosure Act of 1975, as amended; the Bank Secrecy Act of 1970, as amended; the USA PATRIOT Act; the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended; all Laws relating to data protection or privacy; and all other applicable anti-money laundering Laws, fair lending Laws, and Laws relating to discriminatory lending, financing, leasing, or business practices or the origination, sale, or servicing of mortgage loans, except where
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noncompliance with such applicable Laws would not, individually or in the aggregate, reasonably be expected to have a SmartFinancial Material Adverse Effect. Except in each case as would not reasonably be expected to have a SmartFinancial Material Adverse Effect, the SmartFinancial Parties and their Subsidiaries have, and have at all times had, all permits, licenses, franchises, certificates of authority, orders, authorizations, and approvals, and have made all filings, applications, and registrations with all Governmental Entities, that are required in order to permit them to own, lease, and operate their properties and assets and to carry on their respective businesses as presently conducted, and all such permits, licenses, franchises, certificates of authority, orders, authorizations, and approvals are in full force and effect and, to the Knowledge of SmartFinancial, no suspension or cancellation of any of them is threatened.
(ii) Each of the principal executive officer and the principal financial officer of SmartFinancial (or each former principal executive officer or each former principal financial officer, as applicable) has made all certifications required by Rules 13a-14 or 15d-14 under the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act with respect to the SmartFinancial Securities Filings, and the statements contained in such certifications are true and accurate in all material respects. SmartFinancial has, (A) since January 1, 2015, been in compliance with all other applicable provisions of the Sarbanes-Oxley Act and (B) since December 21, 2015, been in compliance with applicable listing and corporate governance rules of Nasdaq, except in each case for any non-compliance that would not reasonably be expected to have, individually or in the aggregate, a SmartFinancial Material Adverse Effect. For purposes of this Section 5.2(n)(ii), “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in the Sarbanes-Oxley Act.
(iii) The deposits of SmartBank are insured by the FDIC in accordance with the FDIA to the full extent permitted by Law, and SmartBank has paid all premiums and assessments and filed all reports required by the FDIA. No proceeding for the revocation or termination of such deposit insurance is pending or, to the Knowledge of SmartFinancial, threatened.
(o) Taxes.
(i) The SmartFinancial Parties have timely filed all Tax Returns required to be filed by or with respect to them (the “SmartFinancial Returns”). All of the SmartFinancial Returns were, as of their respective dates of filing, true, correct, and complete in all material respects, and all Taxes due and payable by the SmartFinancial Parties and their Subsidiaries with respect to the periods covered by such SmartFinancial Returns have been paid (whether or not shown on any SmartFinancial Returns). No claim (whether formal or informal) has ever been made against the SmartFinancial Parties or any of their Subsidiaries by a Governmental Authority in a jurisdiction where SmartFinancial or SmartBank or their Subsidiaries do not file Tax Returns that SmartFinancial or SmartBank or any of their Subsidiaries are or may be subject to taxation in that jurisdiction.
(ii) All estimated Taxes required to be paid by or with respect to, or in respect of the operations of, the SmartFinancial Parties or any of their Subsidiaries have been paid to the proper taxing authorities, except to the extent failure to make any such payment, individually or in the aggregate, would not reasonably be expected to have a SmartFinancial Material Adverse Effect. All Taxes that the SmartFinancial Parties or any of their Subsidiaries are or were required to withhold or collect in connection with any amounts paid or owing to any employee, director, independent contractor, shareholder, nonresident, creditor, or other third party have been duly withheld or collected and have been paid, to the extent required, to the proper taxing authorities; the SmartFinancial Parties and their Subsidiaries have complied with all information reporting and backup withholding requirements, including the maintenance of required records, with respect to such amounts; and the SmartFinancial Parties and their Subsidiaries have paid all employer contributions and premiums and filed all Tax Returns with respect to any employee income Tax withholding, and social security and unemployment Taxes and premiums, all in compliance with the withholding provisions of the Code and other applicable Laws, except for failures to withhold, collect, pay, or file and such noncompliance as would not, individually or in the aggregate, reasonably be expected to have a SmartFinancial Material Adverse Effect.
(iii) As of the date of this Agreement, no audit, investigation, examination, deficiency assessment, refund litigation, or other proceeding is pending or, to the Knowledge of SmartFinancial, threatened against or with respect to the SmartFinancial Parties or any of their Subsidiaries in respect of any Taxes or Tax matters.
(p) Labor and Employment Matters. The SmartFinancial Parties are in compliance in all material respects with all applicable Laws respecting employment, retention of independent contractors, employment
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practices, terms and conditions of employment, and wages and hours. There is no pending or, to the Knowledge of SmartFinancial, threatened suit, action, claim, or legal, administrative, arbitration, or other proceeding by or on behalf of any current or former employee of SmartFinancial or SmartBank or any of their Subsidiaries (including without limitation any suit, action, claim, or legal, administrative, arbitration, or other proceeding alleging noncompliance with applicable Laws respecting employment, employment practices, or terms and conditions of employment, but excluding workers’ compensation matters) as to which there is reasonable probability of an adverse determination and which if adversely determined would, individually or in the aggregate, reasonably be expected to have a SmartFinancial Material Adverse Effect, and to the Knowledge of the SmartFinancial Parties there are no facts or circumstances that would reasonably be expected to give rise to any such suit, action, claim or legal, administrative, arbitration, or other proceeding.
(q) Benefit Plans.
(i) As used in this Section 5.2(q), the term “SmartFinancial Benefit Plan” means any pension, retirement, salary continuation, stock option, restricted stock, stock purchase, stock ownership, savings, stock appreciation right, profit sharing, deferred compensation, consulting, bonus, group insurance, disability, severance, change of control, fringe benefit, incentive, cafeteria or Code Section 125, welfare, or other benefit plan, contract, agreement, or arrangement, including without limitation “employee benefit plans” as defined in Section 3(3) of ERISA, any incentive or welfare policies, contracts, plans, or arrangements, including split dollar life insurance arrangements, and all trust agreements and funding arrangements related thereto, which are or have been maintained by, contributed to (or required to be contributed to), or sponsored by SmartFinancial or SmartBank or an ERISA Affiliate with respect to any present or former directors, officers, or employees of SmartFinancial or SmartBank or any of their Subsidiaries.
(ii) As of the date of this Agreement, other than routine claims for benefits, there is no pending or, to the Knowledge of SmartFinancial, threatened claim, litigation, action, administrative action, suit, audit, arbitration, mediation, or other proceeding relating to any SmartFinancial Benefit Plan. All of the SmartFinancial Benefit Plans have been established, maintained, and administered in compliance in all material respects with applicable requirements of ERISA and the Code and other applicable Laws and the terms and provisions of all contracts or agreements establishing the SmartFinancial Benefit Plans or pursuant to which they are maintained or administered. As of the date of this Agreement, no audit of any SmartFinancial Benefit Plan by the IRS or the United States Department of Labor is ongoing or, to the Knowledge of SmartFinancial, threatened.
(iii) Each SmartFinancial Benefit Plan that is an “employee pension benefit plan” (as defined in Section 3(2) of ERISA) and which is intended to be qualified under Section 401(a) of the Code has received a current favorable determination letter from the IRS (or, in the case of an IRS pre-approved plan, the pre-approved plan has a current IRS opinion or advisory letter upon which the SmartFinancial Parties are entitled to rely under applicable IRS guidance), and to the Knowledge of SmartFinancial there are no facts or circumstances that would reasonably be expected to result in the revocation of any such favorable determination letter.
(r) Fairness Opinion. Prior to the Parties’ execution of this Agreement, the board of directors of SmartFinancial has received from Banks Street Partners LLC an opinion (which, if initially rendered verbally, has been or will be confirmed in a written opinion dated the same date) to the effect that, as of the date of such opinion and subject to the assumptions and qualifications set forth therein, the Merger Consideration is fair from a financial point of view to SmartFinancial.
(s) Broker Fees. Except for Banks Street Partners LLC and fees and expenses payable thereto, neither the SmartFinancial Parties nor any of their officers, directors, employees, or agents has engaged or employed any broker, investment banker, or finder or incurred any Liability for any financial advisory, investment banking, brokerage, or finder’s fees, commissions, or expenses, and no broker, investment banker, or finder has acted directly or indirectly for or on behalf of the SmartFinancial Parties in connection with this Agreement or the transactions contemplated hereby.
(t) Loan Matters.
(i) All Loans made, originated, or held by SmartBank (collectively, the “SmartBank Loans”) were made or originated for good, valuable, and adequate consideration in the ordinary course of business; were solicited and originated, and are and have been administered and, where applicable, serviced, and the relevant
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Loan files are and have been being maintained, in accordance in all material respects with the relevant notes or other credit or security documents, the applicable underwriting and servicing standards of SmartBank (and, in the case of Loans held for resale to investors, the underwriting standards, if any, of the applicable investors), and with all applicable Laws, and to the Knowledge of SmartFinancial none of such SmartBank Loans are subject to any defenses, setoffs, or counterclaims, including without limitation any of such as are afforded by usury or truth in lending Laws, subject, however, to the Enforceability Exceptions. The notes or other evidences of indebtedness evidencing the SmartBank Loans and all pledges, mortgages, deeds of trust, and other collateral documents and security agreements related thereto are legal, valid, and binding.
(ii) SmartBank’s allowance for loan and lease losses is and shall be as of the Effective Time in compliance in all material respects with SmartBank’s existing methodology for determining the adequacy of its allowance for loan and lease losses and the standards established by applicable Governmental Entities and the Financial Accounting Standards Board, and is and shall be as of the Effective Time adequate in all material respects under all such standards.
(iii) Each Loan held by SmartBank (A) is evidenced by notes, agreements, or other evidences of indebtedness that, to the Knowledge of SmartFinancial, are true, genuine, and what they purport to be, (B) to the extent secured, has, to the Knowledge of SmartFinancial, been secured by valid Liens which have been perfected and (C) is a legal, valid, and binding obligation of the obligor named therein, enforceable in accordance with its terms, except as enforceability may be limited by the Enforceability Exceptions.
(iv) The SmartFinancial Parties are not, and have not been since January 1, 2015, subject to any material fine, suspension, or settlement or other administrative agreement or sanction by, or any reduction in any loan purchase commitment from, any Governmental Entity relating to the origination, sale, or servicing of mortgage or consumer Loans.
(u) Insurance. The SmartFinancial Parties and their Subsidiaries are insured with reputable insurers against such risks and in such amounts as management of the SmartFinancial Parties and their Subsidiaries has determined to be prudent and consistent with industry practice. The policies of insurance currently held or maintained by or providing coverage for the SmartFinancial Parties and their Subsidiaries are in full force and effect, neither the SmartFinancial Parties nor any of their Subsidiaries is in material default thereunder, and all premiums due and payable in respect of such policies of insurance have been timely and fully paid (to the extent due and payable). There is no material claim for coverage by the SmartFinancial Parties or any of their Subsidiaries pending under any of such policies of insurance as to which coverage has been questioned, denied, or disputed, and the SmartFinancial Parties have not received written notice of any threatened termination of or material alteration of coverage under any of such policies of insurance.
(v) Investment Securities. The SmartFinancial Parties have good title to all securities and commodities owned by them (except those sold under repurchase agreements), free and clear of any Liens, except to the extent such securities or commodities are pledged in the ordinary course of business to secure obligations of the SmartFinancial Parties and their Subsidiaries. Such securities and commodities are valued on the books of the SmartFinancial Parties in accordance with GAAP. The SmartFinancial Parties employ investment, securities, commodities, risk management, and other policies, practices, and procedures that are prudent and reasonable in the context of their respective businesses.
(w) Tax Treatment of Transaction. SmartFinancial has no Knowledge of any fact or circumstance that would reasonably be expected to prevent the Parent Merger from qualifying as a “reorganization” under the provisions of Section 368(a) of the Code.
(x) CRA, Anti-Money Laundering, OFAC, and Customer Information Security. SmartBank received a rating of “Satisfactory” or better during its most recent examination or interim review with respect to the CRA. SmartFinancial has no Knowledge of any facts or circumstances that would reasonably be expected to cause SmartBank (i) to be deemed not to be in satisfactory compliance in any material respect with the CRA and the regulations promulgated thereunder, or to be assigned a rating for CRA purposes by federal banking regulators of lower than “Satisfactory”; (ii) to be deemed to be operating in violation, in any material respect, of the Bank Secrecy Act of 1970, as amended, the USA PATRIOT Act, any order issued with respect to anti-money laundering by the United States Department of the Treasury’s Office of Foreign Assets Control, or any other applicable anti-money laundering Law; or (iii) to be deemed not to be in satisfactory compliance in any material respect with applicable privacy of customer or consumer information requirements contained in any federal or
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state privacy Laws, including without limitation in Title V of the Gramm-Leach-Bliley Act of 1999, as amended, and the regulations promulgated thereunder, as well as the provisions of the information security program adopted by SmartBank. To the Knowledge of SmartFinancial, no non-public customer information has been disclosed to or accessed by an unauthorized third party in a manner which would, or would reasonably be expected to, cause SmartBank to undertake any significant remedial action. The board of directors of SmartBank has adopted, and SmartBank has implemented, an anti-money laundering program that contains customer identification verification procedures that comply with Section 326 of the USA PATRIOT Act, and such anti-money laundering program meets the requirements of Section 352 of the USA PATRIOT Act and the regulations thereunder, and SmartBank has complied in all material respects with any requirements to file reports and other necessary documents as required by the USA PATRIOT Act and the regulations thereunder.
(y) Internal Controls. SmartFinancial (i) has established and maintains disclosure controls and procedures and internal control over financial reporting (as such terms are defined in paragraphs (e) and (f), respectively, of Rule 13a-15 under the Exchange Act) as required by Rule 13a-15 under the Exchange Act and (ii) has disclosed, based on its most recent evaluation, to SmartFinancial’s outside auditors and the audit committee of SmartFinancial’s board of directors (A) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect SmartFinancial’s ability to record, process, summarize, and report financial data and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in SmartFinancial’s internal control over financial reporting.
(z) Regulatory Capital. SmartFinancial and SmartBank are “well-capitalized” as such term is defined in 12 C.F.R. 225.2 and 12 C.F.R. 325.103, respectively.
(aa) No Further Representations. Except for the representations and warranties made by SmartFinancial in this Article V (including the related portions of the SmartFinancial Disclosure Memorandum), neither SmartFinancial nor any other Person makes or has made any express or implied representation or warranty with respect to SmartFinancial or SmartBank or their respective Subsidiaries or the respective businesses, operations, assets, liabilities, or conditions (financial or otherwise) of the SmartFinancial Parties and their Subsidiaries, and SmartFinancial hereby disclaims any such other representations or warranties. In particular, without limiting the foregoing disclaimer, neither SmartFinancial nor any other Person makes or has made any representation or warranty to the Bancshares Parties or any of their Affiliates or representatives with respect to (i) any financial projection, forecast, estimate, budget, or prospective information relating to the SmartFinancial Parties or any of their Subsidiaries or the respective businesses of the SmartFinancial Parties and their Subsidiaries or (ii) except for the representations and warranties made by SmartFinancial in this Article V, any oral or written information presented, delivered, or made available to the Bancshares Parties or any of their Affiliates or representatives in the course of their due diligence investigation of the SmartFinancial Parties or their negotiation of this Agreement or otherwise in the course of the transactions contemplated hereby.
ARTICLE VI
CONDUCT PENDING THE PARENT MERGER
Section 6.1 Bancshares Parties Forbearances. Except as expressly contemplated or permitted by this Agreement, as required by applicable Law or at the direction of a Governmental Entity, or with the prior written consent of SmartFinancial, which consent will not be unreasonably withheld, from the date of this Agreement until the Effective Time, neither Bancshares nor the Bank shall, and each of Bancshares and the Bank shall cause each of its Subsidiaries not to:
(a) Conduct its business other than in the regular, ordinary, and usual course consistent with past practice; fail to use commercially reasonable best efforts to maintain and preserve intact its business organizations and customer and other business relationships, and retain the services of its current officers and employees; or take any action that would adversely affect or delay its ability to perform its obligations under this Agreement or to consummate the transactions contemplated hereby;
(b) Incur, renew, modify, extend, or renegotiate any indebtedness for borrowed money or assume, guarantee, endorse, or otherwise as an accommodation become responsible for the obligations of any other Person, other than (i) the creation of deposit liabilities in the ordinary course of business consistent with past practice, (ii) purchases of federal funds, and (iii) Federal Home Loan Bank advances with a maturity of not more than one year; prepay any indebtedness or other similar arrangements so as to cause Bancshares or the Bank or
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any of their Subsidiaries to incur any prepayment penalty thereunder; or purchase, accept, or renew any brokered deposits, except in the ordinary course of business consistent with past practice and with maturities of 24 months or less;
(c) Adjust, split, combine, or reclassify any of its capital stock; make, declare, pay, or set aside for payment any dividend or other distribution on or in respect of its capital stock, other than dividends by the Bank to Bancshares for the purpose of funding the payment by Bancshares of (i) amounts due and payable by Bancshares to First Tennessee Bank, National Association under that certain Loan Agreement, dated December 20, 2016, by and between Bancshares and First Tennessee Bank, National Association (the “First Tennessee Loan”), (ii) the Bancshares Special Dividend (as defined below), in the event the conditions to the payment of the Bancshares Special Dividend as set forth in Section 7.8 have been satisfied, and (iii) expenses incurred by Bancshares in connection with the transactions contemplated by this Agreement; grant any Person any right to acquire any shares of its capital stock or any securities or rights convertible into or exercisable for its capital stock; issue any additional shares of capital stock or any securities or obligations convertible into or exercisable for any shares of its capital stock; or directly or indirectly redeem, purchase, repurchase, or otherwise acquire any shares of its capital stock;
(d) Other than in the ordinary course of business consistent with past practice, (i) sell, transfer, mortgage, encumber, or otherwise dispose of any of its properties, assets, or business (including without limitation “Other Real Estate Owned”) or (ii) cancel, release, or assign any material indebtedness or claims or waive any rights of substantial value;
(e) Make any equity investment, either by purchase of stock or other securities, contributions to capital, property transfers, purchase of any property or assets of any other Person, or otherwise, or form any new Subsidiary or dissolve, liquidate, or terminate any existing Subsidiary;
(f) Except as set forth on Schedule 6.1(f) of the Bancshares Disclosure Memorandum, enter into, renew, fail to renew, amend, modify, cancel, or terminate any new or existing Bancshares Material Contract;
(g) Make, renew, increase the amount of, extend the term of, or modify any Loan, or commit to make, renew, increase the amount of, extend the term of, or modify any Loan, except (i) in conformity with existing lending practices and where the principal amount of the subject Loan does not exceed $800,000 or (ii) Loans as to which the Bancshares Parties and their Subsidiaries have binding obligations to make such Loans (including without limitation lines of credit and letters of credit) as of the date of this Agreement and which are disclosed on Schedule 6.1(g) of the Bancshares Disclosure Memorandum; provided, however, that neither Bancshares nor the Bank, nor any of their Subsidiaries, shall make, renew, increase the amount of, extend the term of, or modify any Loan, or commit to make, renew, increase the amount of, extend the term of, or modify any Loan, to any Person if, when aggregated with all other outstanding Loans and commitments for Loans to such Person and such Person’s family members and Affiliates, the aggregate principal amount of all such Loans and commitments would exceed $800,000;
(h) Extend credit to, directly or indirectly, any Person who has a Loan with Bancshares or the Bank or any of their Subsidiaries that is classified by Bancshares or the Bank (or any of their Subsidiaries) or the FDIC or the TDFI as “doubtful,” “substandard,” or “special mention” or that is on non-accrual status (a “Bancshares Classified Borrower”);
(i) Renegotiate, renew, increase the amount of, extend the term of, or modify any Loan with or to a Bancshares Classified Borrower, except (i) in conformity with existing lending practices and regulatory requirements and (ii) where all outstanding Loans and commitments for Loans to such Bancshares Classified Borrower and such Bancshares Classified Borrower’s family members and Affiliates do not and would not exceed $500,000 in the aggregate;
(j) Except in strict compliance with Regulation O of the Federal Reserve (12 C.F.R. Part 215), make or increase the amount of any Loan, or commit to make or increase the amount of any Loan, to any director, executive officer, or principal shareholder (as such terms are defined in Regulation O) of Bancshares or the Bank or any of their Subsidiaries, or any entity controlled, directly or indirectly, by any such Person;
(k) Commence any claim, action, suit, or proceeding, other than to enforce an obligation owed to Bancshares or the Bank or any of their Subsidiaries and in accordance with past practice, or enter into any
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settlement or similar agreement with respect to any claim, action, suit, or proceeding, which claim, action, suit, proceeding, or settlement or other agreement (i) involves the payment by it of an amount in excess of $25,000 or (ii) would impose any material restriction on its business or operations or the operations of any of its Subsidiaries;
(l) Except as set forth on Schedule 6.1(l) of the Bancshares Disclosure Memorandum, increase in any manner the salary, wages, bonuses, compensation, or other benefits of, for, or payable to any of its directors, officers, or employees (except for normal employee wage and salary increases in the ordinary course of business consistent with past practice not exceeding 3% per year on a per employee basis), or pay any bonus, pension, retirement allowance, or contribution not required by or accrued for under any existing plan, agreement, or arrangement to any such directors, officers, or employees; become a party to, establish, adopt, amend, renew, terminate, extend, or commit to any pension, retirement, profit-sharing, welfare, or other benefit plan, agreement, or arrangement, or any employment, severance, salary continuation, retention, change of control, consulting, or other Contact, with or for the benefit of any director, officer, or employee, except as required by applicable Law; amend, modify, or revise the terms of any outstanding stock option or voluntarily accelerate the vesting of, or the lapsing of restrictions with respect to, any stock options or other equity-based compensation; elect or appoint to any office with the title of executive vice president or higher any Person who does not hold such office as of the date of this Agreement or elect or appoint, or propose or recommend for election or appointment, to its board of directors any Person who is not a member of its board of directors as of the date of this Agreement; or hire any employee with annualized base compensation (excluding health insurance and retirement plan benefits) in excess of $50,000, except as may be necessary to replace an employee (other than an officer with a title of executive vice president or higher) whose employment is terminated, whether voluntarily or involuntarily;
(m) Amend its charter, bylaws, or other governing documents, or enter into any stock or asset purchase agreement or any plan or agreement of consolidation, merger, share exchange, or reorganization with any Person or any indication of interest, letter of intent, or agreement in principle with respect thereto;
(n) Increase or decrease the rates of interest paid on time deposits or certificates of deposit, except in the ordinary course of business consistent with past practice;
(o) Purchase any debt security, including mortgage-backed and mortgage-related securities, other than United States government and United States government agency securities with final maturities of less than two years;
(p) Make any capital expenditures in excess of $50,000 individually or $100,000 in the aggregate, other than pursuant to binding commitments existing on the date hereof which are disclosed on Schedule 6.1(p) of the Bancshares Disclosure Memorandum;
(q) Establish or commit to the establishment of any new branch office, loan or deposit production office, or other banking office or facility, or file any application or notice to relocate or close or terminate the operations of any banking office or facility;
(r) Except for interest rate caps and interest rate floors for individual Loans entered into in the ordinary course of business consistent with past practice, enter into any futures contract, option, swap agreement, interest rate cap, interest rate floor, or interest rate exchange agreement, or take any other action for purposes of hedging the exposure of its interest-earning assets or interest-bearing liabilities to changes in market rates of interest;
(s) Make any material changes in policies or procedures in existence on the date of this Agreement with regard to extensions of credit, or the establishment of reserves with respect to possible loss thereon or the charge off of losses incurred thereon, investments, or asset/liability management, or in any other material banking policies or procedures, except as may be required by changes in applicable Law or GAAP or at the direction of a Governmental Entity;
(t) Except with respect to foreclosures in process as of the date of this Agreement, foreclose upon or take a deed or title to any real property without providing prior written notice to SmartFinancial;
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(u) Make or change any material election in respect of Taxes, settle or compromise any material Tax Liability, agree to an extension or waiver of the statute of limitations with respect to the assessment, collection, or determination of any Taxes, enter into any closing agreement with respect to any Taxes or surrender any right to claim a material Tax refund, adopt or change any method of accounting with respect to Taxes, or file any amended Tax Return;
(v) Take any action that is intended or would reasonably be expected to result in (i) any of the representations or warranties of the Bancshares Parties set forth in this Agreement being or becoming untrue at any time prior to the Effective Time, (ii) any of the conditions to the Parent Merger set forth in Article VIII not being satisfied, or (iii) a breach or violation of any provision of this Agreement;
(w) Adopt or implement any change in its accounting principles, practices, or methods, other than as may be required by GAAP or regulatory guidelines;
(x) Except as set forth on Schedule 6.1(x) of the Bancshares Disclosure Memorandum, enter into any new line of business, introduce any new products or services, or change the manner in which its investment securities or loan portfolio is classified or reported;
(y) Make any written communications to the officers or employees of the Bancshares Parties or their Subsidiaries, or any oral communications presented to a significant portion of the officers or employees of the Bancshares Parties or their Subsidiaries, pertaining to compensation or benefit matters that are affected by the transactions contemplated by this Agreement, without first providing SmartFinancial a copy or written description of the intended communication and providing SmartFinancial with a reasonable period of time to review and comment on the communication;
(z) Engage in or conduct any demolition, remodeling, or modifications or alterations to any of its business premises unless required by applicable Law, or fail to use commercially reasonable efforts to maintain its business premises or other assets in substantially the same condition as of the date hereof, ordinary wear and tear excepted;
(aa) Subject any of its properties or assets to any Lien (other than Liens existing as of the date of this Agreement and other than in connection with securing advances, repurchase agreements, and other borrowings from a Federal Home Loan Bank and transactions in federal funds);
(bb) Take any action or fail to take any action, which action or failure to act would prevent or impede the Parent Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code; or
(cc) Agree to do, make any commitment to do, or adopt any resolutions of its board of directors (or other governing body) in support of, recommending, or proposing any of the foregoing.
Section 6.2 SmartFinancial Forbearances. Except as expressly contemplated or permitted by this Agreement, as required by applicable Law or at the direction of a Governmental Entity, or with the prior written consent of Bancshares, which consent will not be unreasonably withheld, from the date of this Agreement until the Effective Time, SmartFinancial shall not, and SmartFinancial shall cause its Subsidiaries not to:
(a) Fail to use commercially reasonable efforts to maintain and preserve intact its business organizations and advantageous customer and other business relationships or take any action that would adversely affect or delay, in any material respect, its ability to perform its obligations under this Agreement or to consummate the transactions contemplated hereby;
(b) Amend its charter or bylaws in a manner that would materially and adversely affect the economic benefits of the Parent Merger to the holders of Bancshares Common Stock;
(c) Take any action that is intended or would reasonably be expected to result in (i) any of the conditions to the Parent Merger set forth in Article VIII not being satisfied or (ii) a breach or violation of any provision of this Agreement;
(d) Take any action or fail to take any action, which action or failure to act would prevent or impede the Parent Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code; or
(e) Agree to do, make any commitment to do, or adopt any resolutions of its board of directors (or other governing body) in support of, recommending, or proposing any of the foregoing.
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Section 6.3 Absence of Control. It is the mutual intent of the Parties that (a) SmartFinancial shall not, by reason of this Agreement, be deemed to control, directly or indirectly, Bancshares or the Bank or to exercise, directly or indirectly, a controlling influence over the management or policies of Bancshares or the Bank and (b) neither Bancshares nor the Bank shall, by reason of this Agreement, be deemed to control, directly or indirectly, SmartFinancial or any of its Subsidiaries, or to exercise, directly or indirectly, a controlling influence over the management or policies of SmartFinancial or any of its Subsidiaries.
ARTICLE VII
COVENANTS
Section 7.1 Acquisition Proposals.
(a) The Bancshares Parties shall, and shall direct and use their reasonable best efforts to cause their Subsidiaries and their and their Subsidiaries’ Affiliates, directors, officers, employees, agents, and representatives (including without limitation any investment banker, financial advisor, attorney, accountant, or other representative retained by the Bancshares Parties or any of their Subsidiaries) to, immediately cease and cause to be terminated any activities, discussions, or negotiations with any Person other than SmartFinancial and SmartBank with respect to the possibility, consideration, or consummation of any Acquisition Proposal, and will use their reasonable best efforts to enforce, and will direct and use their reasonable best efforts to cause their Subsidiaries to use their reasonable best efforts to enforce, any confidentiality, nondisclosure, or similar agreement relating to any Acquisition Proposal, including by requesting any other party or parties thereto to promptly return or destroy any confidential information previously furnished by or on behalf of the Bancshares Parties or any of their Subsidiaries thereunder and by specifically enforcing the terms thereof in a court of competent jurisdiction.
(b) From the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement in accordance with its terms, the Bancshares Parties shall not, and shall direct and cause their Subsidiaries and their and their Subsidiaries’ Affiliates, directors, officers, employees, agents, and representatives (including without limitation any investment banker, financial advisor, attorney, accountant, or other representative retained by the Bancshares Parties or any of their Subsidiaries) not to, directly or indirectly through another Person, (i) solicit, initiate, or encourage (including by way of furnishing information or assistance), or take any other action to facilitate or that could result in, any inquiries or discussions regarding, or the making of any proposal or offer that constitutes or could be expected to lead to, an Acquisition Proposal; (ii) provide any non-public information or data regarding the Bancshares Parties or any of their Subsidiaries to any Person other than SmartFinancial and SmartBank relating to or in connection with any Acquisition Proposal or any inquiry or indication of interest that could be expected to lead to an Acquisition Proposal; (iii) continue or participate in any discussions or negotiations, or otherwise communicate in any way with any Person other than SmartFinancial and SmartBank, regarding any Acquisition Proposal; (iv) approve, endorse, or recommend, or execute, enter into, or consummate, any indication of interest, letter of intent, or other Contract relating to any Acquisition Proposal or requiring the Bancshares Parties to abandon, terminate, or fail to consummate the transactions contemplated by this Agreement, or propose to do any of the foregoing; or (v) make or authorize any statement, recommendation, or solicitation in support of any Acquisition Proposal; provided, however, that prior to the date of the Bancshares Meeting, if the Bancshares board of directors determines in good faith, after consultation with its outside legal and financial advisors, that the failure to do so would cause the Bancshares board of directors to breach its fiduciary duties under applicable Law, the Bancshares Parties may, in response to a bona fide, written Acquisition Proposal not solicited in violation of this Section 7.1 that the Bancshares board of directors determines in good faith constitutes a Superior Proposal, and subject to providing 48 hours prior written notice of their decision to take such action to SmartFinancial and identifying the Person making the Superior Proposal and all of the material terms and conditions of such Superior Proposal and compliance with Section 7.1(c), (A) furnish information with respect to the Bancshares Parties and their Subsidiaries to any Person making such Superior Proposal pursuant to a customary confidentiality agreement on terms no more favorable to such Person than the terms contained in the Confidentiality Agreement (which confidentiality agreement shall not provide such Person the exclusive right to negotiate with the Bancshares Parties) and (B) participate in discussions or negotiations with such Person regarding such Superior Proposal.
(c) In addition to the obligations of the Bancshares Parties set forth above, the Bancshares Parties shall promptly (within not more than 24 hours) advise SmartFinancial orally and in writing of their receipt of any Acquisition Proposal, or any request for information or inquiry which could be expected to lead to an
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Acquisition Proposal, and shall keep SmartFinancial informed, on a current basis, of the continuing status thereof, including the terms and conditions thereof and any changes thereto, and shall provide to SmartFinancial any written materials received by the Bancshares Parties or any of their Subsidiaries in connection therewith. Additionally, the Bancshares Parties shall contemporaneously provide or make available to SmartFinancial all materials provided or made available to any third party pursuant to this Section 7.1 which have not been previously provided or made available to SmartFinancial.
(d) For the avoidance of doubt, the Bancshares Parties expressly agree that any breach or violation of any provision of this Section 7.1 by any of their Subsidiaries or by any of their or their Subsidiaries’ Affiliates, directors, officers, employees, agents, or representatives (including without limitation any investment banker, financial advisor, attorney, accountant, or other representative retained by such Party or any of its Subsidiaries) shall be deemed a breach or violation of this Section 7.1 by the Bancshares Parties.
(e) The Bancshares Parties agree that irreparable damage would occur in the event any of the provisions of this Section 7.1 are breached or violated. Accordingly, it is agreed that SmartFinancial shall be entitled to an injunction or injunctions to prevent breaches or violations of this Section 7.1 and to enforce specifically the terms and provisions of this Section 7.1 in any state or federal court having jurisdiction, this being in addition to any other remedy or relief to which SmartFinancial may be entitled at law or in equity.
(f) Nothing contained in this Section 7.1 shall prevent Bancshares or the Bank or their respective boards of directors from (i) taking the actions permitted by Section 7.7(b) of this Agreement or (ii) informing any Person who submits an unsolicited Acquisition Proposal of their obligations pursuant to this Section 7.1.
Section 7.2 Notice of Certain Matters. Prior to the Effective Time, each Party shall promptly notify the other Parties of any fact, event, occurrence, circumstance, or condition known to it that (a) constitutes or has caused, or could reasonably be expected to cause, a material breach of any of the representations, warranties, covenants, or agreements of such Party set forth in this Agreement; provided, however, that no such notification shall (i) affect the representations, warranties, covenants, or agreements of the Parties, or the conditions to the obligations of the Parties, contained in this Agreement or (ii) be deemed to amend or supplement the Disclosure Memoranda; (b) has had, or is reasonably likely to have, either individually or taken together with all other facts, events, occurrences, circumstances, and conditions known to such Party, a Bancshares Material Adverse Effect (as to any notice required to be given by the Bancshares Parties) or a SmartFinancial Material Adverse Effect (as to any notice required to be given by SmartFinancial); (c) would, or could reasonably be expected to, prohibit or materially impede or delay the consummation of the transactions contemplated by this Agreement. Further, each Party shall promptly give written notice to the other Parties of any notice or other communication from any third party alleging that the consent or approval of such third party is or may be required in connection with any of the transactions contemplated by this Agreement.
Section 7.3 Access and Information.
(a) Prior to the Effective Time, upon reasonable notice and subject to applicable Laws relating to the exchange of information, for the purpose of verifying the representations and warranties of the Bancshares Parties and compliance by the Bancshares Parties with their covenants and agreements set forth herein, and preparing for the Parent Merger and the other matters contemplated by this Agreement, the Bancshares Parties shall, and shall cause their Subsidiaries to, afford to SmartFinancial and SmartBank and their representatives (including without limitation their directors, officers, and employees and financial advisors, legal counsel, accountants, and other professionals retained by SmartFinancial and SmartBank) reasonable access during normal business hours to the books, records, Contracts, properties, assets, personnel, and information technology systems of the Bancshares Parties and their Subsidiaries, as well as such other information relating to the Bancshares Parties or their Subsidiaries as SmartFinancial and SmartBank may reasonably request. Prior to the Effective Time, upon reasonable notice and subject to applicable Laws relating to the exchange of information, for the purpose of verifying the representations and warranties of SmartFinancial and compliance by SmartFinancial with its covenants and agreements set forth herein, SmartFinancial shall, and shall cause its Subsidiaries to, afford to the Bancshares Parties and their representatives (including without limitation their directors, officers, and employees and financial advisors, legal counsel, accountants, and other professionals retained by the Bancshares Parties) reasonable access during normal business hours to such information relating to SmartFinancial or its Subsidiaries as the Bancshares Parties may reasonably request.
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(b) From the date of this Agreement until the Effective Time, each of the Bancshares Parties shall promptly furnish to SmartFinancial (i) a copy of any report, application, notice, schedule, or other document or instrument filed with or received from any Governmental Entity (other than any such materials which the Bancshares Parties are not permitted to disclose under applicable Law) and (ii) such other information regarding their and their Subsidiaries’ business, properties, assets, or personnel as SmartFinancial may reasonably request. Additionally, prior to the Effective Time, Bancshares shall deliver to SmartFinancial (i) as soon as practicable, but in no event more than 30 days, after the end of each calendar quarter ending after the date of this Agreement (other than the last quarter of each fiscal year ending December 31) its unaudited consolidated balance sheet and the related unaudited consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows as of the end of and for such quarter prepared in accordance with GAAP and (ii) as soon as practicable, but in no event more than 60 days, after the end of each fiscal year ending after the date of this Agreement, its audited consolidated balance sheet and the related audited consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows as of the end of and for such year (together with the notes thereto and accompanied by the audit reports of Bancshares’ independent registered public accounting firm) prepared in accordance with GAAP.
(c) Any investigation by a Party or its representatives pursuant to this Section 7.3 shall be conducted in a manner that does not unreasonably interfere with the business operations of the party being investigated. No investigation by the Parties or their representatives pursuant to this Section 7.3 shall affect or be deemed to modify any of the representations, warranties, covenants, or agreements of the Parties set forth in this Agreement. Neither the Bancshares Parties or SmartFinancial nor their respective Subsidiaries shall be required to provide access to or to disclose information pursuant to this Section 7.3 where such access or disclosure would violate or prejudice the rights of the Bancshares Parties’ or SmartFinancial Parties’, as the case may be, customers, jeopardize the attorney-client privilege of the Party in possession or control of such information (after giving due consideration to the existence of any common interest, joint defense, or similar agreement between the Parties), or contravene any Law, fiduciary duty, or binding Contract entered into prior to the date of this Agreement. The Parties agree to make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply.
(d) The Confidentiality Agreement, to the extent the same is not inconsistent with the terms of this Agreement, will remain in full force and effect following the date of this Agreement, whether or not the Parent Merger occurs, in accordance with its terms, and each of Bancshares and the Bank, on the one hand, and SmartFinancial, on the other hand, shall hold all information furnished by or on behalf of any other Party or any of such other Party’s Subsidiaries or representatives pursuant to this Agreement in confidence to the extent required by, and in accordance with, the provisions of the Confidentiality Agreement.
Section 7.4 Regulatory Filings; Consents and Approvals.
(a) The Parties shall cooperate with each other and use commercially reasonable efforts to prepare all documentation, to make all filings, and to obtain all permits, consents, approvals, waivers, and authorizations of all Governmental Entities and other third parties, including the Regulatory Approvals, necessary or advisable to consummate the Parent Merger and the other transactions contemplated by this Agreement. SmartFinancial shall use commercially reasonable efforts to make any initial application, notice, and waiver filings required by the Federal Reserve or the TDFI in connection with the Parent Merger within 60 days after the date of this Agreement. Each Party shall have the right to review in advance, and to the extent practicable each Party shall consult with the other Parties with respect to, in each case subject to applicable Laws relating to the exchange of information, all written applications, notices, and waiver requests, and any other written information, submitted to any Governmental Entity or other third party in connection with the transactions contemplated by this Agreement, provided that SmartFinancial shall not be required to provide or make available to the Bancshares Parties the confidential portions of any filing made with a Governmental Entity or other third party. In exercising the foregoing rights, each Party agrees to act reasonably and as promptly as practicable. Each Party agrees that it shall consult with the other Parties with respect to the obtaining of all permits, consents, approvals, waivers, and authorizations of all Governmental Entities and other third parties, including the Regulatory Approvals, necessary or advisable to consummate the Parent Merger and other transactions contemplated by this Agreement, and each Party shall keep the other Parties reasonably apprised of the status of material matters relating to the consummation of such transactions.
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(b) Each Party agrees to, upon request, furnish the other Parties with all information concerning itself, its Subsidiaries, and its and its Subsidiaries’ directors, officers, and shareholders, as well as such other matters, as may be necessary or advisable in connection with any filing, notice, or application made or given by or on behalf of such other Parties or any of their Subsidiaries with or to any Governmental Entity or other third party.
Section 7.5 Further Assurances. Subject to the terms and conditions of this Agreement, each of the Parties agrees to use commercially reasonable efforts to promptly take, or cause to be promptly taken, all actions, and to promptly do, or cause to be promptly done, all things, necessary, proper, or advisable under applicable Laws to consummate and make effective the transactions contemplated by this Agreement as expeditiously as reasonably possible, including using commercially reasonable efforts to obtain all necessary actions or non-actions, extensions, waivers, consents, and approvals from Governmental Entities, effecting all necessary registrations, applications, and filings (including without limitation filings under any applicable federal or state securities Laws), and obtaining any required contractual consents and regulatory approvals.
Section 7.6 Publicity. The Parties shall consult with each other before issuing any press release or making any public statements or disclosures (including without limitation written communications to shareholders) with respect to this Agreement or the transactions, including the Parent Merger and the Bank Merger, contemplated hereby and shall not issue any such press release or make any such public statements or disclosures without the prior consent of the other Parties, which consent shall not be unreasonably withheld; provided, however, that nothing contained in this Section 7.6shall be deemed to prohibit a Party from making any disclosure that legal counsel to such Party determines necessary in order to satisfy such Party’s disclosure obligations under applicable Law.
Section 7.7 Bancshares Shareholders Meeting.
(a) Bancshares and its board of directors shall take, in accordance with applicable Law and Bancshares’ charter and bylaws, all action necessary to call, give notice of, convene, and hold, as promptly as reasonably practicable after the date on which the Registration Statement becomes effective under the Securities Act, a meeting of Bancshares’ shareholders (including any adjournment or postponement thereof, the “Bancshares Meeting”) for the purpose of Bancshares’ shareholders considering and voting on approval of this Agreement and any other matters required to be approved by Bancshares’ shareholders in order to consummate the transactions contemplated by this Agreement. Except with the prior approval of SmartFinancial (which will not be unreasonably withheld), no other matters shall be submitted for consideration by or the approval of Bancshares’ shareholders at the Bancshares Meeting. Subject to Section 7.7(b), (i) Bancshares and its board of directors shall at all times prior to and during the Bancshares Meeting recommend to Bancshares’ shareholders the approval of this Agreement and the transactions contemplated hereby and shall take all reasonable and lawful actionon relationships with customers or employees (including the loss of personnel subsequent to solicit and obtain such approval and (ii) neither Bancshares nor its board of directors shall withdraw, modify, or qualify in any manner adverse to SmartFinancial its recommendation that Bancshares’ shareholders approve this Agreement and the transactions contemplated hereby, or take any other action or make any other public statement inconsistent with such recommendation (the actions prohibited by this clause (ii) being referred to as a “Bancshares Change of Recommendation”). Notwithstanding any Bancshares Change of Recommendation, this Agreement shall be submitted to the shareholders of Bancshares at the Bancshares Meeting for the purpose of Bancshares’ shareholders considering and voting on approval of this Agreement and any other matters required to be approved by Bancshares’ shareholders in order to consummate the transactions contemplated by this Agreement. Additionally, neither Bancshares nor the Bank shall submit to or for a vote of its shareholder(s) any Acquisition Proposal.
(b) Notwithstanding the foregoing, Bancshares and its board of directors may make a Bancshares Change of Recommendation if, but only if:
(i) The Bancshares Parties have complied with Section 7.1;
(ii) The Bancshares board of directors determines in good faith (after consultation with and based on the advice of outside legal counsel) that its failure to do so would result in a violation of its fiduciary duties under applicable Law; and
(iii) In the event the Bancshares Change of Recommendation stems from or is a result of, or relates in any manner to, an Acquisition Proposal, (A) the Bancshares board of directors has concluded in good faith, after giving effect to all of the adjustments which may be offered by SmartFinancial pursuant to clause
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(C) below, that such Acquisition Proposal constitutes a Superior Proposal, (B) Bancshares notifies SmartFinancial at least five Business Days in advance of its intention to effect a Bancshares Change of Recommendation in response to such Superior Proposal, and furnishes to SmartFinancial the identity of the Person making such Superior Proposal and a copy of the proposed transaction agreements and all other documents relating to such Superior Proposal, and (C) prior to effecting the Bancshares Change of Recommendation, the Bancshares Parties shall, and shall cause their financial, legal, and other advisors to, for a period of five Business Days following Bancshares’ delivery of the notice referred to in clause (B) above, negotiate in good faith with SmartFinancial (to the extent SmartFinancial desires to so negotiate) to make such adjustments in the terms and conditions of this Agreement so that such Acquisition Proposal ceases to constitute a Superior Proposal.
(c) Bancshares shall adjourn or postpone the Bancshares Meeting if (i) as of the date of the Bancshares Meeting there are insufficient shares of Bancshares Common Stock represented (either in person or by proxy) to constitute the quorum necessary to conduct the business of the Bancshares Meeting or (ii) as of the date of the Bancshares Meeting Bancshares has not received proxies representing a sufficient number of shares necessary for the approval of this Agreement by the shareholders of Bancshares in accordance with Bancshares’ charter and bylaws and applicable Law; provided that Bancshares shall not be required to adjourn or postpone the Bancshares Meeting more than two times.
Section 7.8 Bancshares Special Dividend. Bancshares shall be entitled to pay immediately prior to the Effective Time a one-time, special cash dividend on the Bancshares Common Stock (the “Bancshares Special Dividend”), in an amount up to $0.70 per share of Bancshares Common Stock, in accordance with the terms of and subject to the conditions set forth in this Section 7.8. In the event, but only in the event, that the Bank Loans set forth on Schedule 7.8 of the Bancshares Disclosure Memorandum (the “Special Dividend Loans”) are (a) sold in their entirety for cash by the Bank prior to Closing to a Person other than an Affiliate of Bancshares or the Bank for an amount equal to or in excess of 95% of the then-current unpaid principal balance of the Special Dividend Loans or (b) paid in full in cash prior to Closing by the borrower(s) on such Special Dividend Loans (including as a result of a refinancing of the Special Dividend Loans by an unaffiliated third party) and the payment received by the Bank is equal to or in excess of 95% of the then-current unpaid principal balance of the Special Dividend Loans, then Bancshares shall be entitled to pay a Bancshares Special Dividend of $0.70 per share of Bancshares Common Stock. In the event that prior to Closing the Bank sells participation interest(s) in one or more of the Special Dividend Loans to a Person other than an Affiliate of Bancshares or the Bank, Bancshares shall be entitled to pay a per share Bancshares Special Dividend in an amount equal to the product of (x) $0.70 multiplied by (y) the quotient obtained by dividing (i) the aggregate amount of cash received by the Bank for the sale(s) of such participation interest(s) plus the aggregate amount of principal payments received by the Bank on the Special Dividend Loans after the date of this Agreement and prior toAgreement).
“Maximum D&O Tail Premium” has the date which is 15 calendar days prior to the Closing Date by (ii) the unpaid principal balance of the Special Dividend Loans as of the date of this Agreement (asmeaning set forth on inSection 5.10(d). “Schedule 7.8Merger” has the meaning set forth in the recitals. “Merger Consideration” means the Per Share Stock Consideration together with the Per Share Cash Consideration. “NASDAQ” means The NASDAQ Global Select Market. “National Labor Relations Act” means the National Labor Relations Act, as amended.
“Notice of Superior Proposal” has the Bancshares Disclosure Memorandum); meaning set forth inSection 5.09(e). “providedOrdinary Course of Business that (1)” means the ordinary, usual and customary course of business of PFG and PFG’s Subsidiaries consistent with past practice, including with respect to frequency and amount. “OREO” has the meaning set forth inSection 3.22(b). “Party” or “Parties” have the meaning set forth in the preamble. “Person” means any such sale of a participation interest in a Special Dividend Loan must be at a price of not less than 95% of the then-current unpaid principal balance of the subject participation interest, (2) the termsindividual, bank, corporation, partnership, association, joint-stock company, business trust, limited liability company, unincorporated organization or other organization or firm of any such sale of a participation interestkind or nature. “PFG” has the meaning set forth in a Special Dividend Loan (including any Contract pursuantthe preamble to whichthis Agreement. “PFG 401(a) Plan” has the sale will be effected) shall be subject tomeaning set forth inSection 3.15(c). “PFG Benefit Plans” has the prior approval of SmartFinancial (such approval to not be unreasonably withheld), and (3)meaning set forth in no event shallSection 3.15(a). “PFG Cancelled Shares” has the Bancshares Special Dividend exceed, andmeaning set forth inSection 2.01(b). “PFG Common Stock” means the Bancshares Special Dividend shall be capped at, $0.70common stock, $10.00 par value per share, of Bancshares Common Stock.PFG. Section 7.9
“PFG Disclosure Schedule” has the meaning set forth inEmployee and Benefit MattersArticle III. (a) Subject to applicable Law and
“PFG Employees” has the terms of SmartFinancial’s and SmartBank’s employee benefit plans, SmartFinancialmeaning set forth inSection 3.15(a). “PFG Expenses” has the meaning set forth inSection 5.20. “PFG Financial Advisor” has the meaning set forth inSection 3.14. “PFG Intellectual Property” means the Intellectual Property used in or SmartBank will, as soon as reasonably practicable afterheld for use in the Effective Time, provide employeesconduct of the Bank who become employeesbusiness of SmartBank at or immediately following the Effective Time (the “Continuing Employees”) with benefits that are no less favorable, in the aggregate, than that provided to similarly situated employees of SmartBank as of the date of this Agreement. With respect to any “employee benefit plan” (as defined in Section 3(3) of ERISA) maintained by SmartFinancial or SmartBank, excluding both any retiree health care plans or programs maintained by SmartFinancial or SmartBank and any equity compensation or deferred compensation plans or arrangements maintained by SmartFinancial or SmartBank (collectively, “Employee Plans”), in which any Continuing Employees will participate effective as of or after the Effective Time, SmartFinancial or SmartBank, as appropriate, will recognize all years of full-time service of Continuing Employees with the Bancshares Parties for vesting and eligibility purposes (but not for benefit TABLE OF CONTENTS
accrual purposes or purposes of early retirement subsidies under any Employee Plan that is a defined benefit pension plan) in any Employee Plan in which such Continuing Employees may be eligible to participate at or after the Effective Time; provided that such service shall not be recognized to the extent that (i) such recognition of service would result in a duplication of benefits or (ii) such service was not recognized under a corresponding Bancshares Benefit Plan. With respect to Employee Plans providing health care, dental, or vision coverage, SmartFinancial or SmartBank, as appropriate, will use commercially reasonable efforts to cause any pre-existing condition, eligibility waiting period, or other limitations or exclusions otherwise applicable under such plans to new employees not to apply to the Continuing Employees or their eligible spouses and eligible dependents who were covered under a similar Bancshares Benefit Plan immediately prior to the Effective Time. Further, if Continuing Employees experience a transition in health care, dental, or vision coverage during the middle of a plan year, SmartFinancial or SmartBank, as appropriate, will use commercially reasonable efforts to cause any successor Employee Plan providing health care, dental, or vision coverage for Continuing Employees to give credit towards satisfaction of any annual deductible limitation and out-of-pocket maximum applied under such successor plan for any deductible, co-payment, or other cost-sharing amounts previously paid by Continuing Employees in respect of their participation in the corresponding Bancshares Benefit Plan during the plan year of the successor Employee Plan prior to the transition effective date. The Parties acknowledge and agree that, to the extent permitted by applicable Law and the terms of any pertinent plan documents, SmartFinancialPFG and its Subsidiaries may afterSubsidiaries.
“PFG Investment Securities” means the Effective Time maintain multiple benefit plans providing health care, dental, or vision coverage and/or multiple retirement savings plans. (b) At the requestinvestment securities of SmartFinancial, the Bancshares Parties shall take,PFG and shall cause their Subsidiaries to take, prior to the Effective Time, all actions reasonably requested by SmartFinancial that are necessary or appropriate to (i) cause one or more of the Bancshares Benefits Plans (including without limitation the Bancshares Director Stock Plan and the Bancshares DRIP) to terminate or be frozen as of or immediately prior to the Effective Time, (ii) cause benefit accruals and entitlements under any Bancshares Benefit Plan to cease as of or immediately prior to the Effective Time, (iii) cause the continuation at and after the Effective Time of any insurance policy or other Contract relating to any Bancshares Benefit Plan for such period as may be requested by SmartFinancial, or (iv) facilitate the merger of any Bancshares Benefit Plan into any employee benefit plan maintained by SmartFinancial or its Subsidiaries. All resolutions, notices, or other documents adopted, issued, or executed in connection with
“PFG Loan” has the implementation of this Section 7.9(b) shall be subject to SmartFinancial’s prior review and approval, which approval shall not be unreasonably withheld. (c) SmartFinancial or SmartBank will provide to (i) employees of the Bank immediately prior to the Effective Time who are not offered continued employment with SmartFinancial or one of its Subsidiaries and (ii) Continuing Employees whose employment is involuntarily terminated by SmartFinancial or its Subsidiaries without cause during the six-month period immediately following the Effective Time (collectively, “Severed Employees”), and who are not otherwise entitled to contractual or other severance or change in control benefits, severance benefits in the amountsmeaning set forth on inSection 3.22(c).
“Schedule 7.9(c)PFG Material Contracts of” has the SmartFinancial Disclosure Memorandum taking into accountmeaning set forth inSection 3.12(a). “PFG Meeting” has the number of years of full-time service ofmeaning set forth inSection 5.04(a). “PFG Recommendation” has the Severed Employees withmeaning set forth inSection 5.04(b). “PFG Regulatory Agreement” has the Bancshares Parties prior tomeaning set forth inSection 3.13. “PFG Representatives” has the Effective Time and with SmartFinancial and its Subsidiaries thereafter; provided that it shall be a condition to payment of any such severance benefits that the Severed Employee executes a release of claims, which release shall bemeaning set forth in a form that complies with Section 409A of the Code and is reasonably acceptable to SmartFinancial. Any such payments of severance benefits (including the timing of the same) shall be in compliance with Section 409A of the Code. For purposes of this Section 7.9(c)5.09(a), “cause”.
“PFG Shareholder Representative”shall mean Ottis Phillips. “PFG Subsequent Determination” has the meaning set forth inSection 5.09(e). “PFG Voting Agreement” or “PFG Voting Agreements” shall have the same meaning as provided in any written employment agreement between any Severed Employee and SmartFinancial and/or its Subsidiaries on the date such Severed Employee’s employment is terminated, or if no such definition or employment agreement exists, “cause” shall mean conduct amounting to (i) fraud or dishonesty against or to SmartFinancial or its Subsidiaries, (ii) the Severed Employee’s willful misconduct, repeated refusal to follow the reasonable directions of his or her superiors, or knowing violation of Lawset forth in the course or scoperecitals to this Agreement. “Plan of performance of services to or for SmartFinancial or its Subsidiaries; (iii) repeated absences from work without a reasonable excuse; (iv) intoxication with alcohol or drugs while onMerger” has the premises of SmartFinancial or its Subsidiaries during regular business hours; (v) a conviction or plea of guilty or nolo contendere to a felony or a crime involving dishonesty; or (vi) a breach or violation of the terms of any agreement to which the Severed Employee and SmartFinancial or its Subsidiaries are parties. (d) This meaning set forth inSection 7.9 shall be binding upon and inure solely to the benefit of the Parties, and nothing in this Section 7.9, express or implied, shall confer upon any other Person any rights or remedies of any nature
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whatsoever under or by reason of this Section 7.9. Nothing contained in this Section 7.9, express or implied, (i) shall be construed to establish, amend, or modify any benefit plan, program, agreement, or arrangement or (ii) shall alter or limit the ability of the Surviving Corporation, SmartFinancial, or SmartBank, or any of their Subsidiaries or Affiliates, to amend, modify, or terminate any benefit plan, program, agreement, or arrangement at any time assumed, established, sponsored, or maintained by any of them. The Parties acknowledge and agree that the provisions of this Section 7.9 shall not create any right in any employee of Bancshares or the Bank or any of their Subsidiaries, or any other Person, to continued employment with the Surviving Corporation, SmartFinancial, or SmartBank, or any of their Subsidiaries or Affiliates (and shall not limit the right of the Surviving Corporation, SmartFinancial, or SmartBank, or any of their Subsidiaries or Affiliates, to terminate the employment of any employee), or any compensation or benefits of any nature or kind whatsoever.
Section 7.10 Indemnification1.03.
(a) For a period
“Progressive Bank” has the meaning set forth in the Recitals. “Proxy Statement-Prospectus” means the proxy statement and prospectus and other proxy solicitation materials of six years immediately following the Effective Time, the Surviving Corporation shall indemnify, defend,SMBK and hold harmless each of the current and former directors, officers, and employees of Bancshares and the Bank, determined as of immediately prior to the Effective Time (each, an “Indemnified Party”), against any and all costs and expenses (including reasonable attorneys’ fees and expenses), judgments, fines, losses, claims, damages, and liabilities incurred in connection with any claim, action, suit, proceeding, or investigation, whether civil, criminal, administrative, or investigative, arising out of matters existing or occurring prior to the Effective Time, whether asserted or claimed prior to, at, or after the Effective Time, and based on or pertaining to the fact that he or she was a director, officer, or employee of Bancshares or the Bank or was serving at the request of Bancshares or the Bank as a director, officer, employee, agent, trustee, or partner of another corporation, partnership, trust, joint venture, employee benefit plan, or other entity, to the fullest extent such Indemnified Party would have been entitled to be so indemnified, defended, and held harmless, subject to applicable Law, under the charter and bylaws of Bancshares and the Bank as in effect as of the date of this Agreement (including the provisions thereof, if any,PFG relating to the advancement of expenses).PFG Meeting. (b) Any Indemnified Party wishing to claim indemnification under this Section 7.10, upon learning of any such claim, action, suit, proceeding, or investigation, shall promptly notify the Surviving Corporation of the same; provided that the failure of the Indemnified Party to so notify the Surviving Corporation shall not relieve the Surviving Corporation of any Liability it may have to such Indemnified Party if such failure does not actually and materially prejudice the Surviving Corporation. In the event of any such claim, action, suit, proceeding, or investigation (whether arising before or after the Effective Time), (i) the Surviving Corporation shall have the right to assume the defense thereof and the Surviving Corporation shall not be liable to the Indemnified Party for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof, except that, (A) if the Surviving Corporation elects not to assume such defense or (B) if counsel for the Indemnified Party advises the Surviving Corporation that there are legal defenses available to the Indemnified Party that are different from or in addition to those available to the Surviving Corporation or that there are issues which raise conflicts of interest between the Surviving Corporation and the Indemnified Party that make joint representation inappropriate, the Indemnified Party may retain its own legal counsel and the Surviving Corporation shall pay, as statements therefor are received, the reasonable fees and expenses of such counsel for the Indemnified Party (which may not exceed one firm in any jurisdiction unless there are multiple Indemnified Parties who have conflicts of interest), (ii) the Indemnified Party will cooperate in the defense thereof, (iii) the Surviving Corporation shall not be liable for any settlement effected without its prior written consent, and (iv) the Surviving Corporation shall have no obligation hereunder in the event a federal or state banking agency or a court of competent jurisdiction shall determine that indemnification of an Indemnified Party in the manner contemplated hereby is prohibited by applicable Law.
(c) Prior to the Effective Time the Bancshares Parties shall obtain, and after the Effective Time the Surviving Corporation shall maintain, a “tail” policy under the Bancshares Parties’ existing directors’ and officers’ liability insurance policy providing coverage for a period of six years immediately after the Effective Time for Persons who are immediately prior to the Effective Time covered by the Bancshares Parties’ existing directors’ and officers’ liability insurance policy (the “Tail Insurance”), which Tail Insurance shall provide for at least the same coverage and coverage amounts as, and contain terms and conditions no less advantageous than, those currently provided for by the Bancshares Parties’ existing directors’ and officers’ liability insurance policy;
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provided, however, that, without the prior written consent of SmartFinancial, the Bancshares Parties shall not expend for such Tail Insurance (for said six-year period) an amount in excess of 150% of the most recent annual premium paid by the Bancshares Parties for their existing directors’ and officers’ liability insurance policy.
(d) In the event the Surviving Corporation or any of its successors or assigns shall consolidate with or merge with or into any other Person and shall not be the continuing or surviving entity of such consolidation or merger, or shall transfer all or substantially all of its properties and assets to any other Person, then, and in each such case, proper provision shall be made so that the successors or assigns of the Surviving Corporation assume the obligations of the Surviving Corporation set forth in this Section 7.10.
(e) Any indemnification payments made pursuant to this Section 7.10are subject to and conditioned upon their compliance with Section 18(k) of the FDIA (12 U.S.C. § 1828(k)) and the regulations promulgated thereunder by the FDIC (12 C.F.R. Part 359).
Section 7.11 Registration Statement.
(a) As soon as reasonably practicable after the date of this Agreement, the Parties will prepare and file with the SEC the Proxy Statement/Prospectus and the Registration Statement (which will include the Proxy Statement/Prospectus), which shall comply with all of the requirements of the Securities Act and the Exchange Act (and the rules and regulations thereunder) applicable thereto, for the purpose, among other things, of registering the SmartFinancial Common Stock that will be issued to holders of Bancshares Common Stock in connection with the Parent Merger pursuant to Article III of this Agreement. SmartFinancial shall use commercially reasonable efforts to cause the Registration Statement to become effective as soon as practicable after the filing thereof, to register or exempt from registration the SmartFinancial Common Stock to be issued to holders of Bancshares Common Stock under the securities Laws of all applicable jurisdictions (federal and state), and to keep the Registration Statement and such registrations or exemptions current and in effect for so long as is necessary to consummate the transactions contemplated by this Agreement. SmartFinancial shall have primary responsibility for preparing and filing the Registration Statement, provided that SmartFinancial shall to the extent practicable afford the Bancshares Parties and their legal, financial, and accounting advisors a reasonable opportunity to review and provide comments on (i) the Registration Statement before it is filed with the SEC and (ii) all amendments and supplements to the Registration Statement and all responses to requests for additional information and replies to comments relating to the Registration Statement before the same are filed with or submitted to the SEC. Each Party, to the extent permitted by Law, shall deliver to the other Parties copies of all material filings, correspondence, orders, and documents with, to, or from Governmental Entities, and shall promptly relay to the other Parties the substance of any material oral communications with, to, or from Governmental Entities, in each case pertaining or relating to the Registration Statement or any documents or materials related thereto.
(b) The Parties shall cooperate in the preparation of the Registration Statement and the Proxy Statement/Prospectus for the purpose of submitting this Agreement and the transactions contemplated hereby to the shareholders of Bancshares for approval. Each Party will as promptly as reasonably practicable after the date of this Agreement furnish all data and information relating to it and its Subsidiaries, and its and its Subsidiaries’ directors, officers, and shareholders, as the other Parties may reasonably request for the purpose of including such data and information in the Registration Statement and/or the Proxy Statement/Prospectus. The Bancshares Parties expressly agree to cooperate with SmartFinancial and its legal and accounting advisors in requesting and obtaining appropriate opinions, consents, and letters from its financial advisor(s) and independent auditor(s), and in taking such other actions as may be reasonably requested by SmartFinancial, in connection with the Registration Statement or the Proxy Statement/Prospectus. Each Party covenants and agrees that none of the information supplied or to be supplied by such Party for inclusion or incorporation by reference in (i) the Registration Statement will, at the time the Registration Statement or any amendment or supplement thereto becomes effective under the Securities Act, 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, in light of the circumstances under which they were made, not misleading, (ii) the Proxy Statement/Prospectus or any amendment or supplement thereto will, on the date the same is first mailed to shareholders of Bancshares or at the time of the Bancshares Meeting, 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, in light of the circumstances under which they were made, not misleading, or (iii) any other document filed with any Governmental Entity in connection with the transactions contemplated by this Agreement will, at the time such
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document is filed, fail to comply as to form, in all material respects, with the provisions of applicable Law. The Proxy Statement/Prospectus will comply as to form, in all material respects, with all applicable requirements of the Securities Act and the Exchange Act and the rules and regulations thereunder, except that no representation or warranty is made by any Party with respect to statements made or incorporated by reference therein based on information supplied by any other Party for inclusion or incorporation by reference in the Proxy Statement/Prospectus. Each Party covenants and agrees that, in the event such Party becomes aware of any information furnished by it that would cause any of the statements in the Registration Statement or the Proxy Statement/Prospectus, or any other document filed with any Governmental Entity in connection with the transactions contemplated by this Agreement, to be false or misleading with respect to any material fact, or to omit to state any material fact necessary to make the statements therein not false or misleading, such Party will promptly inform the other Parties thereof in writing and take all necessary steps to correct the Registration Statement or Proxy Statement/Prospectus, or other document, as applicable.
Section 7.12 Nasdaq Listing. SmartFinancial shall use its commercially reasonable efforts to cause the shares of SmartFinancial Common Stock to be issued as Merger Consideration in accordance with this Agreement to be authorized for listing on Nasdaq, subject to official notice of issuance, prior to the Effective Time.
Section 7.13 Election of Director. Prior to or at the Effective Time, SmartFinancial and SmartBank and their respective boards of directors shall take all action required to elect to the board of directors of SmartFinancial and the board of directors of SmartBank, effective as of or immediately following the Effective Time, Clifton N. Miller, provided that he is willing and able to so serve and that he continues to serve as a member of the board of directors of Bancshares until immediately prior to the Effective Time.
Section 7.14 Notice of Dissenters’ Rights Matters. Prior to the Effective Time, the Bancshares Parties shall give SmartFinancial prompt written notice of their receipt of any notice, demand, or other instrument or communication relating to dissenters’ rights (including any notice of intent to demand payment or any withdrawal of any such notice) provided by or behalf of any shareholder of Bancshares pursuant to Chapter 23 of the Tennessee Corporation Act.
Section 7.15 Exemption from Section 16(b) Liability. SmartFinancial acknowledges that, in order to most effectively compensate and retain those officers and directors of the Bancshares Parties, if any, that will become officers or directors of SmartFinancial subject to the reporting requirements of Section 16(a) of the Exchange Act in connection with or as a result of the transactions contemplated by this Agreement (the “Bancshares Insiders”), it is desirable that the Bancshares Insiders not be subject to a risk of Liability under Section 16(b) of the Exchange Act to the fullest extent permitted by applicable Law in connection with the conversion or exchange of shares of Bancshares Common Stock in the Parent Merger, and for that compensatory and retentive purpose agrees to the provisions of this Section 7.15. The board of directors of SmartFinancial, or a committee of non-employee directors thereof (as such term is defined for purposes of Rule 16b-3(d) under the Exchange Act), shall prior to the Effective Time take all such action as may be reasonably required to cause any acquisitions of SmartFinancial Common Stock by Bancshares Insiders as Merger Consideration in accordance with Article III of this Agreement to be exempt from Liability pursuant to Rule 16b-3 under the Exchange Act to the fullest extent permitted by applicable Law.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF PARENT MERGER
Section 8.1 Conditions to Each Party’s Obligation to Consummate Parent Merger. The respective obligation of each Party to consummate the Parent Merger and the other transactions contemplated by this Agreement is subject to the satisfaction or, to the extent permitted by applicable Law, written waiver by such Party prior to the Closing of each of the following conditions (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions):
(a) Shareholder Approval. This Agreement shall have been duly approved by the shareholders of Bancshares in accordance with Bancshares’ charter and bylaws and applicable Law.
(b) Governmental Approvals. All approvals, consents, and waivers of or from Governmental Entities (including without limitation the Regulatory Approvals) required to consummate the transactions contemplated by this Agreement (including without limitation the Parent Merger and the Bank Merger) shall have been obtained and shall be in full force and effect, and all statutory waiting periods in respect thereof shall have expired, and
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no such approval, consent, or waiver shall contain any condition, restriction, or requirement that the SmartFinancial board of directors determines would, individually or in the aggregate with one or more other conditions, restrictions, or requirements, materially reduce the benefits of the transactions contemplated by this Agreement to such a degree that SmartFinancial would not have entered into this Agreement had such condition(s), restriction(s), or requirement(s) been known as of the date of this Agreement (any such condition, restriction, or requirement, a “Burdensome Condition”); provided, however, that (i) any condition, restriction, or requirement imposed by a Governmental Entity which is customarily imposed in published orders or approvals for transactions such as the Parent Merger shall not be deemed to be a Burdensome Condition and (ii) prior to declaring a Burdensome Condition and electing not to consummate the transactions contemplated hereby as a result thereof, SmartFinancial shall use commercially reasonable efforts to negotiate with the relevant Governmental Entity a modification to the condition, restriction, or requirement to reduce the burdensome nature thereof such that the condition, restriction, or requirement no longer constitutes a Burdensome Condition.
(c) No Injunction; Illegality. There shall not be in effect any order, decree, or injunction of any Governmental Entity that enjoins or prohibits the consummation of the Parent Merger or the Bank Merger, and no Governmental Entity shall have instituted any action, suit, or proceeding for the purpose of enjoining or prohibiting the consummation of the Parent Merger or the Bank Merger. No Law shall have been enacted, entered, promulgated, or enforced by any Governmental Entity which prohibits or makes illegal the consummation of the Parent Merger or the Bank Merger.
(d) Registration Statement. The Registration Statement shall have become effective under the Securities Act and no stop order suspending such effectiveness shall be in effect, and no action, suit, proceeding, or investigation by the SEC to suspend the effectiveness of” means the Registration Statement shall have been initiated, continuing, or threatened and unresolved.
(e) Nasdaq Listing. The shares of SmartFinancial Common Stock that will be issued to holders of Bancshares Common Stock as consideration in the Parent Merger pursuant to this Agreement shall have been authorized for listing on Nasdaq (subject to official notice of issuance).
Section 8.2 Conditions to Obligations of Bancshares Parties. The obligation of each of Bancshares and the Bank to consummate the Parent Merger and the other transactions contemplated hereby is also subject to the satisfaction or, to the extent permitted by applicable Law, written waiver by Bancshares and the Bank prior to the Closing of each of the following conditions (other than those conditions that by their nature areForm S-4 to be satisfied atfiled with the Closing, but subject to the fulfillment or waiver of those conditions):
(a) Representations and Warranties of SmartFinancial. The representations and warranties of SmartFinancial contained in Section 5.2(c) (Capitalization), Section 5.2(d) (Authority), Section 5.2(k)(i) (Absence of Certain Changes or Events), and Section 5.2(r) (Fairness Opinion) shall be true and correct in all respects (other than, in the case of Section 5.2(c) only, inaccuracies which, individually and in the aggregate, are de minimis in both amount and impact) as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except that representations and warranties thatSEC by their terms speak specifically as of the date of this Agreement or another date shall be true and correct only as of such date). The representations and warranties of SmartFinancial contained in Section 5.2(a) (Organization and Qualification) and Section 5.2(e) (No Violations) shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except that representations and warranties that by their terms speak specifically as of the date of this Agreement or another date shall be true and correct only as of such date). All other representations and warranties of SmartFinancial contained in this Agreement shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except that representations and warranties that by their terms speak specifically as of the date of this Agreement or another date shall be true and correct only as of such date), except where the failure of such representations and warranties to be so true and correct has not had or resulted in, and would not reasonably be expected to have or result in, individually or in the aggregate, a SmartFinancial Material Adverse Effect; provided that, for purposes of this sentence only, those representations and warranties containing or subject to a materiality or SmartFinancial Material Adverse Effect qualifier shall be read without, and shall be deemed not to include or be subject to, any such qualifier.
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(b) Performance of Obligations of SmartFinancial. SmartFinancial shall have performed and complied with, in all material respects, all obligations and covenants required to be performed and complied with by SmartFinancial under this Agreement prior to or at the Closing.
(c) Officers’ Certificate. The Bancshares Parties shall have received a certificate, dated as of the Closing Date, signed by the chief executive officer and the chief financial officer of SmartFinancial, and otherwise in form and substance reasonably satisfactory to the Bancshares Parties, to the effect that the conditions set forth in Section 8.2(a) and Section 8.2(b) have been satisfied.
(d) Tax Opinion. Bancshares shall have received an opinion from Waller Landsen Dortch & Davis, LLP, legal counsel to Bancshares, dated as of the Closing Date and in form and substance reasonably satisfactory to Bancshares, to the effect that, on the basis of facts, representations, and assumptions set forth or referred to in such opinion, the Parent Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. In rendering its opinion, such counsel may require and rely upon representations contained in certificates of officers of the Bancshares Parties and SmartFinancial, reasonably satisfactory in form and substance to such counsel.
Section 8.3 Conditions to Obligations of SmartFinancial. The obligation of SmartFinancial to consummate the Parent Merger and the other transactions contemplated hereby is also subject to the satisfaction or, to the extent permitted by applicable Law, written waiver by SmartFinancial prior to the Closing of each of the following conditions (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions):
(a) Representations and Warranties of Bancshares Parties. The representations and warranties of the Bancshares Parties contained in Section 4.2(c) (Capitalization), Section 4.2(d) (Authority), Section 4.2(k)(i) (Absence of Certain Changes or Events), Section 4.2(v) (Fairness Opinion), Section 4.2(w) (Broker Fees), Section 4.2(hh) (Regulatory Capital), and Section 4.2(ii) (Required Shareholder Vote) shall be true and correct in all respects (other than, in the case of Section 4.2(c) only, inaccuracies which, individually and in the aggregate, are de minimis in both amount and impact) as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except that representations and warranties that by their terms speak specifically as of the date of this Agreement or another date shall be true and correct only as of such date). The representations and warranties of the Bancshares Parties contained in Section 4.2(a) (Organization and Qualification) and Section 4.2(e) (No Violations) shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except that representations and warranties that by their terms speak specifically as of the date of this Agreement or another date shall be true and correct only as of such date). All other representations and warranties of the Bancshares Parties contained in this Agreement shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except that representations and warranties that by their terms speak specifically as of the date of this Agreement or another date shall be true and correct only as of such date), except where the failure of such representations and warranties to be so true and correct has not had or resulted in, and would not reasonably be expected to have or result in, individually or in the aggregate, a Bancshares Material Adverse Effect; provided that, for purposes of this sentence only, those representations and warranties containing or subject to a materiality, Bancshares Material Adverse Effect, or Knowledge qualifier shall be read without, and shall be deemed not to include or be subject to, any such qualifier.
(b) Performance of Obligations of Bancshares Parties. The Bancshares Parties shall have performed and complied with, in all material respects, all obligations and covenants required to be performed and complied with by them under this Agreement prior to or at the Closing.
(c) Officers’ Certificate. SmartFinancial shall have received a certificate, dated as of the Closing Date, signed by the chief executive officer and the chief financial officer of each of Bancshares and the Bank, and otherwise in form and substance reasonably satisfactory to SmartFinancial, to the effect that the conditions set forth in Section 8.3(a) and Section 8.3(b) have been satisfied.
(d) Third Party Consents. All of the consents, approvals, and waivers required to be obtained by the Bancshares PartiesSMBK in connection with the consummationissuance of shares of SMBK Common Stock in the Merger (including the Proxy Statement-Prospectus constituting a part thereof).
“Regulations” means the final and temporary regulations promulgated under the Code by the United States Department of the transactions contemplated byTreasury. “Regulatory Approval” has the meaning set forth inSection 3.06(a). “Requisite PFG Shareholder Approval” means approval of this Agreement (including without limitation thoseby a vote (in person or by proxy) of the majority of the outstanding shares of PFG Common Stock entitled to vote thereon at the PFG Meeting. “Rights” means, with respect to any Person, warrants, options, rights, convertible securities and other arrangements or commitments which obligate the Person to issue or dispose of any of its capital stock or other ownership interests. “Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002, as amended. “SEC” means the Securities and Exchange Commission. “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. “SmartBank” has the meaning set forth on in the Recitals. “Schedule 4.2(f)SMBK” has the meaning set forth in the preamble to this Agreement. “SMBK Average Stock Price” means the average closing price of the BancsharesSMBK Common Stock as reported on the NASDAQ for the 10 consecutive Trading Days ending on the Trading Day immediately prior to the Determination Date. “SMBK Common Stock” means the common stock, $1.00 par value per share, of SMBK. “SMBK Disclosure Memorandum orSchedule” has the meaning set forth inArticle IV.
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otherwise required by or under any Bancshares Material Contract, but excluding those contemplated by “SMBK Reports” has the meaning set forth inSection 8.1(b)4.05(a)).
“Software” means computer programs, whether in source code or object code form (including any and all software implementation of algorithms, models and methodologies), shall have been obtaineddatabases and compilations (including any and all data and collections of data), and all documentation (including user manuals and training materials) related to the Bancshares Parties shall have deliveredforegoing. “Subsidiary” means, with respect to SmartFinancial such evidenceany party, any corporation or other entity of which a majority of the same as SmartFinancial may reasonably request. (e) Tax Opinion. SmartFinancial shall have received an opinion from Butler Snow LLP, legal counselcapital stock or other ownership interest having ordinary voting power to SmartFinancial, dated as of the Closing Date and in form and substance reasonably satisfactory to SmartFinancial, to the effect that, on the basis of facts, representations, and assumptions set forth or referred to in such opinion, the Parent Merger will qualify aselect a “reorganization” within the meaning of Section 368(a) of the Code. In rendering its opinion, such counsel may require and rely upon representations contained in certificates of officers of the Bancshares Parties and SmartFinancial, reasonably satisfactory in form and substance to such counsel.
(f) Director Resignations. Each membermajority of the board of directors of Bancshares and each member ofor other persons performing similar functions are at the board of directors of the Bank shall have delivered to Bancshares and the Bank, respectively, written resignations wherebytime directly or indirectly owned by such individuals resign from the Bancshares and Bank boards of directors effective as of the Effective Time, and the Bancshares Parties shall have delivered to SmartFinancial such evidence of the same as SmartFinancial shall reasonably request.
(g) Dissenting Shareholders. The holders of not more than 10% of the outstanding shares of Bancshares Common Stock shall have perfected and not effectively withdrawn or lost their rights to dissent from the Parent Merger pursuant to Chapter 23 of the Tennessee Corporation Act.
ARTICLE IX
TERMINATION
Section 9.1 Termination. This Agreement may be terminated, and the transactions contemplated hereby may be abandoned, at any time prior to the Effective Time or as otherwise indicated:
(a) By mutual written consent of SmartFinancial, Bancshares, and the Bank.
(b) By SmartFinancial (provided that SmartFinancial is not then in material breach of any representation, warranty, covenant, or agreement contained herein), in the event of a breach by Bancshares or the Bank of any representation, warranty, covenant, or agreement containedparty. Any reference in this Agreement to a Subsidiary of PFG means, unless the context otherwise requires, any current or byformer Subsidiary of PFG.
“Superior Proposal” has the Bancshares Parties (provided that neither Bancshares normeaning set forth inSection 5.09(a). “Surviving Bank” has the Bank is thenmeaning set forth in material breach of any representation, warranty, covenant, or agreement contained herein), inSection 1.03. “Surviving Entity” has the event of a breach by SmartFinancial of any representation, warranty, covenant, or agreement contained in this Agreement, in either case which breach (i) individually or in the aggregate with all other such breaches would, if occurring or continuing on the Closing Date, result in the failure of any of the conditionsmeaning set forth in Article VIIIthe Recitals. “Tax” and (ii) has not been cured by the earlier“Taxes” mean all federal, state, local or foreign income, gross income, gains, gross receipts, sales, use, ad valorem, goods and services, capital, production, transfer, franchise, windfall profits, license, withholding, payroll, employment, disability, employer health, excise, estimated, severance, stamp, occupation, property, environmental, custom duties, unemployment, escheat, unclaimed property or other taxes of September 30, 2018,any kind whatsoever, together with any interest, additions or penalties thereto and 30 days after written notice to the breaching Partyany interest in respect of such breach.interest and penalties. (c) By either SmartFinancial or the Bancshares Parties, in the event the shareholders of Bancshares fail to approve, by the requisite vote, this Agreement and the transactions contemplated hereby at the Bancshares Meeting, provided that the Bancshares Parties shall only be entitled to exercise their right of termination under this Section 9.1(c) if the Bancshares Parties have complied with, and there has been no breach or violation by the Bancshares Parties of, their obligations and covenants set forth in Section 7.7.
(d) By either SmartFinancial or the Bancshares Parties, in the event“Tax Returns” means any of the Regulatory Approvals shall have been denied by final and non-appealable action of a Governmental Entity or any application therefor shall have been permanently withdrawn at the request of a Governmental Entity; provided, however, that SmartFinancial shall not be entitled to exercise its right of termination under this Section 9.1(d) if such denial or withdrawal shall be due to the failure of SmartFinancial to perform or observe its obligations and covenants set forth in this Agreement, and that the Bancshares Parties shall not be entitled to exercise their right of termination under this Section 9.1(d) if such denial or withdrawal shall be due to the failure of Bancshares or the Bank to perform or observe its obligations and covenants set forth in this Agreement.
(e) By either SmartFinancial or the Bancshares Parties, in the event any courtreturn, amended return, declaration or other report (including but not limited to elections, declarations, schedules, estimates and information returns) required to be filed with any Governmental Entity of competent jurisdiction shall have issued a final, non-appealable order enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement; provided, however, that SmartFinancial shall not be entitled to exercise its right of termination under this Section 9.1(e) if such action of such court or other Governmental Entity shall be due to the failure of SmartFinancial to perform or observe its obligations and covenants set forth in this Agreement, and that the Bancshares Parties shall not be entitled to exercise their right
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of termination under this Section 9.1(e) if such action of such court or other Governmental Entity shall be due to the failure of Bancshares or the Bank to perform or observe its obligations and covenants set forth in this Agreement.
(f) By either SmartFinancial or the Bancshares Parties, in the event the Parent Merger is not consummated by September 30, 2018, unless (i) in the event of termination by SmartFinancial, the failure to consummate the Parent Merger by such date shall be due to the failure of SmartFinancial to perform or observe its obligations and covenants set forth in this Agreement, and (ii) in the event of termination by the Bancshares Parties, the failure to consummate the Parent Merger by such date shall be due to the failure of Bancshares or the Bank to perform or observe its obligations and covenants set forth in this Agreement.
(g) By SmartFinancial, in the event (i) of any breach by Bancshares or the Bank of Section 7.1 or Section 7.7 of this Agreement or (ii) the board of directors of Bancshares does not publicly recommend in the Proxy Statement/Prospectus the approval of this Agreement and the transactions contemplated hereby by the shareholders of Bancshares or, after having made such recommendation, subsequently makes a Bancshares Change of Recommendation.
(h) By SmartFinancial, in the event a tender offer or exchange offer for 10% or more of the outstanding shares of Bancshares Common Stock is commenced (other than by SmartFinancial) and the Bancshares board of directors recommends that the shareholders of Bancshares tender their shares in such tender offer or exchange offer or otherwise fails to timely recommend that such shareholders reject such tender offer or exchange offer within the 10 business day period specified in Rule 14e-2(a) under the Exchange Act.
(i) By the Bancshares Parties, at any time prior to the approval of this Agreement by the shareholders of Bancshares, for the purpose of entering into an agreementAuthority with respect to a Superior Proposal, any Taxes.
“provided TBCAthat there” has been no breach by Bancshares or the Bank of meaning set forth inSection 7.1 or Section 7.71.01. Section 9.2 Effect of
“Termination. In Fee” has the event of the termination of this Agreementmeaning set forth in accordance with this Article IX, this Agreement shall, subject to Section 9.3, become null and void and have no further force or effect and the Parties shall have no further or continuing liability or obligations under this Agreement, except that (a) Section 7.3(d), Section 7.6, this Section 9.2, Section 9.3, and Article X of this Agreement shall survive any termination of this Agreement and (b) notwithstanding anything to the contrary contained in this Agreement, no Party shall be relieved of or released from any liability or damages arising out of such Party’s fraud or willful or intentional breach of any provision of this Agreement. Section 9.3 Termination Fee7.02(a).
(a) In the event (i) this Agreement is terminated by SmartFinancial pursuant to Section 9.1(b) and (ii) at any time after
“The date hereof” or “the date of this Agreement and at or before the Bancshares Meeting (including at or before any adjournment or postponement thereof) an Acquisition Proposal shall have been received by the Bancshares Parties, which has not been withdrawn prior to” means the date offirst set forth above in the termination of this Agreement, and within 12 months of the date of termination of this Agreement Bancshares or the Bank enters into a definitive agreement with respectpreamble to or consummates, any Acquisition Proposal (whether or not the same Acquisition Proposal as that referred to above), then the Bancshares Parties shall pay to SmartFinancial a termination fee of $1,300,000 on the earlier of the date of Bancshares’ or the Bank’s, as applicable, execution of such definitive agreement or consummation of such Acquisition Proposal. (b) In the event this Agreement is terminated by SmartFinancial pursuant to Section 9.1(g) or Section 9.1(h), the Bancshares Parties shall pay to SmartFinancial a termination fee of $1,300,000 not later than two Business Days after the date of termination of this Agreement.
(c) In
“TDFI” has the event this Agreement is terminated by the Bancshares Parties pursuant to meaning set forth inSection 9.1(i), the Bancshares Parties shall pay to SmartFinancial a termination fee of $1,300,000 not later than two Business Days after the date of termination of this Agreement. Any termination fee and other amounts payable in accordance with this Section 9.3 shall be paid by wire transfer of immediately available funds to an account designated by SmartFinancial. The Bancshares Parties acknowledge that the agreements contained in this Section 9.3 are an integral part of the transactions contemplated by this Agreement and that absent such agreements SmartFinancial would not have entered into this Agreement. In the event the Bancshares Parties fail to timely make payment of any amounts due and payable
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by them under this Section 9.3, the Bancshares Parties shall pay or reimburse SmartFinancial all costs and expenses (including reasonable attorneys’ fees and expenses and court costs) incurred by SmartFinancial in connection with any action, including the filing of any lawsuit, taken to collect payment of such amounts, together with interest on the amount of any such amounts unpaid at the prime lending rate prevailing during such period as published in The Wall Street Journal, calculated on a daily basis from the date such amounts were required to be paid until the date of actual payment. The termination fees and other amounts payable by the Bancshares Parties pursuant to this Section 9.3 constitute liquidated damages and not a penalty and, except in the case of fraud or willful or intentional breach of this Agreement, shall be the sole monetary remedy of SmartFinancial in the event this Agreement is terminated under the circumstances described in Sections 9.3(a)-(c)3.06(a).
“Trading Day” means any day on which the NASDAQ is open for trading; provided that a “Trading Day” only includes those days that have a scheduled closing time of 4:00 p.m. (Eastern Time). “Truth in Lending Act” means the Truth in Lending Act of 1968, as amended. “USA PATRIOT Act” means the USA PATRIOT Act of 2001, Public Law 107-56, and the regulations promulgated thereunder.
ARTICLE XIX
MISCELLANEOUS
Section 10.19.01 Survival. None of theNo representations, warranties, covenants,agreements or agreementscovenants contained in this Agreement shall survive the Effective Time (otherother than thosethisSection 9.01 and any other agreements or covenants and agreements contained herein that by their express terms are to be observed or performed after the Effective Time) orTime, including, without limitation,Section 5.10. Section 9.02 Waiver; Amendment. Prior to the terminationEffective Time and to the extent permitted by applicable Law, any provision of this Agreement (other thanmay be (a) waived by the Party benefited by the provision, provided such waiver is in writing and signed by such Party, or (b) amended or modified at any time, by an agreement in writing among the Parties executed in the same manner as this Agreement, except that after the PFG Meeting no amendment shall be made which by Law requires further approval by the shareholders of SMBK or PFG without obtaining such approval. The waiver by any Party of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach. Section 9.03 Section 7.3(d)Governing Law; Jurisdiction; Waiver of Right to Trial by Jury, Section 7.6, Section 9.2, Section 9.3. (a) This Agreement shall be governed by, and interpreted and enforced in accordance with, the internal, substantive laws of the State of Tennessee, without regard for conflict of law provisions. (b) Each Party agrees that it will bring any action or proceeding in respect of any claim arising out of or related to this Agreement or the transactions contemplated hereby exclusively in any federal or state court of competent jurisdiction located in the State of Tennessee (the “Tennessee Courts”), and, solely in connection with claims arising under this Agreement or the transactions that are the subject of this Agreement, (i) irrevocably submits to the exclusive jurisdiction of the Tennessee Courts, (ii) waives any objection to laying venue in any such action or proceeding in the Tennessee Courts, (iii) waives any objection that the Tennessee Courts are an inconvenient forum or do not have jurisdiction over any party and (iv) agrees that service of process upon such party in any such action or proceeding will be effective if notice is given in accordance withArticle XSection 9.05. (c) Each Party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues, and therefore each such Party hereby irrevocably and unconditionally waives any right such Party may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement, or the transactions contemplated by this Agreement. Each Party certifies and acknowledges that (i) no representative, agent, or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver, (ii) each Party understands and has considered the implications of this waiver, (iii) each Party makes this waiver voluntarily, and (iv) each Party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in thisSection 9.03.
Section 9.04 Expenses. Except as otherwise provided inSection 7.02, each of which shall survive any such termination). Notwithstanding the foregoing or anything elseParty will bear all expenses incurred by it in connection with this Agreement toand the contrary, nonetransactions contemplated hereby, including fees and expenses of the representations, warranties, covenants, or agreementsits own financial consultants, accountants and counsel. Nothing contained in this Agreement shall limit either Party’s rights to recover any liabilities or damages arising out of the other Party’s willful breach of any provision of this Agreement. Section 9.05 Notices. All notices, requests and other communications hereunder to a Party, shall be in writing and shall be deemed properly given if delivered (a) personally, (b) by registered or certified mail (return receipt requested), with adequate postage prepaid thereon, (c) by properly addressed electronic mail delivery (with confirmation of delivery receipt), or (d) by reputable courier service to such Party at its address set forth below, or at such other address or addresses as such Party may specify from time to time by notice in like manner to the Parties. All notices shall be terminateddeemed effective upon delivery. (a) if to SMBK, to: SmartFinancial, Inc.
5401 Kingston Pike Knoxville, Tennessee, 37319 Attn: William Y. Carroll, Jr.
E-mail: Billy.Carroll@smartbank.com with a copy (which shall not constitute notice to SMBK) to: Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309
Attn: Mark Kanaly
E-mail: mark.kanaly@alston.com (b) if to PFG, to: Progressive Financial Group Inc. 500 North Main Street Jamestown, TN 38556 Attn: Ottis Phillips, Chairman
E-mail: 1951ottis@gmail.com
with a copy (which shall not constitute notice to PFG) to: Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Baker Donelson Center
Suite 800
211 Commerce Street
Nashville, TN 37201 Attn. Steven J. Eisen
E-mail: sjeisen@bakerdonelson.com Section 9.06 Entire Understanding; No Third Party Beneficiaries. This Agreement represents the entire understanding of the Parties and thereto with reference to the transactions contemplated hereby, and this Agreement supersedes any and all other oral or extinguished sowritten agreements heretofore made. Except for the Indemnified Parties’ rights underSection 5.10, SMBK and PFG hereby agree that their respective representations, warranties and covenants set forth herein are solely for the benefit of the other Party, in accordance with and subject to the terms of this Agreement, and this Agreement is not intended to, and does not, confer upon any Person (including any person or employees who might be affected bySection 5.11), other than the Parties, any rights or remedies hereunder, including, the right to rely upon the representations and warranties set forth herein. The representations and warranties in this Agreement are the product of negotiations between the Parties and are for the sole benefit of the Parties. Consequently, Persons other than the Parties may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date. Section 9.07 Severability. In the event that any one or more provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, by any court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement and the Parties will use their commercially reasonable efforts to deprivesubstitute a valid, legal and enforceable provision which, insofar as practical, implements the purposes and intents of this Agreement. Section 9.08 Enforcement of the Agreement. The Parties agree that irreparable damage would occur in the event that any Party heretoof the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction without having to show or prove economic damages and without the requirement of its Affiliates ofposting a bond, this being in addition to any defense,other remedy to which they are entitled at law or in equity, which otherwise would be available against the claims of any Person, including without limitation any shareholder or former shareholder.equity.
Section 10.29.09 Interpretation. (a) When a reference is made in this Agreement to an Article, Section, Exhibit,sections, exhibits or Schedule,schedules, such reference shall be to an Article or Sectiona section of, or Exhibitexhibit or Scheduleschedule to, this Agreement unless otherwise indicated. The table of contents and captions and headings appearingcontained in this Agreement have been insertedare included solely for purposes of convenience of reference onlyreference; if there is any conflict between a caption or heading and shall not affect the meaning of, or be given any force or effect in the construction or interpretationtext of this Agreement.Agreement, the text shall control. Whenever the words “include,” “includes,” and“includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation,limitation.” whether or not actually followed by such words. Any singular term used in this Agreement shall be deemed to include the plural, and any plural term the singular. Any gender reference in this Agreement shall be deemed to include all genders. All references in this Agreement to a specific statute shall be deemed to refer to all regulations and authoritative guidance issued thereunder, and all references in this Agreement to a statute, regulation, or other guidance shall also be deemed to refer to any superseding statute, regulation or guidance. Any document or item will be deemed “delivered,” “provided,” or “made available” to a Party within the meaning of this Agreement if such document or item is (a) made available to such Party specifically for review in person by another Party or its representatives,
(b) contained and accessible by such Party for a continuous period of at least 48 hours immediately prior to the Parties’ execution of this Agreement (if to be delivered, provided, or made available prior to the date hereof) or the Closing Date (if to be delivered, provided, or made available prior to Closing) in the electronic data room hosted by Firmex established by the Bancshares Parties in connection with the transactions contemplated hereby (to which SmartFinancial and its designated representatives had access rights during such period) or the electronic data room hosted by Firmex established by SmartFinancial in connection with the transactions contemplated hereby (to which the Bancshares Parties and their designated representatives had access rights during such period), or (c) filed by a Party with the SEC and publicly available in the Electronic Data Gathering, Analysis and Retrieval database of the SEC at least 48 hours immediately prior to the Parties’ execution of this Agreement (if to be delivered, provided, or made available prior to the date hereof) or the Closing Date (if to be delivered, provided, or made available prior to Closing). All references to “dollars” or “$” in this Agreement are to United States dollars. Whenever the words “as of the date hereof” are used in this Agreement, such date shall be deemed the date of this Agreement. The Parties have participated jointly in the negotiation and drafting of this Agreement and inthe other agreements and documents contemplated herein. In the event an ambiguity or question of intent or interpretation arises under any provision of this Agreement or any other agreement or document contemplated herein, this Agreement and such other agreements or documents shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Partyparty by virtue of the authorship ofauthorizing any of the provisions of this Agreement.Agreement or any other agreements or documents contemplated herein. Section 10.3 Amendment; Waiver. This Agreement may be amended, modified, or supplemented at any time, either before or after approval of this Agreement by any Party’s shareholders, by, but only by, a written instrument executed by each of the Parties; provided, however, that, after the approval of this Agreement by a
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Party’s shareholders, there may not be, without further approval of such shareholders, any amendment, modification, or supplement of or to this Agreement that requires further approval of or by such shareholders under applicable Law. Prior to the Effective Time, any provision of this Agreement may be waived by the Party or Parties entitled to the benefits thereof, provided that any such waiver shall be in writing and executed by the Party or Parties granting such waiver.
Section 10.4 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to constitute an original, but all of which together shall constitute one(c) The PFG Disclosure Schedule and the same instrument. A facsimile orSMBK Disclosure Schedule, as well as all other electronic copy of a signature pageschedules and all exhibits to this Agreement, shall be deemed part of this Agreement and included in any reference to this Agreement. Any matter disclosed pursuant to any section of either Disclosure Schedule shall be deemed disclosed for purposes of any other section ofArticle III orArticle IV, respectively, to the extent that applicability of the disclosure to such other section is reasonably apparent on the face, notwithstanding the absence of a specific cross-reference, of such disclosure. No item is required to be and shall have the same force and effectset forth in either Disclosure Schedule as an original signature page.
Section 10.5 Governing Law.exception to a representation or warranty if its absence would not result in the related representation or warranty being deemed untrue or incorrect. The mere inclusion of an item in either Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by either party that such item represents a material exception or fact, event or circumstance or that such item is reasonably likely to result in a Material Adverse Effect, or that any breach or violation of applicable Laws or any contract exists or has actually occurred. This Agreement shall not be governed by, andinterpreted or construed interpreted, and enforced in accordance with, the laws of the State of Tennessee, without regard to conflict of laws principles.require any person to take any action, or fail to take any action, if to do so would violate any applicable Law.
Section 10.6 Expenses. Except as expressly otherwise provided
(d) Any reference contained in this Agreement each Partyto specific statutory or regulatory provisions or to any specific Governmental Authority shall include any successor statute or regulation, or successor Governmental Authority, as the case may be. Unless the context clearly indicates otherwise, the masculine, feminine, and neuter genders will be responsible fordeemed to be interchangeable, and pay all coststhe singular includes the plural and expenses incurredvice versa. As used herein, (i) the term “made available” means any document or other information that was (a) provided by itone party or its representatives to the other party or its representatives prior to the date hereof or (b) included in connection withthe virtual data room of a party prior to the date hereof, and (ii) the word “or” is not exclusive. (e) Unless otherwise specified, the references to “Section” and “Article” in this Agreement are to the Sections and the transactions contemplated hereby. Section 10.7 Notices. All notices, requests, consents,Article of this Agreement. When used in this Agreement, words such as “herein”, “hereinafter”, “hereof”, “hereto”, and other communications required or permitted under or related“hereunder” refer to this Agreement shall be in writing and shall be deemed given, delivered, and effective (i) when delivered, if delivered personally, (ii) onas a whole, unless the third Business Day after mailing, if mailed by first class United States Mail, postage prepaid and return receipt requested, or (iii) on the first Business Day after mailing, if sent by a nationally recognized overnight delivery service, in each case to the Parties at the following addresses (or such other addresses as the Parties may designate from time to time by notice given in accordance with this context clearly requires otherwise.
Section 10.7): If to SmartFinancial:
| with a copy (which shall not constitute notice) to:
| | | SmartFinancial, Inc.
| Butler Snow LLP
| Attention: William Y. Carroll, Jr.
| Attention: Adam G. Smith
| 5401 Kingston Pike, Suite 600
| 150 3rd Avenue South, Suite 1600
| Knoxville, Tennessee 37919
| Nashville, Tennessee 37201
| | | If to Bancshares or the Bank:
| with a copy (which shall not constitute notice) to:
| | | Tennessee Bancshares, Inc.
| Waller Landsden Dortch & Davis LLP
| Southern Community Bank
| Attention: Richard T. Hills
| Attention: Bill Yoder
| 511 Union Street, Suite 2700
| 1400 North Jackson Street
| Nashville, Tennessee 37219
| Tullahoma, Tennessee 37388
| |
Section 10.8 Entire Agreement; Third Party Beneficiaries. This Agreement, including and together with the Exhibits and Schedules hereto and the Disclosure Memoranda, and the Confidentiality Agreement (but only to the extent the Confidentiality Agreement is not inconsistent with any provision of this Agreement) represent the entire understanding of the Parties with respect to the transactions contemplated hereby and supersede any and all prior agreements, understandings, and arrangements, whether written or oral, between or among the Parties with respect to such subject matter. This Agreement is made solely for the benefit of the Parties hereto and their respective successors and permitted assigns, and no other Person shall acquire or have any rights under or by virtue of this Agreement, except that the Indemnified Parties (and their heirs and legal and personal representatives) are intended third-party beneficiaries of this Agreement to the extent, but only to the extent, provided in Section 7.10.
Section 10.9 Severability. In the event any term or provision of this Agreement is held to be invalid, illegal, or unenforceable for any reason or in any respect, (a) such invalidity, illegality, or unenforceability shall in no event affect, prejudice, or disturb the validity, legality, or enforceability of the remainder of this Agreement,
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which shall be and remain in full force and effect enforceable in accordance with its terms, and (b) the Parties shall use their reasonable best efforts to substitute for such invalid, illegal, or unenforceable term or provision an alternative term or provision which, insofar as practicable, implements the original purposes and intent of this Agreement.
Section 10.109.10 Assignment. No Party may assign or delegateeither this Agreement or any of its rights, interests duties, or obligations hereunder without the prior written consent of eachapproval of the other Parties.Party, and any purported assignment in violation of thisSection 9.10 shall be void. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assigns.
Section 10.119.11 Counterparts. This Agreement may be executed and delivered by facsimile or by electronic data file and in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party, it being understood that all Parties need not sign the same counterpart. Signatures delivered by facsimile or by electronic data file shall have the same effect as originals. Section 9.12 Privileged Communications. Any privilege attaching as a result of Baker Donelson Bearman Caldwell & Berkowitz, PC representing PFG or any Subsidiary thereof in connection with the transactions contemplated by this Agreement shall survive the Closing Date and shall remain in effect; provided, that such privilege from and after the Closing Date shall be assigned to and controlled by the PFG Shareholder Representative. In furtherance of the foregoing, each of the Parties hereto agrees to take the steps necessary to ensure that any privilege attaching as a result of Baker Donelson Bearman Caldwell & Berkowitz, PC representing PFG or any Subsidiary thereof in connection with the transactions contemplated by this Agreement shall survive the Closing Date and shall remain in effect and be assigned to and controlled by the PFG Shareholder Representative. As to any privileged attorney client communications between Baker Donelson Bearman Caldwell & Berkowitz, PC and PFG or any Subsidiary thereof prior to the Closing Date (collectively, the “Privileged Communications”), SMBK, PFG, and each of their Subsidiaries (including, after the Closing Date, the Surviving Entity and Surviving Bank), together with any of their respective affiliates, successors, or assigns, agree that no such Party may use or rely on any of the Privileged Communications in any action or claim against or involving any of the Parties hereto after the Closing Date. [Signature Page Follows]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in counterparts by their duly authorized officers, all as of the day and year first above written. | SMARTFINANCIAL, INC. | | | | By: | /s/ William Y. Carrol, Jr. | | Name: | William Y. Carroll, Jr. | | Title: | President and Chief Executive Officer |
| PROGRESSIVE FINANCIAL GROUP INC. | | | | By: | /s/ Ottis Phillips | | Name: | Ottis Phillips | | Title: | President and Chief Executive Officer |
[Signature Page to Agreement and Plan of Merger] EXHIBIT A VOTING AGREEMENT THIS VOTING AGREEMENT (this “Agreement”) is dated as of October 29, 2019, by and between the undersigned holder (“Shareholder”) of common stock of Progressive Financial Group Inc., a Tennessee corporation (“PFG”), and SmartFinancial, Inc., a Tennessee corporation (“SMBK”). All capitalized terms used but not defined herein shall have the meanings assigned to them in the Merger Agreement (defined below). RECITALS: WHEREAS, concurrently with the execution of this Agreement, SMBK and PFG are entering into an Agreement and Plan of Merger (as such agreement may be subsequently amended or modified, the “Merger Agreement”), pursuant to which (i) PFG will merge with and into SMBK, with SMBK as the surviving entity, and (ii) Progressive Savings Bank, a Tennessee state-chartered bank and wholly-owned subsidiary of PFG, will merge with and into SmartBank, a Tennessee state-chartered bank and wholly-owned subsidiary of SMBK (“SmartBank”), with SmartBank as the surviving bank (collectively, the “Merger”), and in connection with the Merger, each outstanding share of common stock of PFG, $10.00 par value per share (“PFG Common Stock”), will be converted into the right to receive the Merger Consideration and cash in lieu of fractional shares of SMBK Common Stock; WHEREAS, Shareholder “beneficially owns” (as such term is defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) and is entitled to vote (or direct the voting of), directly or indirectly, the number of shares of PFG Common Stock indicated on the signature page of this Agreement under the heading “Total Number of Shares of PFG Common Stock Subject to this Agreement;” provided, that such shares do not include shares beneficially owned by Shareholder but subject to the voting direction of a third party with regard to voting on the Merger (such shares, together with any additional shares of PFG Common Stock subsequently acquired and “beneficially owned” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) with power to vote (or direct voting) by Shareholder during the term of this Agreement, including through the exercise of any stock option or other equity award, warrant or similar instrument, being referred to collectively as the “Shares”); and WHEREAS, it is a material inducement to the willingness of SMBK to enter into the Merger Agreement that Shareholder execute and deliver this Agreement. AGREEMENT: NOW, THEREFORE, in consideration of, and as a material inducement to, SMBK entering into the Merger Agreement and proceeding with the transactions contemplated thereby, and in consideration of the expenses incurred and to be incurred by SMBK in connection therewith, Shareholder and SMBK agree as follows:
Section 1. Agreement to Vote Shares. Shareholder, solely in his, her or its capacity as a shareholder of PFG, agrees that, while this Agreement is in effect, at any meeting of shareholders of PFG, however called, or at any adjournment thereof, or in any other circumstances in which Shareholder is entitled to vote, consent, or give any other approval in his, her or its capacity as a shareholder of PFG, except as otherwise agreed to in writing in advance by SMBK, Shareholder shall vote (or cause to be voted), in person or by proxy, all the Shares as to which the Shareholder has, directly or indirectly, the right to vote or direct the voting, (i) in favor of approval of the Merger Agreement (including any amendments or modifications of the terms thereof approved by the board of directors of PFG and adopted in accordance with the terms thereof); (ii) in favor of any proposal to adjourn or postpone such meeting, if necessary, to solicit additional proxies to approve the Merger Agreement; (iii) against any action or agreement that would reasonably be expected to result in a material breach of any covenant, representation or warranty or any other obligation or agreement of PFG contained in the Merger Agreement or of Shareholder contained in this Agreement; and (iv) against any Acquisition Proposal (as defined in the Merger Agreement) or any other action, agreement, or transaction that would reasonably be expected to prevent, materially impede, or materially delay consummation of the transactions contemplated by the Merger Agreement or this Agreement. Shareholder further agrees not to vote or execute any written consent to rescind or amend in any manner adverse to SMBK any prior vote or written consent, as a shareholder of PFG, to approve or adopt the Merger Agreement unless this Agreement shall have been terminated in accordance with its terms. Section 2. No Transfers. Until the earlier of (i) the termination of this Agreement pursuant toSection 6 and (ii) receipt of the Requisite PFG Shareholder Approval, Shareholder agrees not to, directly or indirectly, sell, transfer, pledge, assign or otherwise dispose of, or enter into any contract, option, commitment, or other arrangement or understanding with respect to the sale, transfer, pledge, assignment, or other disposition of, any of the Shares, except the following transfers shall be permitted: (a) transfers by will or operation of Law, in which case this Agreement shall bind the transferee, (b) transfers pursuant to any pledge agreement, subject to the pledgee agreeing in writing, prior to such transfer, to be bound by the terms of this Agreement, (c) transfers in connection with estate and tax planning purposes, including transfers to relatives, trusts, and charitable organizations, subject to each transferee agreeing in writing, prior to such transfer, to be bound by the terms of this Agreement, and (d) such transfers as SMBK may otherwise permit in its sole discretion. Any transfer or other disposition in violation of the terms of thisSection 2 shall be null and void. Section 3. Representations and Warranties of Shareholder. Shareholder represents and warrants to and agrees with SMBK as follows: (a) Shareholder has all requisite capacity and authority to enter into and perform his, her, or its obligations under this Agreement. (b) This Agreement has been duly executed and delivered by Shareholder, and assuming the due authorization, execution and delivery by SMBK, constitutes a valid and legally binding obligation of Shareholder enforceable against Shareholder in accordance with its terms, subject to the Enforceability Exception.
(c) The execution and delivery of this Agreement by Shareholder does not, and the performance by Shareholder of his, her, or its obligations hereunder will not, violate or conflict with in any material respect, or constitute a material default under, any agreement, instrument, contract, or other obligation or any order, arbitration award, judgment, or decree to which Shareholder is a party or by which Shareholder is bound, or to Shareholder’s knowledge any statute, rule, or regulation to which Shareholder is subject or, in the event that Shareholder is a corporation, partnership, trust, or other entity, any charter, bylaw, or other organizational document of Shareholder. (d) Shareholder is the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of and has good title to all of the Shares, and the Shares are owned free and clear of any liens, security interests, charges, or other encumbrances. The Shares do not include shares over which Shareholder exercises control in a fiduciary capacity for any other person or entity that is not an Affiliate of Shareholder, and no representation by Shareholder is made with respect thereto. Shareholder has the right to vote, or direct the voting of, the Shares, and none of the Shares is subject to any voting trust or other agreement, arrangement or restriction with respect to the voting of the Shares, except as contemplated by this Agreement. Shareholder does not beneficially own (within the meaning of Rule 13d-3 promulgated under the Exchange Act) any shares of capital stock of PFG other than the Shares or any other securities convertible into or exercisable or exchangeable for such capital stock. Section 4. Shareholder acknowledges and agrees that Shareholder has reviewed and understands Section 5.09(a) of the Merger Agreement and hereby agrees from the date hereof until the termination of this Agreement in accordance with its terms that Shareholder shall be bound by Section 5.09(a) of the Merger Agreement to the same extent (solely with respect to Shareholder’s actions) as if Shareholder were directly bound by PFG’s obligations thereunder. Section 5. Specific Performance; Remedies; Attorneys’ Fees. Shareholder acknowledges that it is a condition to the willingness of SMBK to enter into the Merger Agreement that Shareholder execute and deliver this Agreement and that it will be impossible to measure in money the damage to SMBK if Shareholder fails to comply with the obligations imposed by this Agreement and that, in the event of any such failure, SMBK will not have an adequate remedy at law or in equity. Accordingly, Shareholder agrees that injunctive relief or other equitable remedy is the appropriate remedy for any such failure and will not oppose the granting of such relief on the basis that SMBK has an adequate remedy at law. Shareholder further agrees that Shareholder will not seek, and agrees to waive any requirement for, the securing or posting of a bond in connection with SMBK seeking or obtaining such equitable relief. In addition, after discussing the matter with Shareholder, SMBK shall have the right to inform any third party that SMBK reasonably believes to be, or to be contemplating, participating with Shareholder, or receiving from Shareholder assistance, in violation of this Agreement, of the terms of this Agreement and of the rights of SMBK hereunder, and that participation by any such persons with Shareholder in activities in violation of Shareholder’s agreement with SMBK set forth in this Agreement may give rise to claims by SMBK against such third party. Section 6. Term of Agreement; Termination. The term of this Agreement shall commence on the date hereof. This Agreement may be terminated at any time prior to consummation of the transactions contemplated by the Merger Agreement by the mutual written agreement of the parties hereto, and shall be automatically terminated upon the earlier to occur of (a) the Effective Time, (b) termination of the Merger Agreement, or (c) two (2) years from the date hereof. Upon such termination, no party shall have any further obligations or liabilities hereunder;provided, however, that such termination shall not relieve any party from liability for any breach of this Agreement prior to such termination.
Section 7. Entire Agreement. This Agreement represents the entire understanding of the parties hereto with reference to the transactions contemplated hereby, and this Agreement supersedes any and all other oral or written agreements heretofore made. Section 8. Modification and Waiver. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in a writing signed by each party. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of dissimilar provisions or conditions at the same or any prior or subsequent time. Section 9. Severability. In the event that any one or more provisions of this Agreement shall for any claim,reason be held invalid, illegal, or unenforceable in any respect, by any court of competent jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement and the parties shall use their commercially reasonable efforts to substitute a valid, legal, and enforceable provision which, insofar as practical, implements the purposes and intents of this Agreement. Section 10. Capacity as Shareholder. This Agreement shall apply to Shareholder solely in his, her, or its capacity as a shareholder of PFG, and it shall not apply in any manner to Shareholder in his, her, or its capacity as a director or officer of PFG, if applicable. Nothing contained in this Agreement shall be deemed to apply to, or limit or otherwise affect in any manner, the obligations of Shareholder to comply with his, her, or its fiduciary duties as a director or officer of PFG, if applicable. Section 11. Governing Law. This Agreement shall be governed by, and interpreted and enforced in accordance with, the internal, substantive laws of the State of Tennessee, without regard for conflict of law provisions. Section 12. Jurisdiction. Any civil action, suit,counterclaim, proceeding, or proceedinglitigation arising out of or in any way relating to this Agreement or the transactions contemplated hereby, the prevailing Party or Parties shall be entitledbrought exclusively in any federal or state court of competent jurisdiction located in the State of Tennessee. Each party consents to recover from the non-prevailing Partyjurisdiction of such Tennessee courts in any such civil action, counterclaim, proceeding, or Parties all fees, expenses,litigation and disbursements, including without limitation reasonable attorneys’ fees and court costs, reasonably incurred bywaives any objection to the laying of venue of any such prevailing Partycivil action, counterclaim, proceeding, or Partieslitigation in connection with such claim, action, suit, or proceeding, in addition to any other relief to which such prevailing Party or Parties may be entitled.Tennessee courts.
Section 10.1213. Submission to JurisdictionWAIVER OF JURY TRIAL. EACH PARTY KNOWINGLYACKNOWLEDGES AND VOLUNTARILY HEREBY (A) IRREVOCABLY SUBMITS TO THE SOLE AND EXCLUSIVE JURISDICTION OF THE STATE COURTS OF THE STATE OF TENNESSEE LOCATED IN KNOXVILLE, KNOX COUNTY, TENNESSEE, OR IN THE EVENT (BUT ONLY IN THE EVENT)AGREES THAT NO SUCH STATE COURT HAS JURISDICTION, THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TENNESSEE, KNOXVILLE DIVISION (THE “TENNESSEE COURTS”), IN RESPECT OF ANY CLAIM, ACTION, SUIT, OR PROCEEDINGCONTROVERSY WHICH MAY ARISE UNDER ARISING OUT OF, OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, (B) IRREVOCABLY WAIVESIS LIKELY TO INVOLVE COMPLICATED AND AGREES NOT TO ASSERT AS A DEFENSE IN OR TO ANY SUCH CLAIM, ACTION, SUIT, OR PROCEEDING THATDIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY IS NOT SUBJECT TO THE JURISDICTION OF THE TENNESSEE COURTS, THAT SUCH CLAIM, ACTION, SUIT, OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN THE TENNESSEE COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE, OR THAT THIS AGREEMENT MAY NOT BE CONSTRUED, INTERPRETED, OR ENFORCED IN OR BY THE TENNESSEE COURTS,HEREBY IRREVOCABLY AND (C) IRREVOCABLY AGREES THAT ALL CLAIMS A PART OF OR WITH RESPECT TO ANY SUCH CLAIM, ACTION, SUIT, OR PROCEEDING SHALL BE HEARD AND DETERMINED BY THE TENNESSEE COURTS. THE PARTIES HEREBY GRANT THE TENNESSEE COURTS JURISDICTION OVER THE PERSONS OF THE PARTIES AND, TO THE EXTENT PERMITTED BY LAW, OVER THE SUBJECT MATTER OF ANY SUCH CLAIM, ACTION, SUIT, OR PROCEEDING. Section 10.13 Jury Trial Waiver. EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLYUNCONDITIONALLY WAIVES ANY AND ALL RIGHTSRIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM, ACTION, SUIT,LITIGATION DIRECTLY OR PROCEEDING UNDER,INDIRECTLY ARISING OUT OF OR RELATEDRELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY.BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT, OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THISSECTION 13.
Section 14. Waiver of Appraisal Rights. To the extent permitted by applicable Law, Shareholder hereby waives any rights of appraisal or rights to dissent from the Merger or to demand fair value for his, her, or its Shares in connection with the Merger, in each case, that Shareholder may have under applicable Law. Shareholder further agrees not to commence or participate in, and to take all actions necessary to opt out of any class in any class action with respect to, any claim, derivative or otherwise, against SMBK, SmartBank, PFG, Progressive Savings Bank, or any of their respective successors relating to the negotiation, execution, or delivery of this Agreement or the Merger Agreement or the consummation of the Merger. Section 15. Disclosure. Shareholder hereby authorizes PFG and SMBK to publish and disclose in any announcement or disclosure required by the Securities and Exchange Commission and in the Proxy Statement-Prospectus such Shareholder’s identity and ownership of the Shares and the nature of Shareholder’s obligations under this Agreement. Section 16. Ownership. Nothing in this Agreement shall be construed to give SMBK any rights to exercise or direct the exercise of voting power as owner of the Shares or to vest in SMBK any direct or indirect ownership or incidents of ownership of or with respect to any of the Shares. All rights, ownership, and economic benefits of and relating to the Shares shall remain vested in and belong to the Shareholder, notwithstanding the provisions of this Voting Agreement, and SMBK shall have no authority to manage, direct, superintend, restrict, regulate, govern, or administer any of the policies or operations of PFG or to exercise any power or authority to direct the Shareholder in voting any of the Shares, except as otherwise expressly provided herein. Section 17. Fiduciary Duty. No provision of this Agreement shall preclude or in any way limit the Shareholder (or any representative of the Shareholder) from exercising his or her fiduciary duties as a member of the board of directors or an officer of PFG or in any capacity with any other entity. Section 18. Counterparts. This Agreement may be executed and delivered by facsimile or by electronic data file and in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. Signatures delivered by facsimile or by electronic data file shall have the same effect as originals. ([Signature Page Follows)Follows]
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first written above. | SMARTFINANCIAL, INC. | | | | By: | | | Name: | William Y. Carroll, Jr. | | Title: | President and Chief Executive Officer |
| Total Number of Shares of PFG Common Stock
Subject to this Agreement: | | |
Signature Page – Voting Agreement TABLE
PLAN OF CONTENTSBANK MERGER This PLAN OF BANK MERGER (this “Agreement”) is made and entered into as of October 29, 2019, by and between SmartBank, a Tennessee state chartered banking institution with its main office located at 2430 Teaster Lane, Suite 205, Pigeon Forge, TN 37863 (“SmartBank”), and Progressive Savings Bank, a Tennessee state charted banking institution with its main office located at 500 North Main Street, Jamestown, TN 38556 (“Progressive Savings Bank”), to provide for the merger of Progressive Savings Bank with and into SmartBank (the “Bank Merger”). SmartBank and Progressive Savings Bank are referred to herein as the “Merging Banks.” WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of October 29, 2019 (the “Parent Merger Agreement”), by and between SmartFinancial, Inc., a Tennessee corporation and the sole shareholder of SmartBank (the “Company”), and Progressive Financial Group Inc. (“PFG”), a Tennessee corporation and the sole shareholder of Progressive Savings Bank, PFG will be merged with and into the Company (the “Parent Merger”), subject to the terms of and conditions set forth in the Parent Merger Agreement; WHEREAS, as a result of the Parent Merger, Progressive Savings Bank will become a wholly-owned subsidiary of the Company; WHEREAS, the Parent Merger Agreement contemplates the subsequent merger of Progressive Savings Bank with and into SmartBank, with SmartBank as the surviving bank (the “Surviving Bank”); WHEREAS, the respective boards of directors of SmartBank and Progressive Savings Bank have adopted this Agreement and have determined that this Agreement and the transactions contemplated by this Agreement, including the Bank Merger, are in the best interests of their respective shareholder(s); and WHEREAS, PFG and the Company have approved this Agreement on October 29, 2019 in their capacity as the sole shareholders of Progressive Savings Bank and SmartBank, respectively. NOW, THEREFORE, in consideration of the premises and of the covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Merging Banks, intending to be legally bound, hereby make, adopt and approve this Agreement, and hereby prescribe the terms and conditions of the Bank Merger and the mode of effecting the Bank Merger as follows:
ARTICLE 1 TERMS OF BANK MERGER Section 1.1 The Bank Merger. (a) At the Effective Time (as defined below), Progressive Savings Bank shall be merged with and into SmartBank in accordance with, and with the effects provided in, this Agreement and applicable provisions of the Tennessee Banking Act, Tennessee Code Annotated § 45-1-101et seq., and the Tennessee Business Corporation Act, Tennessee Code Annotated § 48-11-101et seq. As a result of the Bank Merger, (i) each share of common stock of Progressive Savings Bank, par value $10.00 per share, issued and outstanding immediately prior to the Effective Time shall cease to be outstanding and shall be cancelled for no consideration and (ii) each share of capital stock of SmartBank, par value $1.00 per share, issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding and shall constitute the only shares of capital stock of the Surviving Bank issued and outstanding immediately after the Effective Time. For purposes of this Agreement, the Bank Merger shall become effective on the date and time specified in the articles of merger for the Bank Merger as filed with the Tennessee Secretary of State (such time when the Bank Merger becomes effective, the “Effective Time”). (b) At the Effective Time, the Surviving Bank shall be considered the same business and corporate entity as each of the Merging Banks and thereupon and thereafter all the property, rights, privileges, powers and franchises of each of the Merging Banks shall vest in the Surviving Bank and the Surviving Bank shall be subject to and be deemed to have assumed all of the debts, liabilities, obligations and duties of each of the Merging Banks and shall have succeeded to all of each of their relationships, fiduciary or otherwise, as fully and to the same extent as if such property, rights, privileges, powers, franchises, debts, liabilities, obligations, duties and relationships had been originally acquired, incurred or entered into by the Surviving Bank. The deposit-taking offices of Progressive Savings Bank shall be operated by the Surviving Bank, and the savings accounts issued by Progressive Savings Bank shall be issued on the same terms by the Surviving Bank. In addition, any reference to either of the Merging Banks in any contract, will or document, whether executed or taking effect before or after the Effective Time, shall be considered a reference to the Surviving Bank if not inconsistent with the other provisions of the contract, will or document; and any pending action or other judicial proceeding to which either of the Merging Banks is a party shall not be deemed to have abated or to have been discontinued by reason of the Bank Merger, but may be prosecuted to final judgment, order or decree in the same manner as if the Bank Merger had not been made or the Surviving Bank may be substituted as a party to such action or proceeding, and any judgment, order or decree may be rendered for or against it that might have been rendered for or against either of the Merging Banks as if the Bank Merger had not occurred. Section 1.2 Name of Surviving Bank and Principal Office. The name of the Surviving Bank shall be “SmartBank.” The principal office of SmartBank shall continue to be 2430 Teaster Lane, Suite 205, Pigeon Forge, Tennessee 37863 after the Effective Time. The branch offices of Progressive Savings Bank and SmartBank immediately prior to the Effective Time will be operated as branch offices of the Surviving Bank immediately following the Effective Time.
Section 1.3 Charter.At and after the Effective Time, the Charter of SmartBank shall be the Charter of the Surviving Bank until amended in accordance with applicable law. Section 1.4 Bylaws.At and after the Effective Time, the Bylaws of SmartBank shall be the Bylaws of the Surviving Bank until amended in accordance with applicable law. Section 1.5 Directors and Officers. At and after the Effective Time, until changed in accordance with the Charter and Bylaws of the Surviving Bank, (i) the directors of the Surviving Bank shall be the directors of SmartBank immediately prior to the Effective Time, provided that the board of directors will be expanded to add Ottis Phillips following the Effective Time; and (ii) the executive officers of the Surviving Bank shall be the executive officers of SmartBank immediately prior to the Effective Time. The directors and executive officers of the Surviving Bank shall hold office in accordance with the Charter and Bylaws of the Surviving Bank. A list of the anticipated directors and executive officers of the Surviving Bank, including the residence of each such person, is set forth onExhibit A. Section 1.6 Capital of Surviving Bank. The amount of capital stock of the Surviving Bank authorized immediately following the Effective Time shall continue to be 8,000,000 shares of common stock, par value $1.00, per share, and 2,000,000 shares of preferred stock, par value $1.00 per share, of which 3,552,171 shares of common stock are issued and outstanding and no shares of preferred stock are issued and outstanding as of the date hereof, Section 1.7 No Preferred Stock. No preferred stock will be issued in connection with, or as a result of, the transactions contemplated by this Agreement. Section 1.8 Offices. The offices of the Surviving Bank are set forth onExhibit B. Also denoted onExhibit B are the current offices of each of the Merging Banks. ARTICLE II MISCELLANEOUS Section 2.1 Conditions Precedent. The respective obligations of each party to consummate the Bank Merger pursuant to this Agreement shall be subject to (a) the approval of this Agreement and the transactions contemplated hereby by (i) the Federal Deposit Insurance Corporation (the “FDIC”), (ii) the Tennessee Department of Financial Institutions (the “TDFI”), (iii) other regulatory authorities, as applicable, and (iv) the shareholder(s) of each Merging Bank, and (b) the consummation of the Parent Merger. Section 2.2 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee, without regard to any applicable principles of conflicts of laws that would result in the application of the law of another jurisdiction. Section 2.3 Counterparts. This Agreement may be executed (by facsimile or otherwise) by any one or more of the parties in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.
Section 2.4 Amendments.To the extent permitted by the FDIC and the TDFI, this Agreement may be amended by a subsequent writing signed by the parties hereto upon the approval of the board of directors of each of the parties hereto. Section 2.5 Successors.This Agreement shall be binding on the successors of SmartBank and Progressive Savings Bank. Section 2.6 Termination. This Agreement may be terminated, and the transactions contemplated hereby may be abandoned, at any time prior to the Effective Time by mutual written agreement of the parties hereto upon the approval of the board of directors of each of the parties hereto. Additionally, this Agreement shall terminate automatically, without any action by the parties hereto, in the event that the Parent Merger Agreement is terminated in accordance with its terms. [Signature page follows]
IN WITNESS WHEREOF, the PartiesSmartBank and Progressive Savings Bank have caused this Agreement and Plan of Bank Merger to be executed by their duly authorized officers as of the date first above written.set forth above. | SMARTFINANCIAL, INC.
| | SmartBank | | | | | Attest: | By:
| /s/
| | | | | | By: | | | Name: | | | Name: William Y. Carroll, Jr. | | Title: | | William Y. Carroll, Jr.
| | | Title: President and Chief Executive Officer | | | | | | TENNESSEE BANCSHARES, INC.
| | | | | | By:
| /s/ William Yoder
| Progressive Savings Bank | | Attest: | | William Yoder
| | |
| | | By: | | | Name: | | | Name: Ottis Phillips | | Title: | | | Title: President and Chief Executive Officer | | | | | SOUTHERN COMMUNITY BANK
| | | | | By:
| /s/ William Yoder
| | | William Yoder
| | | President and Chief Executive Officer
|
Signature Page – Plan of Bank Merger TABLE
EXHIBIT A OFFICERS AND DIRECTORS OF CONTENTSSURVIVING BANK
Appendix BPlan of Bank Merger – Exhibit A
Tennessee Business Corporation Act Dissenters’ Rights
EXHIBIT B BANKING OFFICES OF SURVIVING BANK Plan of Bank Merger – Exhibit B TABLE OF CONTENTS
TENNESSEE BUSINESS CORPORATION ACTEXHIBIT C
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT This Non-Competition and Non-Disclosure Agreement (this “Agreement”), is dated as of October 29, 2019, by and between the undersigned, an individual resident of the State of Tennessee (“Director”), and SmartFinancial, Inc., a Tennessee corporation (“SMBK”). All capitalized terms used but not defined herein shall have the meanings assigned to them in the Merger Agreement (defined below). RECITALS: CHAPTER 23
WHEREASDISSENTERS’ RIGHTS, concurrently with the execution of this Agreement, SMBK and Progressive Financial Group Inc., a Tennessee corporation (“PFG”), are entering into an Agreement and Plan of Merger (as such agreement may be subsequently amended or modified, the “Merger Agreement”), pursuant to which (i) PFG will merge with and into SMBK, with SMBK as the surviving entity, and (ii) Progressive Savings Bank (“Progressive Bank”), a Tennessee state-chartered bank and wholly-owned subsidiary of PFG, will merge with and into SmartBank, a Tennessee state-chartered bank and wholly-owned subsidiary of SMBK (“SmartBank”), with SmartBank as the surviving bank (collectively, the “Merger”);
PART 1
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
§WHEREAS 48-23-101. Chapter definitions., Director is a shareholder and member of the Board of Directors of PFG or one of its Subsidiaries, and, as a result of the Merger and pursuant to the transactions contemplated by the Merger Agreement, Director is expected to receive significant consideration in exchange for the shares of PFG Common Stock held by Director;
As used
WHEREAS, as of and prior to the date hereof, Director serves and has served as a member of the Board of Directors of PFG or Progressive Bank, and, therefore, Director has knowledge of the Confidential Information and Trade Secrets (each as hereinafter defined); WHEREAS, as a result of the Merger, SMBK will succeed to all of the Confidential Information and Trade Secrets, for which SMBK as of the Effective Time will have paid valuable consideration and desires reasonable protection; and WHEREAS, it is a material prerequisite to the consummation of the Merger that Director enter into this Agreement. AGREEMENT: NOW, THEREFORE, in consideration of these premises and the mutual covenants and undertakings herein contained, SMBK and Director, each intending to be legally bound, covenant and agree as follows: Section 1. Restrictive Covenants. (a) Director acknowledges that (i) SMBK has separately bargained for the restrictive covenants in this chapter, unlessAgreement; and (ii) the contexttypes and periods of restrictions imposed by the covenants in this Agreement are fair and reasonable to Director and such restrictions will not prevent Director from earning a livelihood.
(b) Having acknowledged the foregoing, solely in the event that the Merger is consummated, Director covenants and agrees with SMBK as follows: (i) From and after the Effective Time, Director will not disclose or use any Confidential Information or Trade Secrets for so long as such information remains Confidential Information or a Trade Secret, as applicable, for any purpose, except for any disclosure that is required by applicable Law. In the event that Director is required by Law to disclose any Confidential Information, Director will: (A) if and to the extent permitted by Law, provide SMBK with prompt notice of such requirement prior to the disclosure so that SMBK may waive the requirements of this Agreement or seek an appropriate protective order at SMBK’s sole expense; and (B) use reasonable efforts (without being required to incur personal expense) to obtain assurances that any Confidential Information disclosed will be accorded confidential treatment. If, in the absence of a waiver or protective order, Director is nonetheless, upon advice of his or her counsel, required to disclose Confidential Information, disclosure may be made only as to that portion of the Confidential Information that counsel advises Director is required to be disclosed. Nothing contained in this Agreement limits the Director’s ability to file a charge or complaint with the Equal Employment Opportunity Commission, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission or any other federal, state, or local governmental agency, authority or commission that has jurisdiction over SMBK or SmartBank or any of their respective Subsidiaries or affiliates (the “Government Agencies”). The Director further understands that this Agreement does not limit his or her ability to communicate with any Government Agencies or otherwise requires:participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to PFG or SMBK any of their respective Subsidiaries or affiliates. This Agreement does not limit the Director’s right to receive an award for information provided to any Government Agencies. In addition, pursuant to the Defend Trade Secrets Act of 2016, the Director understands that an individual may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (i) is made (A) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. Further, an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of Law may disclose the employer’s trade secrets to the attorney and use the trade secret information in the court proceeding if the individual (y) files any document containing the trade secret under seal; and (z) does not disclose the trade secret, except pursuant to court order. (1) “Beneficial shareholder” means
(ii) Except as expressly provided on Schedule I to this Agreement, for a period beginning at the person whoEffective Time and ending two years after the Effective Time, Director will not (except on behalf of or with the prior written consent of SMBK), on Director’s own behalf or in the service or on behalf of others, solicit or attempt to solicit any customer of SMBK or SmartBank or any of their respective Subsidiaries (each a “Protected Party”), including, but not limited to, (A) customers of Progressive Bank as of the date hereof or as of the Effective Time, and (B) prospective customers of Progressive Bank actually known by Director to be actively sought by Progressive Bank as of the Effective Time, for the purpose of providing products or services that are Competitive (as hereinafter defined) with those offered or provided by any Protected Party.
(iii) Except as expressly provided on Schedule I to this Agreement, for a period beginning at the Effective Time and ending two years after the Effective Time, Director will not (except on behalf of or with the prior written consent of SMBK), either directly or indirectly, on Director’s own behalf or in the service or on behalf of others, act as a director, officer, or employee of any business which is the same as or essentially the same as the business conducted by any Protected Party which has an office located within the Restricted Territory. (iv) For a period beginning at the Effective Time and ending two years after the Effective Time, Director will not, on Director’s own behalf or in the service or on behalf of others, solicit or recruit or attempt to solicit or recruit, directly or by assisting others, any employee of any Protected Party, whether or not such employee is a beneficial ownerfull-time employee or a temporary employee of shares held bysuch Protected Party, whether or not such employment is pursuant to a nomineewritten agreement and whether or not such employment is for a determined period or is at will, to cease working for such Protected Party; provided that the foregoing will not prevent the placement of any general solicitation for employment not specifically directed towards employees of any Protected Party or hiring any such person as the record shareholder;a result thereof. (2) “Corporation” means the issuer of the shares held by a dissenter before the corporate action, and, for
(c) For purposes of §§ 48-23-203 -- 48-23-302, includesthis Section 1, the survivor of a merger or conversion or the acquiring entity in a share exchange of that issuer;following terms shall be defined as set forth below: (3) “Dissenter” means a shareholder who is entitled to dissent from corporate action under § 48-23-102 and who exercises that right when and in the manner required by part 2 of this chapter;
(4) “Fair value,(i) “Competitive,” with respect to particular products or services, means products or services that are the same as or substantially similar to the products or services of any Protected Party.
(ii) “Confidential Information” means data and information: (A) relating to the business of PFG and its Subsidiaries, including Progressive Bank, regardless of whether the data or information constitutes a dissenter’s shares, means theTrade Secret; (B) disclosed to Director or of which Director became aware as a consequence of Director’s relationship with PFG or its Subsidiaries; (C) having value to PFG or its Subsidiaries and, as a result of the shares immediately before the effectuationconsummation of the corporate actiontransactions contemplated by the Merger Agreement, SMBK and/or SmartBank; and (D) not generally known to whichcompetitors of SMBK, SmartBank, PFG or Progressive Bank. Confidential Information shall include Trade Secrets, methods of operation, names of customers, price lists, financial information and projections, personnel data and similar information; provided, however, that the dissenter objects, excluding any appreciationterms “Confidential Information” and “Trade Secrets” shall not mean data or depreciation in anticipation of the corporate action; (5) “Interest” means interest from the effective date of the corporate actioninformation that gave rise(x) has been disclosed or is otherwise available to the shareholder’s right to dissent untilpublic, except where such public disclosure has been made by Director without authorization from PFG or SMBK or any of their respective Subsidiaries, (y) has been independently developed and disclosed by others, or (z) has otherwise entered the date of payment,public domain through lawful means.
(iii) “Restricted Territory” means each county in Tennessee in which Progressive Bank operates a banking office at the average auction rate paid on United States treasury bills withEffective Time and each county contiguous to each of such counties. (iv) “Trade Secret” means information, without regard to form, including technical or nontechnical data, a maturityformula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of six (6) months (or the closest maturity thereto) as of the auction date for such treasury bills closest to such effective date; (6) “Record shareholder” means the person in whose name shares are registered in the records of a corporationactual or the beneficial owner of sharespotential customers or suppliers, that is not commonly known by or available to the extentpublic, and which information:
(A) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the rights granted by a nominee certificate on file with a corporation;circumstances to maintain its secrecy. (d) Director acknowledges that irreparable loss and (7) “Shareholder” means injury would result to SMBK upon the record shareholder or the beneficial shareholder.
§ 48-23-102. Right to dissent.
(a) A shareholder is entitled to dissent from, and obtain payment of the fair value of the shareholder’s shares in the eventbreach of any of the following corporate actions:
(1) Consummationcovenants contained in this Section 1 and that damages arising out of such breach would be difficult to ascertain. Director hereby agrees that, in addition to all other remedies provided at law or in equity, SMBK may petition and obtain from a plancourt of mergerlaw or equity, without the necessity of proving actual damages, and without posting any bond or other security, both temporary and permanent injunctive relief to which the corporation isprevent a party:
(A) If shareholder approval is required for the mergerbreach by § 48-21-104 or the charterDirector of any covenant contained in this Section 1, and the shareholder isshall be entitled to vote on the merger if the merger is submitted to a vote at a shareholders’ meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the merger if the merger had been submitted to a vote at a shareholders’ meeting; or
(B) If the corporation is a subsidiary that is merged with its parent under § 48-21-105;
(2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan if the plan is submitted to a vote at a shareholders’ meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the plan if the plan had been submitted to a vote at a shareholders’ meeting;
(3) Consummation of a sale or exchangean equitable accounting of all earnings, profits, and other benefits arising out of any such breach. In the event that the provisions of this Section 1 should ever be determined to exceed the time, geographic, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitledlimitations permitted by applicable Law, then such provisions shall be modified so as to vote on the sale or exchange if the sale or exchange is submitted to a vote at a shareholders’ meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the sale or exchange if the sale or exchange had been submitted to a vote at a shareholders’ meeting, including
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a sale of all, or substantially all, of the property of the corporation in dissolution, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributedenforceable to the shareholders within one (1) year after the date of sale;
(4) An amendment of the charter that materially and adversely affects rights in respect of a dissenter’s shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitationmaximum extent permitted by dilution through issuance of shares or other securities with similar voting rights; or
(E) Reduces the number of shares owned by the shareholder to a fraction of a share, if the fractional share isLaw. If such provision(s) cannot be modified to be acquired for cash under § 48-16-104;
(5) Any corporate action taken pursuant to a shareholder voteenforceable, the provision(s) shall be severed from this Agreement to the extent the charter, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares; or
(6) Consummation of a conversion of the corporation to another entity pursuant to chapter 21 of this title.
(b) A shareholder entitled to dissent and obtain payment for the shareholder’s shares under this chapter may not challenge the corporate action creating the shareholder’s entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation.
(c) Notwithstanding subsection (a), no shareholder may dissent as to any shares of a security which, as of the date of the effectuation of the transaction which would otherwise give rise to dissenters’ rights, is listed on an exchange registered under § 6 of the Securities Exchange Act of 1934, compiled in 15 U.S.C. § 78f, as amended, or is a “national market system security,” as defined in rules promulgated pursuant to the Securities Exchange Act of 1934, compiled in 15 U.S.C. § 78a, as amended.
§ 48-23-103. Dissent by nominees and beneficial owners.
(a) A record shareholder may assert dissenters’ rights as to fewer than all the shares registered in the record shareholder’s name only if the record shareholder dissents with respect to all shares beneficially owned by any one (1) person and notifies the corporation in writing of the name and address of each person on whose behalf the record shareholder asserts dissenters’ rights. The rights of a partial dissenter under this subsection (a) are determined as if the shares as to which the partial dissenter dissentsunenforceable, and the partial dissenter’s other shares were registeredremaining provisions and any partially enforceable provisions shall remain in the names of different shareholders.full force and effect.
(b) A beneficial shareholder may assert dissenters’ rights as to shares of any one (1) or more classes held on the beneficial shareholder’s behalf only if the beneficial shareholder:
(1) Submits to the corporation the record shareholder’s written consent to the dissent not later than the time the beneficial shareholder asserts dissenters’ rights; and
(2) Does so with respect to all shares of the same class of which the person is the beneficial shareholder or over which the person has power to direct the vote.
PART 2
PROCEDURE FOR EXERCISE OF DISSENTERS’ RIGHTS
§ 48-23-201. Notice of dissenters’ rights.
(a) Where any corporate action specified in § 48-23-102(a) is to be submitted to a vote at a shareholders’ meeting, the meeting notice (including any meeting notice required under chapters 11-27 to be provided to
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nonvoting shareholders) must state that the corporation has concluded that the shareholders are, are not, orSection 2.Term;Termination. This Agreement may be entitled to assert dissenters’ rights under this chapter. Ifterminated at any time by the corporation concludes that dissenters’ rights are or may be available, a copy of this chapter must accompany the meeting notice sent to those record shareholders entitled to exercise dissenters’ rights.
(b) In a merger pursuant to § 48-21-105, the parent corporation must notify in writing all record shareholders of the subsidiary who are entitled to assert dissenters rights that the corporate action became effective. Such notice must be sent within ten (10) days after the corporate action became effective and include the materials described in § 48-23-203.
(c) Where any corporate action specified in § 48-23-102(a) is to be approved by written consent of the shareholders pursuant to § 48-17-104(a)parties hereto, and this Agreement shall be automatically terminated upon the earlier of (i) termination of the Merger Agreement; or § 48-17-104(b):
(1) Written notice that dissenters’ rights are, are not,(ii) two years following the Effective Time. For the avoidance of doubt, the provisions of Section 1 shall only become operative upon the consummation of the Merger but, in such event, shall survive the consummation of the Merger until the earlier of (i) two years after the Effective Time or may be available must be sent to each record shareholder from whom(ii) a consent is solicited at the time consent of such shareholder is first solicited and, if the corporation has concluded that dissenters’ rights are or may be available, must be accompanied by a copyChange in Control. Upon termination of this chapter; and
(2) Written noticeAgreement, no party shall have any further obligations or liabilities hereunder, except that dissenters’ rights are, are not, or may be available must be delivered together with the notice to nonconsenting and nonvoting shareholders required by § 48-17-104(e) and (f), may include the materials described in § 48-23-203 and, if the corporation has concluded that dissenters’ rights are or may be available, must be accompanied by a copytermination of this chapter.
(d) A corporation’s failure to give notice pursuant to this sectionAgreement will not invalidate the corporate action.
§ 48-23-202. Notice of intent to demand payment.
(a) Ifrelieve a corporate action specified in § 48-23-102(a) is submitted to a vote at a shareholders’ meeting, a shareholder who wishes to assert dissenters’ rights with respect to sharesbreaching party from liability for which dissenters’ rights may be asserted under this chapter:
(1) Must deliver to the corporation, before the vote is taken, written notice of the shareholder’s intent to demand payment if the proposed action is effectuated; and
(2) Must not vote, or cause or permit to be voted, any such shares in favor of the proposed action.
(b) If a corporate action specified in § 48-23-102(a) is to be approved by less than unanimous written consent, a shareholder who wishes to assert dissenters’ rights with respect to shares for which dissenters’ rights may be asserted under this chapter must not sign a consent in favor of the proposed action with respect to such shares.
(c) A shareholder who fails to satisfy the requirements of subsection (a) or subsection (b) is not entitled to payment under this chapter.
§ 48-23-203. Dissenters’ notice.
(a) If a corporate action requiring dissenters’ rights under § 48-23-102(a) becomes effective, the corporation must send a written dissenters’ notice and form required by subdivision (b)(1) to all shareholders who satisfy the requirements of § 48-23-202(a) or § 48-23-202(b). In the case of a merger under § 48-21-105, the parent must deliver a dissenters’ notice and form to all record shareholders who may be entitled to assert dissenters’ rights.
(b) The dissenters’ notice must be delivered no earlier than the date the corporate action specified in § 48-23-102(a) became effective, and no later than (10) days after such date, and must:
(1) Supply a form that:
(A) Specifies the first datebreach of any announcement to shareholders madeprovision of this Agreement occurring prior to the date the corporate action became effectivetermination of the principal terms of the proposed corporate action;this Agreement.
(B) If such announcement was made, requires the shareholder asserting dissenters’ rightsSection 3.Notices. All notices, requests, and other communications hereunder to certify whether beneficial ownership of those shares for which dissenters’ rights are asserted was acquired before that date; and
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(C) Requires the shareholder asserting dissenters’ rights to certify that such shareholder did not vote for or consent to the transaction;
(2) State:
(A) Where the form musta party shall be sent and where certificates for certificated shares must be deposited and the date by which those certificates must be deposited, which date may not be earlier than the date for receiving the required form under subdivision (b)(2)(B);
(B) A date by which the corporation must receive the form, which date may not be fewer than forty (40) nor more than sixty (60) days after the date the subsection (a) dissenters’ notice is sent, and state that the shareholder shall have waived the right to demand payment with respect to the shares unless the form is received by the corporation by such specified date;
(C) The corporation’s estimate of the fair value of shares;
(D) That, if requested in writing the corporation will provide, to the shareholder so requesting, within ten (10) days after the date specified in subdivision (b)(2)(B) the number of shareholders who return the forms by the specified date and the total number of shares owned by them; and
(E) The date by which the notice to withdraw under § 48-23-204 must be received, which date must be within twenty (20) days after the date specified in subdivision (b)(2)(B); and
(3) Be accompanied by a copy of this chapter if the corporation has not previously sent a copy of this chapter to the shareholder pursuant to § 48-23-201.
§ 48-23-204. Duty to demand payment.
(a) A shareholder sent a dissenters’ notice described in § 48-23-203 must demand payment, certify whether the shareholder acquired beneficial ownership of the shares before the date required to be set forth in the dissenters’ notice pursuant to § 48-23-203(b)(2), and deposit the shareholder’s certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits the shareholder’s share certificates under subsection (a) retains all other rights of a shareholder until these rights are cancelled or modified by the effectuation of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit the shareholder’s share certificates where required, each by the date set in the dissenters’ notice, is not entitled to payment for the shareholder’s shares under this chapter.
(d) A demand for payment filed by a shareholder may not be withdrawn unless the corporation with which it was filed, or the surviving corporation, consents thereto.
§ 48-23-205. Share restrictions.
(a) The corporation may restrict the transfer of uncertificated shares from the date the demand for (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is effectuated or the restrictions released under § 48-23-207.
(b) The person for whom dissenters’ rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are cancelled or modified by the effectuation of the proposed corporate action.
§ 48-23-206. Payment.
(a) Except as provided in § 48-23-208, as soon as the proposed corporate action is effectuated, or upon receipt of a payment demand, whichever is later, the corporation shall pay each dissenter who complied with § 48-23-204 the amount the corporation estimates to be the fair value of each dissenter’s shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation’s balance sheet as of the end of a fiscal year ending not more than sixteen (16) months before the date of payment, an income statement for that year, a statement of changes in shareholders’ equity for that year, and the latest available interim financial statements, if any;
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(2) A statement of the corporation’s estimate of the fair value of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter’s right to demand payment under § 48-23-209; and
(5) A copy of this chapter if the corporation has not previously sent a copy of this chapter to the shareholder pursuant to § 48-23-201 or § 48-23-203.
§ 48-23-207. Failure to take action.
(a) If the corporation does not effectuate the proposed action that gave rise to the dissenters’ rights within two (2) months after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer restrictions, the corporation effectuates the proposed action, it must send a new dissenters’ notice under § 48-23-203 and repeat the payment demand procedure.
§ 48-23-208. After-acquired shares.
(a) A corporation may elect to withhold payment required by § 48-23-206 from a dissenter unless the dissenter was the beneficial owner of the shares before the date set forth in the dissenters’ notice as the date of the first announcement to news media or to shareholders of the principal terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under subsection (a), after effectuating the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of the dissenter’s demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter’s right to demand payment under § 48-23-209.
§ 48-23-209. Procedurebe deemed properly given if shareholder dissatisfied with payment or offer.
delivered (a) A dissenter may notify the corporation in writing of the dissenter’s own estimate of the fair value of the dissenter’s shares and amount of interest due, and demand payment of the dissenter’s estimate (less any payment under § 48-23-206), or reject the corporation’s offer under § 48-23-208 and demand payment of the fair value of the dissenter’s shares and interest due, if: (1) The dissenter believes that the amount paid under § 48-23-206 or offered under § 48-23-208 is less than the fair value of the dissenter’s shares or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under § 48-23-206 within two (2) months after the date set for demanding payment; or
(3) The corporation, having failed to effectuate the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within two (2) months after the date set for demanding payment.
personally, (b) A dissenter waives the dissenter’s right to demand payment under this section unless the dissenter notifies the corporation of the dissenter’s demand in writing under subsection (a) within one (1) month after the corporation made or offered payment for the dissenter’s shares. PART 3
JUDICIAL APPRAISAL OF SHARES
§ 48-23-301. Court action.
(a) If a demand for payment under § 48-23-209 remains unsettled, the corporation shall commence a proceeding within two (2) months after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the two-month period, it shall pay each dissenter whose demand remains unsettled the amount demanded.
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(b) The corporation shall commence the proceeding in a court of record having equity jurisdiction in the county where the corporation’s principal office (or, if none in this state, its registered office) is located. If the corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of this state) whose demands remain unsettled, parties to the proceeding as in an action against their shares and all parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail (return receipt requested), with adequate postage prepaid thereon, (c) by properly addressed electronic mail delivery (with confirmation of delivery receipt), or (d) by reputable courier service to such party at its address set forth below, or at such other address or addresses as such party may specify from time to time by notice in like manner to the parties hereto. All notices shall be deemed effective upon delivery.
| If to SMBK: | SmartFinancial, Inc. | | 5401 Kingston Pike | | Knoxville, Tennessee, 37319 | | Attn: William Y. Carroll, Jr. | | E-mail: Billy.Carroll@smartbank.com | | | | If to Director: | The address of Director’s principal residence as it appears in PFG’s records as of the date hereof, as subsequently modified by Director’s provision of notice regarding the same to SMBK. |
Section 4.Governing Law; Jurisdiction. This Agreement shall be governed by, and interpreted and enforced in accordance with, the internal, substantive laws of the State of Tennessee, without regard for conflict of law provisions. Any civil action, counterclaim, proceeding, or litigation arising out of or relating to this Agreement shall be brought exclusively in any federal or state court of competent jurisdiction located in the State of Tennessee. Each party consents to the jurisdiction of such Tennessee courts in any such civil action, counterclaim, proceeding, or litigation and waives any objection to the laying of venue of any such civil action, counterclaim, proceeding, or litigation in such Tennessee courts. Service of any court paper may be effected on a party hereto by mail, as provided in this letter, or in such other manner as may be provided under applicable Laws. Section 5.Modification and Waiver. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in a writing signed by Director and SMBK. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of dissimilar provisions or conditions at the same or any prior or subsequent time. Section 6.Severability. In the event that any one or more provisions of this Agreement shall for any reason be held invalid, illegal, or unenforceable in any respect, by any court of competent jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement and the parties shall use their commercially reasonable efforts to substitute a valid, legal, and enforceable provision which, insofar as practical, implements the purposes and intents of this Agreement. Section 7.Counterparts. This Agreement may be executed and delivered by facsimile or by publication as providedelectronic data file and in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by law. (d) The jurisdictioneach of the courtparties and delivered to the other party, it being understood that all parties need not sign the same counterpart. Signatures delivered by facsimile or by electronic data file shall have the same effect as originals.
Section 8.Entire Agreement. This Agreement represents the entire understanding of the parties hereto with reference to the transactions contemplated hereby, and this Agreement supersedes any and all other oral or written agreements heretofore made. Section 9.Construction; Interpretation. Whenever the singular number is used in this Agreement and when required by the context, the same shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa. Whenever the words “include,” “includes,” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” The headings in this Agreement are for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any of its provisions. [Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first written above. | SMARTFINANCIAL, INC. | | | | By: | | | Name: | William Y. Carroll, Jr. | | Title: | President and Chief Executive Officer |
Signature Page – Non-Competition and Non-Disclosure Agreement Schedule I For avoidance of doubt, the parties acknowledge and agree that the restrictions set forth in Sections 1(b)(ii) and (iii) shall not apply to any of the following activities of Director: | 1. | The provision of legal services by Director to any Person. |
| 2. | The offer and sale of insurance products by Director to any Person. |
| 3. | The provision of investment advisory and brokerage services by Director to any Person. |
| 4. | The provision of private equity/venture capital financing by Director to any Person. |
| 5. | The provision of accounting services by Director to any Person. |
| 6. | The provision of automobile financing in connection with the operation of automobile dealerships. |
| 7. | The ownership of 5% or less of any class of securities of any Person. |
| 8. | Obtaining banking-related services or products for entities owned, controlled or managed by Director. |
Non-Competition and Non-Disclosure Agreement – Schedule I EXHIBIT D CLAIMS LETTER October 29, 2019 SmartFinancial, Inc. 5401 Kingston Pike Knoxville, Tennessee, 37319 Ladies and Gentlemen: This letter is delivered pursuant to the Agreement and Plan of Merger, dated as of October 29, 2019 (the “Merger Agreement”), by and between SmartFinancial, Inc., a Tennessee corporation (“SMBK”), and Progressive Financial Group Inc., a Tennessee corporation (“PFG”). Concerning any claims which the proceeding is commenced under subsection (b) is plenaryundersigned may have against PFG or any of its Subsidiaries, including Progressive Savings Bank, a Tennessee state-chartered bank (each, a “PFG Entity”), in his or her capacity as an officer, director, or employee of any PFG Entity, and exclusive. The court may appoint one (1) or more personsin consideration of the promises and the mutual covenants contained herein and in the Merger Agreement and the mutual benefits to be derived hereunder and thereunder, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the undersigned, intending to be legally bound, hereby agrees as appraisers to receive evidence and recommend decision on the question of fair value. The appraisersfollows: Section 1.Definitions. Unless otherwise defined in this letter, capitalized terms used in this letter have the powers describedmeanings given to them in the order appointingMerger Agreement. Section 2.Release of Certain Claims. (a) The undersigned hereby releases and forever discharges, effective upon the consummation of the Merger pursuant to the Merger Agreement, each PFG Entity, and each of their respective directors and officers (in their capacities as such), and their respective successors and assigns, and each of them (hereinafter, individually and collectively, the “Released Parties”) of and from any and all liabilities, claims, demands, debts, accounts, covenants, agreements, obligations, costs, expenses, actions or causes of action of every nature, character, or description (collectively, “Claims”), which the undersigned, solely in his or her capacity as an officer, director, or employee of any PFG Entity has or claims to have, or previously had or claimed to have, in each case as of the Effective Time, against any of the Released Parties, whether or not in law, equity or otherwise, based in whole or in part on any facts, conduct, activities, transactions, events, or occurrences known or unknown, matured or unmatured, contingent or otherwise (individually a “Released Claim,” and collectively, the “Released Claims”), except for (i) compensation for services that have accrued but have not yet been paid in the ordinary course of business consistent with past practice or other contract rights relating to severance, employment, stock options, and restricted stock grants which have been disclosed in writing to SMBK on or prior to the date of the Merger Agreement, and (ii) the items listed inSection 2(b) below.
(b) For avoidance of doubt, the parties acknowledge and agree that the Released Claims do not include any of the following: (i) any Claims that the undersigned may have in any capacity other than as an officer, director, or employee of any PFG Entity, including, but not limited to, (A) Claims as a borrower under loan commitments and agreements between the undersigned Progressive Savings Bank, (B) Claims as a depositor under any deposit account with Progressive Savings Bank, (C) Claims as the holder of any Certificate of Deposit issued by Progressive Savings Bank, (D) Claims on account of any services rendered by the undersigned in a capacity other than as an officer, director, or employee of any PFG Entity; (E) Claims in his or her capacity as a shareholder of PFG, (F) Claims as a holder of any check issued by any other depositor of Progressive Savings Bank, or (G) Claims for which the undersigned would be entitled to make an insurance claim under applicable insurance policies maintained by a PFG Entity; (ii) the Claims excluded inSection 2(a)(i) above; (iii) any Claims that the undersigned may have under the Merger Agreement; (iv) any right to indemnification that the undersigned may have under the articles of incorporation or bylaws of any PFG Entity, under Tennessee law or the Merger Agreement; (v) any Claims that are (A) based upon facts and circumstances arising after the date hereof and prior to the Closing Date, and (B) have been asserted in writing to PFG and SMBK prior to the Closing Date; or (vi) any rights or Claims listed onSchedule I to this Agreement. Section 3.Forbearance. The undersigned shall forever refrain and forebear from commencing, instituting, or prosecuting any lawsuit, action, claim, or proceeding before or in any amendmentcourt, regulatory, governmental, arbitral, or other authority to it.collect or enforce any Released Claims which are released and discharged hereby. Section 4.Miscellaneous. (a) This letter shall be governed by, and interpreted and enforced in accordance with, the internal, substantive laws of the State of Tennessee, without regard for conflict of law provisions. (b) This letter contains the entire agreement between the parties with respect to the Released Claims released hereby, and the release of Claims contained in this letter supersedes all prior agreements, arrangements, or understandings (written or otherwise) with respect to such Released Claims and no representation or warranty, oral or written, express or implied, has been made by or relied upon by any party hereto, except as expressly contained herein or in the Merger Agreement.
(c) This letter shall be binding upon and inure to the benefit of the undersigned and the Released Parties and their respective heirs, legal representatives, successors, and assigns. (d) This letter may not be modified, amended, or rescinded except by the written agreement of the undersigned and the Released Parties, it being the express understanding of the undersigned and the Released Parties that no term hereof may be waived by the action, inaction, or course of delaying by or between the undersigned or the Released Parties, except in strict accordance with this paragraph, and further that the waiver of any breach of the terms of this letter shall not constitute or be construed as the waiver of any other breach of the terms hereof. (e) The dissenters areundersigned represents, warrants, and covenants that the undersigned is fully aware of the undersigned’s rights to discuss any and all aspects of this matter with any attorney chosen by him or her, and that the undersigned has carefully read and fully understands all the provisions of this letter, and that the undersigned is voluntarily entering into this letter. (f) This letter shall become effective upon the consummation of the Merger, and its operation to extinguish all of the Released Claims released hereby is not dependent on or affected by the performance or non-performance of any future act by the undersigned or the Released Parties. If the Merger Agreement is terminated for any reason, this letter shall be of no force or effect. (g) If any civil action, arbitration, or other legal proceeding is brought for the enforcement of this letter, or because of an alleged dispute, breach, default, or misrepresentation in connection with any provision of this letter, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys’ fees, court costs, sales and use taxes, and all expenses even if not taxable as court costs (including, without limitation, all such fees, taxes, costs, and expenses incident to arbitration, appellate, bankruptcy, and post-judgment proceedings), incurred in that proceeding, in addition to any other relief to which such party or parties may be entitled. Attorneys’ fees shall include, without limitation, paralegal fees, investigative fees, administrative costs, sales and use taxes, and all other charges billed by the same discovery rights as parties in other civil proceedings. (e) Each dissenter made a partyattorney to the proceeding is entitled to judgment:
(1) For the amount, ifprevailing party (including any by which the court finds the fair value of the dissenter’s shares, plus accrued interest, exceeds the amount paid by the corporation; or
(2) For the fair value, plus accrued interest, of the dissenter’s after-acquired shares for which the corporation elected to withhold payment under § 48-23-208.
§ 48-23-302. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under § 48-23-301 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under § 48-23-209.
(b) The court may also assess the fees and expenses of counselcosts associated with collecting such amounts).
(h) Each party acknowledges and experts for the respective parties,agrees that any controversy which may arise under this letter is likely to involve complicated and difficult issues, and therefore each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in amounts the court finds equitable against: (1) The corporation and in favorrespect of any litigation directly or all dissenters ifindirectly arising out of or relating to this letter, or the court finds the corporation did not substantially comply with the requirements of part 2 oftransactions contemplated by this chapter;letter. Each party certifies and acknowledges that (i) no representative, agent, or
(2) Either the corporation or a dissenter, in favor attorney of any other party if the court findshas represented, expressly or otherwise, that thesuch other party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, orwould not, in good faith with respectthe event of litigation, seek to enforce the foregoing waiver, (ii) each party understands and has considered the implications of this waiver, (iii) each party makes this waiver voluntarily, and (iv) each party has been induced to enter into this letter by, among other things, the mutual waivers and certifications in this Section.
(i) Any civil action, counterclaim, proceeding, or litigation arising out of or relating to this letter shall be brought exclusively in any federal or state court of competent jurisdiction located in the State of Tennessee. Each party consents to the rights provided by this chapter. (c) If thejurisdiction of such Tennessee court finds that the services of counsel forin any dissenter were of substantial benefit to other dissenters similarly situated,such civil action, counterclaim, proceeding, or litigation and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awardedwaives any objection to the dissenters who were benefited.laying of venue of any such civil action, counterclaim, proceeding, or litigation in such Tennessee court. Service of any court paper may be effected on such party by mail, as provided in this letter, or in such other manner as may be provided under applicable laws, rules of procedure, or local rules.
[Signature Pages Follow]
| Sincerely, | | | | | | Signature of Director | | | | | | Name of Director |
Signature Page – Claims Letter TABLE OF CONTENTS
On behalf of SmartFinancial, Inc., I hereby acknowledge receipt of this letter as of this 29th day of October, 2019. | SMARTFINANCIAL, INC. | | | | | | By: | | | Name: | William Y. Carroll, Jr. | | Title: | President and Chief Executive Officer |
Appendix CSignature Page – Claims Letter
Opinion of Olsen Palmer LLC
Schedule I Additional Excluded Claims Claims Letter – Schedule I TABLE OF CONTENTS
Annex B
December 12, 2017
October 29, 2019 Board of Directors
Tennessee Bancshares, Progressive Financial Group Inc.
1400 500 North JacksonMain Street
Tullahoma, Jamestown, TN 3738838556 Members of the Board: You have requested our opinion as to the fairness, from a financial point of view, to the shareholders of Tennessee Bancshares,Progressive Financial Group Inc. (“Bancshares”PFG” or the “Company”) of the Merger Consideration (as defined below) to be received by the shareholders of Bancsharesthe Company in the proposed merger (the “Merger”) with SmartFinancial, Inc. (“SMBK”) whereby pursuant to the Agreement and Plan of Tennessee Bancshares, Inc.Merger to be dated October 29, 2019 (“the Agreement”), PFG will, on the terms and subject to conditions set forth in this Agreement, merge with and into SmartFinancial, Inc. (“SmartFinancial”), pursuantSMBK. Capitalized terms used herein without definition have the meanings assigned to a Merger Agreement to be dated December 12, 2017 (the “Agreement”).them in the Agreement. We understand that, subject to the other provisions of Article III of the Agreement, solely by virtue and as a result of the Parent Merger (as defined in the Agreement), each share of Bancshares CommonPFG Stock (as defined in the Agreement)(excluding Dissenting Shares and PFG Cancelled Shares) issued and outstanding immediately prior to the Effective Time (other than Excluded Sharesshall cease to be outstanding and Dissenting Shares) (as defined in the Agreement) shall at the Effective Time, automatically and without any action on the part of the holder(s) thereof, be converted into and canceled in exchange for 0.8065 (the “Exchange Ratio”) shares of SmartFinancial Common Stock (as defined in the Agreement). The SmartFinancial Common Stock issuable by SmartFinancial to holders of Bancshares Common Stock as consideration for the Parent Merger in accordance with the Agreement, together with any cash payable by SmartFinancial to holders of Bancshares Common Stock in lieu of fractional shares pursuant to Section 3.6 of the Agreement, is referred to herein as the “Stock Consideration”. Additionally, Bancshares shall be entitled to pay immediately prior to the Effective Time a one-time, special cash dividend on the Bancshares Common Stock (the “Bancshares Special Dividend”), in an amount up to $0.70 per share of Bancshares Common Stock,converted, in accordance with the terms of this Article II, into and subjectexchanged for the right to receive (i) an amount of cash equal to the conditions set forth in Section 7.8Per Share Cash Consideration and (ii) a number of shares of SMBK Common Stock equal to the Agreement. InPer Share Stock Consideration (together the event, but only in the event, that the Bank Loans (as defined in the Agreement) set forth on Schedule 7.8 of the Bancshares Disclosure Memorandum (the “Special Dividend Loans”“Merger Consideration”) (as defined in the Agreement) are (a) sold in their entirety for cash by the Bank (as defined in the Agreement) prior to Closing (as defined in the Agreement) to a Person (as defined in the Agreement) other than an Affiliate of Bancshares (as defined in the Agreement) or the Bank for, where:
“Aggregate Cash Consideration” means an amount equal to or$14,595,354.37, minus the amount of (i) the AAA Dividend, and (ii) the loss, if in excess of 95%$250,000, realized by PFG or its applicable Subsidiary on any Pre-Closing Divestiture. “Aggregate Stock Consideration” means 1,292,592.556 shares of SMBK Common Stock. “Outstanding Shares Number” means the number of shares of PFG Common Stock issued and outstanding as of the then-current unpaid principal balance of the Special Dividend Loans (as defined in the Agreement) or (b) paid in full in cash prior to Closing by the borrower(s) on such Special Dividend Loans (including as a result of a refinancing of the Special Dividend Loans by an unaffiliated third party) and the payment received by the Bank is equal to or in excess of 95% of the then-current unpaid principal balance of the Special Dividend Loans, then Bancshares shall be entitled to pay a Bancshares Special Dividend of $0.70 per share of Bancshares Common Stock. In the event that prior to Closing the Bank sells participation interest(s) in one or more of the Special Dividend Loans to a Person other than an Affiliate of Bancshares or the Bank, Bancshares shall be entitled to pay a per share Bancshares Special Dividend inEffective Time. “Per Share Cash Consideration” means an amount of cash equal to the product of (x) $0.70 multiplied by (y) the quotient obtained by dividing (i)(A) the aggregate amountAggregate Cash Consideration by (B) the Outstanding Shares Number. “Per Share Stock Consideration” means a number of cash receivedshares of SMBK Common Stock obtained by dividing (A) the Bank for the sale(s) of such participation interest(s) plus the aggregate amount of principal payments received by the Bank on the Special Dividend Loans after the date of the Agreement and prior to the date which is 15 calendar days prior to the Closing Date by (ii) the unpaid principal balance of the Special Dividend Loans as of the date of the Agreement (as set forth on Schedule 7.8 of the Bancshares Disclosure Memorandum); provided that (1) any such sale of a participation interest in a Special Dividend Loan must be at a price of not less than 95% of the then-current unpaid principal balance of the subject participation interest, (2) the terms of any such sale of a participation interest in a Special Dividend Loan (including any Contract pursuant to which the sale will be effected) shall be subject to the prior approval of SmartFinancial (such approval to not be unreasonably withheld), and (3) in no event shall the Bancshares Special Dividend exceed, and the Bancshares Special Dividend shall be capped at, $0.70 per share of Bancshares Common Stock. The combination of theAggregate Stock Consideration andby (B) the Bancshares Special Dividend is referred to herein as the “Merger Consideration”.Outstanding Shares Number. TABLE OF CONTENTS
Board of Directors
Tennessee Bancshares, Inc.
December 12, 2017
Page 2
Olsen Palmer LLC is an investment banking firm that has acted as financial advisor to Bancsharesthe Company in connection with the Merger. Olsen Palmer LLC, as part of its investment banking services, is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions. We will receive a fee for our services pursuant to the terms of our engagement with Bancshares,the Company, a substantial portion of which is contingent upon consummation of the Merger. BancsharesWe will also receive a fee upon execution of the Agreement and a fee for rendering this opinion. The Company has also agreed to indemnify us against certain liabilities arising out of our engagement. 2020 K Street, NW│ Suite 450│ Washington, D.C. 20006 202.808.3306│ www.olsenpalmer.com Board of Directors Progressive Financial Group Inc. October 29, 2019 Page 2 Olsen Palmer LLC has not provided investment banking and financial advisory services to Bancsharesthe Company or SmartFinancialSMBK during the two-year period prior to the date hereof, except with respect to the Merger. Olsen Palmer LLC may provide investment banking, financial advisory and other financial services to Bancsharesthe Company and/or SmartFinancialSMBK in the future, for which Olsen Palmer LLC may receive compensation. In connection with this opinion, we have made such reviews, analyses and inquiries as we have deemed necessary and appropriate under the circumstances. Among other things, we have reviewed: | (i) | Aa draft version dated December 12, 2017October 25, 2019 of the Agreement; |
| (ii) | certain financial statements and other historical financial information of Bancsharesthe Company and SMBK that we deemed relevant; |
| (iii) | publicly available median analyst earnings estimates for SMBK for the years ending December 31, 2019, December 31, 2020 and December 31, 2021; |
| (iv) | internal financial projections for Bancsharesthe Company for the year ending December 31, 2017 through2019 and estimated long-term annual earnings and balance sheet growth rates for the years ending December 31, 2020, December 31, 2021, (the “Projections”)December 31, 2022, December 31, 2023, December 31, 2024, and December 31, 2025 as provided by senior management of Bancshares;the Company; |
| (iv)(v) | a comparison of certain financial information for Bancsharesthe Company with similar institutions for which publicly available information is available; |
| (v)(vi) | the financial terms of certain recent business combinations in the commercial banking industry, to the extent publicly available; |
| (vi) | certain financial statements and other historical financial information of SmartFinancial that we deemed relevant; |
| (vii) | publicly available consensus mean analyst earnings per share estimates for SmartFinancial foran estimated range of the years ending December 31, 2017, December 31, 2018intrinsic value of the Company based on assumptions relating to transaction expenses, purchase accounting adjustments, cost savings, and December 31, 2019;future profitability; |
| (viii) | the publiclycurrent and historical reported historical priceprices and trading activity for SmartFinancial common stock, including a comparison of certain stock market information for SmartFinancial common stock and certain stock indices as well as publicly available information for certain other similar companies, the securities of which are publicly traded;SMBK Common Stock; |
| (ix) | the proforma financial impact of the Merger on SMBK based on certain assumptions relating to purchase accounting adjustments, cost savings, transaction expenses and the anticipated regulatory impact of the Merger on SBMK; |
| (x) | the current market environment generally and the banking industry in particular; and |
Board of Directors Progressive Financial Group Inc. October 29, 2019 Page 3 | (x)(xi) | such other information, financial studies, analyses and investigations as well asand financial, economic and market criteria thatas we considered relevant. |
We also discussed with certain members of senior management of Bancsharesthe Company and its representatives the business, financial condition, results of operations and prospects of Bancshares.the Company and held similar discussions with certain members of the senior management of SMBK regarding the business, financial condition, results of operations and prospects of SMBK. In performing our review, and for purposes of rendering our opinion, we have relied upon the accuracy and completeness of all of the financial and other information that was available to us from public sources, that was provided to us by Bancsharesthe Company or SMBK or their representatives or that was otherwise reviewed by us and have assumed, without independent verification, such accuracy and completeness of all such information. We have further relied on the assurances of the management of Bancsharesthe Company that they are not aware of any facts or circumstances that would make any of such information inaccurate or misleading. We have not been asked to and have not undertaken an independent verification of any of such information and we do not assume any responsibility or liability for the accuracy or completeness thereof. We did not make an independent evaluation or appraisal of any assets, the collateral securing any assets or the liabilities (contingent or otherwise) of Bancsharesthe Company or any of its subsidiaries and no such evaluation or appraisal was provided to us. We render no opinion or evaluation on the TABLE OF CONTENTS
Board of Directors
Tennessee Bancshares, Inc.
December 12, 2017
Page 3
collectability of any assets or the future performance of any loans of Bancshares.the Company. We did not make an independent evaluation of the adequacy of the allowance for loan losses of Bancshares,the Company, or the combined entity after the Merger and we have not reviewed any individual credit files relating to Bancshares.SMBK or the Company. We have assumed, with your consent, that the allowance for loan losses for Bancsharesboth SMBK and the Company is adequate to cover such losses. We are not experts in the evaluation of allowances for loan and lease losses and have not independently verified such allowances or reviewed or examined any individual loan or credit files. We assumed, with your consent, that the aggregaterespective allowances for loan and lease losses set forth in the financial statements of BancsharesSMBK and the Company are adequate to cover such losses and comply fully with applicable law, regulatory policy and sound banking practices as of the date of such financial statements. We have assumed in all respects material to our analysis that all of the representations and warranties contained in the Agreement and all related agreements are true and correct, that each party to the Agreement and all related agreements will perform, in all material respects, all of the covenants required to be performed by such party thereunder, that the conditions precedent in the Agreement are not waived and that the Merger is lawful. We have also assumed that in the course of obtaining any necessary regulatory approvals for the consummation of the Merger, no conditions will be imposed that will have a material adverse effect on the combined entity or contemplated benefits of the Merger. In addition, we have relied upon and assumed, without independent verification, that the final form of the Agreement will not differ in any respect from the draftversion of the Agreement identified above. Finally, with your consent, we have relied upon the advice Bancsharesthe Company has received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the Merger and the other transactions contemplated by the Agreement, and we have assumed that all such advice was correct. Board of Directors Progressive Financial Group Inc. October 29, 2019 Page 4 Our opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof. Events occurring after the date hereof could materially affect our opinion. We have not undertaken to update, revise, reaffirm or withdraw this opinion or otherwise comment upon events occurring after the date hereof. Our opinion is directed solely to the Board of Directors of Bancsharesthe Company (solely in its capacity as such) in connection with its consideration of the Merger and may not be relied upon by any other person or entity (including, without limitation, security holders, creditors or other constituencies of Bancshares)the Company) or used for any other purpose without our prior written consent. This Opinion does not constitute a recommendation to the Board of Directors of Bancsharesthe Company or to any shareholder of either Bancsharesthe Company or SmartFinancialSMBK as to how any such member of such board or any shareholder should vote at any meeting called to consider and vote upon the Merger. We express no opinion as to the fairness of the Merger Consideration to the creditors or other constituencies of Bancshares.the Company. Our opinion is directed only to the fairness, from a financial point of view, of the Merger Consideration to the shareholders of Bancsharesthe Company and does not address the underlying business decision of Bancsharesthe Company to engage in the Merger or the relative merits of the Merger as compared to any other alternative business strategies that might exist for Bancshares.the Company. We do not express any opinion as to the fairness of the amount or nature of the compensation to be received in the Merger by any officer, director, or employees, or class of such persons, relative to the compensation to be received in the Merger by any other shareholder. This opinion should not be construed as creating any fiduciary duty on the part of Olsen Palmer LLC to any party or person. This opinion shall not be disclosed, reproduced, disseminated, quoted, summarized or referred to at any time, in any manner or for any purpose, or used for any other purposes, nor shallexcept that this opinion may be reproduced in full in regulatory filings to be completed in connection with the Merger, including in any referencesproxy statement mailed to Olsen Palmer LLC be made,the shareholders of the Company related to any meeting at which the shareholders of the Company are asked to approve the Agreement and the Merger, without Olsen Palmer LLC’s prior written consent. This Opinion was not reviewed or issued by a fairness opinion committee. We have not been requested to opine as to, and this Opinion does not express an opinion as to or otherwise address, among other things: (i) the fairness of any portion or aspect of the Merger to any one class or group of Bancshares’the Company’s or any other party’s security holders or other constituents vis-à-vis any other class or group of Bancshares’the Company’s or such other party’s security holders or other constituents (including, without limitation, the allocation of any consideration amongst or within such classes or groups of security holders or other constituents), or (ii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the Merger, any class of such persons or any other party, relative to the Merger Consideration or otherwise. We express no opinion as to the actual value of SMBK Common Stock when issued in the Merger or the prices at which the Company Common Stock or SMBK Common Stock will trade following announcement of the Merger or at any future time. TABLE OF CONTENTS
Board of Directors
Tennessee Bancshares, Progressive Financial Group Inc.
December 12, 2017
October 29, 2019 Page 4
5 Based upon and subject to the foregoing, and in reliance thereon, it is our opinion that, as of the date hereof, the Merger Consideration to be received by the shareholders of Bancsharesthe Company for all of the shares of Bancshares common stockthe PFG Common Stock in the Merger pursuant to the Agreement is fair, from a financial point of view, to such holders. Very truly yours, /s/ Olsen Palmer LLC Olsen Palmer LLC Annex C ANNEX C DISSENTERS' RIGHTS Tennessee Business Corporation Act Chapter 23 DISSENTERS’ RIGHTS § 48-23-101. Chapter definitions. As used in this chapter, unless the context otherwise requires: (1) “Beneficial shareholder” means the person who is a beneficial owner of shares held by a nominee as the record shareholder; (2) “Corporation” means the issuer of the shares held by a dissenter before the corporate action, and, for purposes of §§ 48-23-203 — 48-23-302, includes the survivor of a merger or conversion or the acquiring entity in a share exchange of that issuer; (3) “Dissenter” means a shareholder who is entitled to dissent from corporate action under § 48-23-102 and who exercises that right when and in the manner required by part 2 of this chapter; (4) “Fair value,” with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action; (5) “Interest” means interest from the effective date of the corporate action that gave rise to the shareholder's right to dissent until the date of payment, at the average auction rate paid on United States treasury bills with a maturity of six (6) months (or the closest maturity thereto) as of the auction date for such treasury bills closest to such effective date; (6) “Record shareholder” means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation; and (7) “Shareholder” means the record shareholder or the beneficial shareholder. § 48-23-102. Right to dissent. (a) A shareholder is entitled to dissent from, and obtain payment of the fair value of the shareholder's shares in the event of, any of the following corporate actions: (1) Consummation of a plan of merger to which the corporation is a party: (A) If shareholder approval is required for the merger by § 48-21-104 or the charter and the shareholder is entitled to vote on the merger if the merger is submitted to a vote at a shareholders' meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the merger if the merger had been submitted to a vote at a shareholders' meeting; or (B) If the corporation is a subsidiary that is merged with its parent under § 48-21-105; (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan if the plan is submitted to a vote at a shareholders' meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the plan if the plan had been submitted to a vote at a shareholders' meeting; (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange if the sale or exchange is submitted to a vote at a shareholders' meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the sale or exchange if the sale or exchange had been submitted to a vote at a shareholders' meeting, including a sale of all, or substantially all, of the property of the corporation in dissolution, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one (1) year after the date of sale; (4) An amendment of the charter that materially and adversely affects rights in respect of a dissenter's shares because it: (A) Alters or abolishes a preferential right of the shares; (B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares; (C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities; (D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; or (E) Reduces the number of shares owned by the shareholder to a fraction of a share, if the fractional share is to be acquired for cash under § 48-16-104; (5) Any corporate action taken pursuant to a shareholder vote to the extent the charter, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares; (6) Consummation of a conversion of the corporation to another entity pursuant to chapter 21 of this title; or (7) In accordance with and to the extent provided in § 48-28-104(b), an amendment to the charter of a corporation as described in § 48-28-104(b)(1), or consummation of a merger or plan of share exchange as described in § 48-28-104(b)(2). (b) A shareholder entitled to dissent and obtain payment for the shareholder's shares under this chapter may not challenge the corporate action creating the shareholder's entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation. (c) Notwithstanding subsection (a), no shareholder may dissent as to any shares of a security which, as of the date of the effectuation of the transaction which would otherwise give rise to dissenters' rights, is listed on an exchange registered under § 6 of the Securities Exchange Act of 1934 (15 U.S.C. § 78f), as amended, or is a “national market system security,” as defined in rules promulgated pursuant to the Securities Exchange Act of 1934 (15 U.S.C. § 78a), as amended. § 48-23-103. Dissent by nominees and beneficial owners. (a) A record shareholder may assert dissenters' rights as to fewer than all the shares registered in the record shareholder's name only if the record shareholder dissents with respect to all shares beneficially owned by any one (1) person and notifies the corporation in writing of the name and address of each person on whose behalf the record shareholder asserts dissenters' rights. The rights of a partial dissenter under this subsection (a) are determined as if the shares as to which the partial dissenter dissents and the partial dissenter's other shares were registered in the names of different shareholders. (b) A beneficial shareholder may assert dissenters' rights as to shares of any one (1) or more classes held on the beneficial shareholder's behalf only if the beneficial shareholder: (1) Submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and (2) Does so with respect to all shares of the same class of which the person is the beneficial shareholder or over which the person has power to direct the vote. § 48-23-201. Notice of dissenters’ rights. (a) Where any corporate action specified in § 48-23-102(a) is to be submitted to a vote at a shareholders' meeting, the meeting notice (including any meeting notice required under chapters 11-27 to be provided to nonvoting shareholders) must state that the corporation has concluded that the shareholders are, are not, or may be entitled to assert dissenters' rights under this chapter. If the corporation concludes that dissenters' rights are or may be available, a copy of this chapter must accompany the meeting notice sent to those record shareholders entitled to exercise dissenters' rights. (b) In a merger pursuant to § 48-21-105, the parent corporation must notify in writing all record shareholders of the subsidiary who are entitled to assert dissenters rights that the corporate action became effective. Such notice must be sent within ten (10) days after the corporate action became effective and include the materials described in § 48-23-203. (c) Where any corporate action specified in § 48-23-102(a) is to be approved by written consent of the shareholders pursuant to § 48-17-104(a) or § 48-17-104(b): (1) Written notice that dissenters' rights are, are not, or may be available must be sent to each record shareholder from whom a consent is solicited at the time consent of such shareholder is first solicited and, if the corporation has concluded that dissenters' rights are or may be available, must be accompanied by a copy of this chapter; and (2) Written notice that dissenters' rights are, are not, or may be available must be delivered together with the notice to nonconsenting and nonvoting shareholders required by § 48-17-104(e) and (f), may include the materials described in § 48-23-203 and, if the corporation has concluded that dissenters' rights are or may be available, must be accompanied by a copy of this chapter. (d) A corporation's failure to give notice pursuant to this section will not invalidate the corporate action. § 48-23-202. Notice of intent to demand payment. (a) If a corporate action specified in § 48-23-102(a) is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights with respect to shares for which dissenters' rights may be asserted under this chapter: (1) Must deliver to the corporation, before the vote is taken, written notice of the shareholder's intent to demand payment if the proposed action is effectuated; and (2) Must not vote, or cause or permit to be voted, any such shares in favor of the proposed action. (b) If a corporate action specified in § 48-23-102(a) is to be approved by less than unanimous written consent, a shareholder who wishes to assert dissenters' rights with respect to shares for which dissenters' rights may be asserted under this chapter must not sign a consent in favor of the proposed action with respect to such shares. (c) A shareholder who fails to satisfy the requirements of subsection (a) or subsection (b) is not entitled to payment under this chapter. § 48-23-203. Dissenters’ notice. (a) If a corporate action requiring dissenters' rights under § 48-23-102(a) becomes effective, the corporation must send a written dissenters' notice and form required by subdivision (b)(1) to all shareholders who satisfy the requirements of § 48-23-202(a) or § 48-23-202(b). In the case of a merger under § 48-21-105, the parent must deliver a dissenters' notice and form to all record shareholders who may be entitled to assert dissenters' rights. (b) The dissenters' notice must be delivered no earlier than the date the corporate action specified in § 48-23-102(a) became effective, and no later than (10) days after such date, and must: (1) Supply a form that: (A) Specifies the first date of any announcement to shareholders made prior to the date the corporate action became effective of the principal terms of the proposed corporate action; (B) If such announcement was made, requires the shareholder asserting dissenters' rights to certify whether beneficial ownership of those shares for which dissenters' rights are asserted was acquired before that date; and (C) Requires the shareholder asserting dissenters' rights to certify that such shareholder did not vote for or consent to the transaction; (2) State: (A) Where the form must be sent and where certificates for certificated shares must be deposited and the date by which those certificates must be deposited, which date may not be earlier than the date for receiving the required form under subdivision (b)(2)(B); (B) A date by which the corporation must receive the form, which date may not be fewer than forty (40) nor more than sixty (60) days after the date the subsection (a) dissenters' notice is sent, and state that the shareholder shall have waived the right to demand payment with respect to the shares unless the form is received by the corporation by such specified date; (C) The corporation's estimate of the fair value of shares; and (D) That, if requested in writing, the corporation will provide, to the shareholder so requesting, within ten (10) days after the date specified in subdivision (b)(2)(B) the number of shareholders who return the forms by the specified date and the total number of shares owned by them; and (3) Be accompanied by a copy of this chapter if the corporation has not previously sent a copy of this chapter to the shareholder pursuant to § 48-23-201. § 48-23-204. Duty to demand payment. (a) A shareholder sent a dissenters' notice described in § 48-23-203 must demand payment, certify whether the shareholder acquired beneficial ownership of the shares before the date required to be set forth in the dissenters' notice pursuant to § 48-23-203(b)(2), and deposit the shareholder's certificates in accordance with the terms of the notice. (b) The shareholder who demands payment and deposits the shareholder's share certificates under subsection (a) retains all other rights of a shareholder until these rights are cancelled or modified by the effectuation of the proposed corporate action. (c) A shareholder who does not demand payment or deposit the shareholder's share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for the shareholder's shares under this chapter. (d) A demand for payment filed by a shareholder may not be withdrawn unless the corporation with which it was filed, or the surviving corporation, consents thereto. § 48-23-205. Share restrictions. (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is effectuated or the restrictions released under § 48-23-207. (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are cancelled or modified by the effectuation of the proposed corporate action. § 48-23-206. Payment. (a) Except as provided in § 48-23-208, as soon as the proposed corporate action is effectuated, or upon receipt of a payment demand, whichever is later, the corporation shall pay each dissenter who complied with § 48-23-204 the amount the corporation estimates to be the fair value of each dissenter's shares, plus accrued interest. (b) The payment must be accompanied by: (1) The corporation's balance sheet as of the end of a fiscal year ending not more than sixteen (16) months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any; (2) A statement of the corporation's estimate of the fair value of the shares, which estimate shall equal or exceed the corporation's estimate given pursuant to § 48-23-203(b)(2)(C); (3) An explanation of how the interest was calculated; (4) A statement of the dissenter's right to demand payment under § 48-23-209; and (5) A copy of this chapter if the corporation has not previously sent a copy of this chapter to the shareholder pursuant to § 48-23-201 or § 48-23-203. § 48-23-207. Failure to take action. (a) If the corporation does not effectuate the proposed action that gave rise to the dissenters' rights within two (2) months after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. (b) If, after returning deposited certificates and releasing transfer restrictions, the corporation effectuates the proposed action, it must send a new dissenters' notice under § 48-23-203 and repeat the payment demand procedure. § 48-23-208. After-acquired shares. (a) A corporation may elect to withhold payment required by § 48-23-206 from a dissenter unless the dissenter was the beneficial owner of the shares before the date set forth in the dissenters' notice as the date of the first announcement to news media or to shareholders of the principal terms of the proposed corporate action. (b) To the extent the corporation elects to withhold payment under subsection (a), after effectuating the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of the dissenter's demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter's right to demand payment under § 48-23-209. § 48-23-209. Procedure if shareholder dissatisfied with payment or offer. (a) A dissenter may notify the corporation in writing of the dissenter's own estimate of the fair value of the dissenter's shares and amount of interest due, and demand payment of the dissenter's estimate (less any payment under § 48-23-206), or reject the corporation's offer under § 48-23-208 and demand payment of the fair value of the dissenter's shares and interest due, if: (1) The dissenter believes that the amount paid under § 48-23-206 or offered under § 48-23-208 is less than the fair value of the dissenter's shares or that the interest due is incorrectly calculated; (2) The corporation fails to make payment under § 48-23-206 within two (2) months after the date set for demanding payment; or (3) The corporation, having failed to effectuate the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within two (2) months after the date set for demanding payment. (b) A dissenter waives the dissenter's right to demand payment under this section unless the dissenter notifies the corporation of the dissenter's demand in writing under subsection (a) within one (1) month after the corporation made or offered payment for the dissenter's shares. § 48-23-301. Court action. (a) If a demand for payment under § 48-23-209 remains unsettled, the corporation shall commence a proceeding within two (2) months after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the two-month period, it shall pay each dissenter whose demand remains unsettled the amount demanded. (b) The corporation shall commence the proceeding in a court of record having equity jurisdiction in the county where the corporation's principal office (or, if none in this state, its registered office) is located. If the corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located. (c) The corporation shall make all dissenters (whether or not residents of this state) whose demands remain unsettled, parties to the proceeding as in an action against their shares and all parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law. (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) is plenary and exclusive. The court may appoint one (1) or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings. (e) Each dissenter made a party to the proceeding is entitled to judgment: (1) For the amount, if any, by which the court finds the fair value of the dissenter's shares, plus accrued interest, exceeds the amount paid by the corporation; or (2) For the fair value, plus accrued interest, of the dissenter's after-acquired shares for which the corporation elected to withhold payment under § 48-23-208. § 48-23-302. Court costs and counsel fees. (a) The court in an appraisal proceeding commenced under § 48-23-301 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under § 48-23-209. (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable against: (1) The corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of part 2 of this chapter; or (2) Either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this chapter. (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded to the dissenters who were benefited. PART II
INFORMATION NOT REQUIRED IN PROSPECTUS | Item 20. | Indemnification of Directors and Officers. |
Item 20. Indemnification of Directors and Officers Tennessee Business Corporation Act
The Tennessee Business Corporation Act provides that a corporation may indemnify any of its directors and officers against liability incurred in connection with a proceeding if: (a) such person acted in good faith; (b) in the case of conduct in an official capacity with the corporation, the person reasonably believed such conduct was in the corporation’s best interests; (c) in all other cases, the person reasonably believed that the person’s conduct was at least not opposed to the best interests of the corporation; and (d) in connection with any criminal proceeding, such person had no reasonable cause to believe the person’s conduct was unlawful. In actions brought by or in the right of the corporation, however, the Tennessee Business Corporation Act provides that no indemnification may be made if the director or officer was adjudged to be liable to the corporation. The Tennessee Business Corporation Act also provides that in connection with any proceeding charging improper personal benefit to an officer or director, no indemnification may be made if such officer or director is adjudged liable on the basis that such personal benefit was improperly received. In cases where the director or officer is wholly successful, on the merits or otherwise, in the defense of any proceeding instigated because of his or her status as a director or officer of a corporation, the Tennessee Business Corporation Act mandates that the corporation indemnify the director or officer against reasonable expenses incurred in the proceeding. The Tennessee Business Corporation Act provides that a court of competent jurisdiction, unless the corporation’s charter provides otherwise, upon application, may order that an officer or director be indemnified for reasonable expenses if, in consideration of all relevant circumstances, the court determines that such individual is fairly and reasonably entitled to indemnification, notwithstanding the fact that (a) such officer or director was adjudged liable to the corporation in a proceeding by or in the right of the corporation; (b) such officer or director was adjudged liable on the basis that personal benefit was improperly received by the officer or director; or (c) such officer or director breached the officer’s or director’s duty of care to the corporation. SmartFinancial’s Second Amended and Restated Charter
SmartFinancial’s second amended and restated charter contains a provision stating that SmartFinancial shall indemnify and advance expenses to its directors and officers, and may indemnify and advance expenses to all other persons it has the power to indemnify and advance expenses to under the Tennessee Business Corporation Act, and may purchase and maintain insurance or furnish similar protection on behalf of its directors, officers, and employees, in each case to the fullest extent authorized by the Tennessee Business Corporation Act and applicable federal laws and regulations, including, but not limited to, applicable federal regulations regarding indemnification payments by a depository institution holding company, as the same may be amended from time to time. SmartFinancial’s Second Amended and Restated Bylaws
Under SmartFinancial’s second amended and restated bylaws, each person who was or is made a party to, or is threatened to be made a party to or is otherwise involved in, any proceeding, by reason of the fact that he or she is or was a director or officer of SmartFinancial or is or was serving at the request of SmartFinancial as a director, officer, or employee of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, provided that the basis of such proceeding is alleged action in an official capacity as a director, officer, or employee within the scope of such indemnitee’s duties and authority, shall be indemnified and held harmless by SmartFinancial to the fullest extent authorized by the Tennessee Business Corporation Act, as the same now exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits SmartFinancial to provide broader indemnification rights than such law permitted SmartFinancial prior to such amendment), and applicable federal laws and regulations (including without limitation applicable Federal Deposit Insurance Corporation regulations regarding indemnification payments by a depository institution holding company, as the same may be amended from time to time), against all expense, liability, and loss (including without limitation attorneys’ fees, judgments, fines, excise taxes, penalties, and amounts paid into settlement) reasonably incurred or suffered by such indemnitee in connection therewith, and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, or employee and shall inure to the benefit of the indemnitee’s heirs, executors, and administrators. TABLE OF CONTENTS
Notwithstanding the foregoing, SmartFinancial shall indemnify an indemnitee with respect to a proceeding initiated or instituted by the indemnitee only if such proceeding (or part thereof) was authorized by the board of directors. The right to indemnification conferred by SmartFinancial is a contract right and shall include the right to be paid by SmartFinancial the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that any such advancement of expenses for expenses incurred by an indemnitee in his or her capacity as a director, officer, or employee (and not in any other capacity in which service was or is rendered by such indemnitee, including without limitation service to any employee benefit plan) shall be made only upon delivery to SmartFinancial of an undertaking by and on behalf of such indemnitee to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that such indemnitee is not entitled to be indemnified for such expenses. Moreover, the foregoing right of indemnification shall not be exclusive of other rights to which such person, his heirs, executors, administrators, successors or assigns may be entitled under any law, bylaw, agreement, vote of shareholders or otherwise. SmartFinancial may maintain insurance, at its expense, to protect itself and any individual who is or was a director, officer, employee or agent of SmartFinancial, or who, while a director, officer, employee or agent of SmartFinancial, is or was serving at the request of the board of directors as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any expense, liability or loss whether or not SmartFinancial would have the power to indemnify such person against such expense, liability or loss under the indemnification section of SmartFinancial’s bylaws or the Tennessee Business Corporation Act. Regarding regulatory matters, notwithstanding anything contained in SmartFinancial’s bylaws to the contrary, SmartFinancial shall indemnify permitted indemnitees if all of the following conditions are met: (a) the board of directors determines in writing that the indemnitee acted in good faith and in the best interest of SmartFinancial; (b) the board of directors determines that the payment will not materially affect the safety and soundness of SmartFinancial; (c) the payment does not fall within a prohibited indemnification under state or federal law or regulation. (d) the indemnitee agrees in writing to reimburse SmartFinancial to the extent not covered by permissible insurance, for payments made in the event that an administrative action brought by a state or federal banking regulator results in a final order or settlement in which the indemnitee is assessed a civil money penalty, is removed or prohibited from banking or is required, under a final order, to cease any action or take any affirmative action. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of SmartFinancial pursuant to its bylaws, or otherwise, SmartFinancial has been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. TABLE OF CONTENTS
Item 21. Exhibits.Exhibits and Financial Statements A list of the exhibits included as part of this registration statement is set forth in the Exhibit Index that immediately precedes such exhibits and is incorporated herein by reference. Item 22. Undertakings The undersigned registrant hereby undertakes: | (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement (notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement); and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
| (2) | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of securities, in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; (ii) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; (iii) the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv) any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
| (5) | That, for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (6) | That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. |
| (7) | That every prospectus (i) that is filed pursuant to paragraph (7) above, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment has become effective, and that for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (8) | To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. |
| (9) | To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of, and included in, this registration statement when it became effective. |
| (10) | Insofar as indemnification by the registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that, in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
EXHIBIT INDEX Exhibit No. |
| Description | | | Agreement and Plan of Merger, dated as of December 12, 2017,October 29, 2019, by and amongbetween SmartFinancial, Inc., Tennessee Bancshares, and Progressive Financial Group Inc., and Southern Community Bank & Trust (attached as AppendixAnnex A to the proxy statement/prospectus contained in this Registration Statement)†registration statement). | | | | | 3.1 | | Second Amended and Restated Charter of SmartFinancial, Inc. (incorporated herein by reference to Exhibit 3.3 to SmartFinancial, Inc.’sSmartFinancial’s Current Report on Form 8-K as filed with the SEC on September 2, 2015). | | | | | 3.2 | | Second Amended and Restated Bylaws of SmartFinancial, Inc., effective as of March 17, 2016 (incorporated herein by reference to Exhibit 3.1 to SmartFinancial’s Current Report on Form 8-K filed on October 26, 2015). | | | | | 4.1 | | The right of securities holders are defined in the Charter and Bylaws provided in exhibits3.1 and3.2 | | | | | 4.2 | | Incorporated by reference to Exhibit 4.2 to Form 10-K filed March 30, 2016 | | | | | 5.1 | | Opinion of Alston & Bird LLP regarding the legality of the securities being registered. | | | | | 8.1 | | Opinion of Alston & Bird LLP regarding certain U.S. federal income tax matters. | | | | | 8.2 | | Opinion of Baker, Donelson, Bearman, Caldwell & Berkowitz, PC regarding certain U.S. federal income tax matters. | | | | | 21.1 | | Subsidiaries of SmartFinancial, Inc. (incorporated herein by reference to Exhibit 3.121 to SmartFinancial’s Annual Report on Form 10-K filed on March 18, 2019) | | | | | 23.1 | | Consent of Alston & Bird LLP (included in the opinions referred to in Exhibits5.1 and8.1 above). | | | | | 23.2 | | Consent of Baker, Donelson, Bearman, Caldwell & Berkowitz, PC (included in the opinion referred to in Exhibit 8.2 above). | | | | | 23.3 | | Consent of Dixon Hughes Goodman LLP (with respect to SmartFinancial, Inc.’s Current Report on Form 8-K, as filed with the SEC on October 26, 2015)). | | Opinion of Butler Snow LLP regarding the legality of the securities being registered*
| | 8.1
23.4 | Opinion of Butler Snow LLP regarding certain tax matters**
| | Subsidiaries of SmartFinancial, Inc.*
| | Consent of Mauldin & Jenkins LLC independent registered public accounting firm(with respect to SmartFinancial, Inc.* ). | | | | | 24 | | Power of Attorney.* | | | | | 99.1 | | Consent of Butler Snow LLP (included in Exhibit 5.1)Olsen Palmer LLC | 23.3
| Consent of Butler Snow LLP (included in Exhibit 8.1)
| | | Power of Attorney (included on the signature page to this registration statement)
| | Consent of Clifton N. Miller*
| 99.2
| |
* Previously Filed | †II-4 | Schedules and other similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrants hereby undertake to furnish supplemental copies of any of the omitted schedules and other similar attachments upon request by the Securities and Exchange Commission. |
| ** | To be filed by amendment. |
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement (notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement); and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
| (2) | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of securities, in a primary offering of securities of the undersigned registrant pursuant |
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to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; (ii) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; (iii) the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv) any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
| (5) | That, for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (6) | That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. |
| (7) | That every prospectus (i) that is filed pursuant to paragraph (7) above, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment has become effective, and that for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (8) | To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. |
| (9) | To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of, and included in, this registration statement when it became effective. |
| (10) | Insofar as indemnification by the registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that, in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
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SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Knoxville, State of Tennessee, on February 28, 2018.December 19, 2019. |
| SMARTFINANCIAL, INC. | | | | | | | | | By: | /s/ William Y. Carroll,Carrol, Jr. | | | | | Name: | | William Y. Carroll,Carrol, Jr. | | | | | Title: | | President and Chief Executive Officer and Director (principal executive officer) | |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints William Y. Carroll, Jr. or Wesley M. Welborn, and either of them, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person and in his or her name, place and stead, in any and all capacities, to sign any or all further amendments (including post-effective amendments) to this Registration Statement on Form S-4, and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated below: | Title
| | | Date | | | | /s/ William Y. Carroll, Jr.
| President and Chief Executive Officer and Director
(Principal (Principal Executive Officer) | February 28, 2018
| | | * | | | December 19, 2019 | | William Y. Carroll, Jr. | | | | | | | | | | /s/ C. Bryan Johnson
| | | Executive Vice President and Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer) | February 28, 2018
| | C. Bryan Johnson
| * | | | December 19, 2019 | | Ronald J. Gorczynski | | | | /s/
| | | | | | | * | | Director | | December 19, 2019 | | Victor L. Barrett | Director
| February 28, 2018
| | | Victor L. Barrett
| | | | | | | * | | Director | | December 19, 2019 | /s/
| Monique P. Berke | Director
| February 28, 2018
| | | Monique P. Berke
| | | | | | | * | | Director | | December 19, 2019 | | William Y. Carroll, Sr. | | | | | | | | | | | | * | | Director | | December 19, 2019 | | Clifton N. Miller | | | | | | | | | | | | * | | Director | | December 19, 2019 | | Ted C. Miller | | | | |
| * | | Director | | December 19, 2019 | | David A. Ogle | | | | | | | | | | | | * | | Director | | December 19, 2019 | | Steven B. Tucker | | | | | | | | | | | | * | | Director | | December 19, 2019 | | W. Miller Welborn | | | | | | | | | | | | * | | Director | | December 19, 2019 | | Keith E. Whaley | | | | | | | | | | | | * | | Director | | December 19, 2019 | | J. Beau Wicks | | | | | | | | | | | | * | | Director | | December 19, 2019 | | Geoffrey A. Wolpert | | | | |
| * | By: | /s/ William Y. Carroll, Sr.Carrol, Jr. | Director
| February 28, 2018
| | | William Y. Carroll, Sr.Carrol, Jr. | | | | | | /s/ Frank S. McDonald
Attorney-in-fact | Director
| February 28, 2018
| Frank S. McDonald
| | | | | | /s/ Ted C. Miller
| Director
| February 28, 2018
| Ted C. Miller
| | | | | |
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Signature
| Title
II-6 | Date
| | | | /s/ David A. Ogle
| Director
| February 28, 2018
| David A. Ogle
| | | | | | /s/ Doyce Payne
| Director
| February 28, 2018
| Doyce Payne
| | | | | | /s/ Steven B. Tucker
| Director
| February 28, 2018
| Steven B. Tucker
| | | | | | /s/ Miller Welborn
| Director
| February 28, 2018
| Miller Welborn
| | | | | | /s/ Keith E. Whaley
| Director
| February 28, 2018
| Keith E. Whaley
| | | | | /s/ J. Beau Wicks
| Director
| February 28, 2018
| J. Beau Wicks
| | | | | /s/ Geoffrey A. Wolpert
| Director
| February 28, 2018
| Geoffrey A. Wolpert
| | |
|
