SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. ___)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use
[x] Definitive Proxy Statement of the Commission Only
[ ] Definitive Additional Materials (as permitted by Rule
[ ] Soliciting Material Pursuant 14a-6(e)(2))
to Rule 14a-11(c) or Rule 14a-12
UNITED TENNESSEE BANKSHARES, INC.
- ----------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- ----------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] NO FEE REQUIRED
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(1) and 0-11.
1. Title of each class of securities to which transaction
applies:
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2. Aggregate number of securities to which transaction
applies:
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3. Per unit price or other underlying value of transaction
transaction computed pursuant to Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is calcu-
lated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
1. Amount Previously Paid:
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2. Form, Schedule or Registration Statement No.:
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3 Filing Party:
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4. Date Filed:
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UNITED TENNESSEE BANKSHARES, INC.
P.O. BOX 458
NEWPORT, TENNESSEE 37822-0458
April 14, 1999
Dear Stockholder:
We invite you to attend the annual meeting of stockholders
of our holding company, United Tennessee Bankshares, Inc., to be
held at Holiday Inn of Newport, Interstate 40 & Highway 32,
Newport, Tennessee on Tuesday, May 18, 1999 at 5:00 p.m.
The accompanying notice and proxy statement describe the
formal business to be transacted at the meeting. During the
meeting, we will also report on our operations during the fiscal
year ended December 31, 1998. Our directors and officers will
be present to respond to any questions the stockholders may
have.
ON BEHALF OF THE BOARD OF DIRECTORS, WE URGE YOU TO SIGN,
DATE AND RETURN THE ACCOMPANYING FORM OF PROXY AS SOON AS
POSSIBLE EVEN IF YOU CURRENTLY PLAN TO ATTEND THE ANNUAL
MEETING. Your vote is important, regardless of the number of
shares you own. This will not prevent you from voting in person
but will assure that your vote is counted if you are unable to
attend the meeting.
Sincerely,
/s/ Richard G. Harwood
Richard G. Harwood
President
UNITED TENNESSEE BANKSHARES, INC.
344 W. BROADWAY
NEWPORT, TENNESSEE 37821-0249
(423) 623-6088
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 18, 1999
NOTICE IS HEREBY GIVEN that the annual meeting of
stockholders (the "Annual Meeting") of United Tennessee
Bankshares, Inc. (the "Company") will be held at Holiday Inn of
Newport, Interstate 40 & Highway 32, Newport, Tennessee on
Tuesday, May 18, 1999 at 5:00 p.m.
A proxy statement and form of proxy for the Annual Meeting
accompany this notice.
The Annual Meeting is for the purpose of considering and
acting upon:
1. The election of two directors of the Company;
2. The approval of the United Tennessee Bankshares,
Inc. 1999 Stock Option Plan;
3. The approval of the United Tennessee Bankshares,
Inc. Management Recognition Plan; and
4. The transaction of such other business as may
properly come before the Annual Meeting or any
adjournments thereof.
The Board of Directors is not aware of any other business
to come before the Annual Meeting.
Any action may be taken on any one of the foregoing
proposals at the Annual Meeting on the date specified above or
on any date or dates to which, by original or later adjournment,
the Annual Meeting may be adjourned. Stockholders of record at
the close of business on April 5, 1999 are the stockholders
entitled to vote at the Annual Meeting and any adjournments
thereof.
You are requested to fill in and sign the accompanying form
of proxy which is solicited by the Board of Directors and to
mail it promptly in the accompanying envelope. The proxy will
not be used if you attend and vote at the Annual Meeting in
person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Peggy Holston
PEGGY HOLSTON
SECRETARY
Newport, Tennessee
April 14, 1999
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE
COMPANY THE EXPENSE OF FURTHER REQUESTS FOR PROXIES IN ORDER TO
ENSURE A QUORUM. THE ACCOMPANYING FORM OF PROXY IS ACCOMPANIED
BY A SELF-ADDRESSED ENVELOPE FOR YOUR CONVENIENCE. NO POSTAGE
IS REQUIRED IF MAILED IN THE UNITED STATES.
PROXY STATEMENT
OF
UNITED TENNESSEE BANKSHARES, INC.
344 W. BROADWAY
NEWPORT, TENNESSEE 37821-0249
ANNUAL MEETING OF STOCKHOLDERS
MAY 18, 1999
GENERAL
This proxy statement is furnished in connection with the
solicitation of proxies by the Board of Directors of United
Tennessee Bankshares, Inc. (the "Company") to be used at its
annual meeting of stockholders (the "Annual Meeting") which will
be held at Holiday Inn of Newport, Interstate 40 & Highway 32,
Newport, Tennessee, on Tuesday, May 18, 1999 at 5:00 p.m. This
proxy statement and the accompanying notice and proxy card are
being first provided to stockholders on or about April 14, 1999.
VOTING AND REVOCABILITY OF PROXIES
Stockholders who execute proxies retain the right to revoke
them at any time. Unless so revoked, the shares represented by
such proxies will be voted at the Annual Meeting and all
adjournments thereof. Proxies may be revoked by written notice
to Peggy Holston, our Corporate Secretary, at the address shown
above, by filing a later dated proxy prior to a vote being taken
on a particular proposal at the Annual Meeting or by attending
the Annual Meeting and voting in person.
Proxies solicited by the Company's Board of Directors will
be voted in accordance with the directions given therein. WHERE
NO INSTRUCTIONS ARE INDICATED, PROXIES WILL BE VOTED FOR EACH OF
THE NOMINEES FOR DIRECTOR SET FORTH BELOW AND FOR EACH OF THE
OTHER PROPOSALS DESCRIBED HEREIN. The proxy confers discre-
tionary authority on the persons named therein to vote with
respect to the election of any person as a director where the
nominee is unable to serve or for good cause will not serve, and
matters incident to the conduct of the Annual Meeting. If any
other business is presented at the Annual Meeting, proxies will
be voted by those named therein in accordance with the determi-
nation of a majority of the Board of Directors. Proxies marked
as abstentions, and shares held in street name which have been
designated by brokers on proxies as not voted, will not be
counted as votes cast. Proxies marked as abstentions or as
broker non-votes will, however, be treated as shares present for
purposes of determining whether a quorum is present.
VOTING SECURITIES AND BENEFICIAL OWNERSHIP
Stockholders of record as of the close of business on April
5, 1999 (the "Record Date") are entitled to one vote for each
share then held. At the Record Date, the Company had 1,382,013
shares of common stock, no par value (the "Common Stock"),
issued and outstanding. The presence, in person or by proxy, of
at least a majority of the total number of shares of the Common
Stock outstanding and entitled to vote will be necessary to
constitute a quorum at the Annual Meeting.
Persons and groups owning in excess of 5% of the Common
Stock are required to file certain reports regarding such
ownership pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Based on these reports, the
following table sets forth, as of the Record Date, certain
information as to shares of the Common Stock known by management
to be beneficially owned by persons owning in excess of 5% of
the Common Stock and by all of the Company's directors and
executive officers as a group.
AMOUNT AND PERCENT OF
NATURE OF SHARES OF
NAME AND ADDRESS BENEFICIAL COMMON STOCK
OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING
- ------------------- ---------- ------------
United Tennessee Bankshares, Inc.
Employee Stock Ownership Plan ("ESOP")
344 W. Broadway
Newport, Tennessee 37821-0249 103,995 1 7.5%
Jerome H. Davis
200 Park Avenue, Suite 515
New York, New York 10166 74,340 5.4%
All directors and executive officers
as a group (10 persons) 135,432 2 9.8%
<FN>
__________
1 Reflects unallocated shares held in a suspense account for future alloca-
tion among participating employees as the loan used to purchase the shares
is repaid. The ESOP trustees, currently Directors Henry, Overholt and
Self, vote all allocated shares in accordance with instructions of the
participants; unallocated shares and shares for which no instructions have
been received generally are voted by the ESOP trustees in the same ratio as
participants direct the voting of allocated shares or, in the absence of
such direction, as directed by our Board of Directors.
2 Reflects shares over which one or more directors and executive officers
have sole or shared voting and/or dispositive power; excludes 13,721 shares
held in trust in connection with the Bank's directors' retirement plan.
The trustees, currently Directors Myers, Henry and Overholt, vote all
shares in the same proportion on all matters as the ESOP trustees vote the
ESOP shares.
</FN>
PROPOSAL I -- ELECTION OF DIRECTORS
GENERAL
The Company's Board of Directors currently consists of eight
members. The Company's Charter requires that directors be
divided into three classes, as nearly equal in number as
possible, with approximately one-third of the directors elected
each year. The Board has nominated directors Richard G. Harwood
and Robert D. Self for reelection to serve as directors for full
three-year terms. Under Tennessee law, directors are elected by
a plurality of all votes cast at a meeting at which a quorum is
present. If the nominees are unable to serve, the shares
represented by all valid proxies will be voted for the election
of such substitute as the Board may recommend or the size of the
Board may be reduced to eliminate the vacancy. At this time,
the Board knows of no reason why the nominees might be
unavailable to serve.
The following table sets forth the names of the nominees for
election as directors and the directors whose terms expire in
future years. Also set forth is certain other information with
respect to each person's age, the year he first became a
director of the Company's subsidiary, Newport Federal Bank (the
"Bank"), the expiration of his term as a director and the number
and percentage of shares of the Common Stock beneficially owned
(each of its directors is also a director of the Company). Each
director first became a director of the Company upon its
incorporation in 1997.
-2-
SHARES OF
YEAR FIRST COMMON STOCK
AGE AT ELECTED AS CURRENT BENEFICIALLY
DECEMBER 31, DIRECTOR OF TERM OWNED AT THE PERCENT
NAME 1998 THE BANK TO EXPIRE RECORD DATE 1 OF CLASS
------ ------------ ---------- --------- -------------- --------
BOARD NOMINEES FOR TERMS TO EXPIRE IN 2002
Richard G. Harwood 52 1989 1999 11,550 0.84%
Robert D. Self 68 1978 1999 7,740 0.56
DIRECTORS CONTINUING IN OFFICE
William B. Henry 68 1978 2000 22,548 1.63
J. William Myers 57 1975 2000 24,594 1.78
Tommy C. Bible 45 1998 2000 22,500 1.63
Clyde E. Driskill, Jr. 67 1980 2001 19,807 1.43
Robert L. Overholt 55 1983 2001 20,193 1.46
Ben W. Hooper, III 34 1998 2001 1,000 0.07
<FN>
__________
1 Reflects shares over which the named individuals have sole or shared voting
and/or dispositive power; excludes unallocated shares held by the ESOP and
certain shares held by the Company's defined contribution thrift plan and its
directors' retirement plan (see "Voting Securities and Beneficial Ownership")
above.
</FN>
Set forth below is information concerning the Board's
nominees for election as director and continuing directors.
Unless otherwise stated, all directors have held the positions
indicated for at least the past five years.
RICHARD G. HARWOOD serves as President and Chief Executive
Officer. Mr. Harwood joined the Bank as Senior Vice President
in 1984. He has acted as the Vice Chairman of the Economic
Development Commission, a director for the United Way of Cocke
County and Treasurer for the Newport Lions Club.
ROBERT D. SELF has been the owner of Bob Self Auto Parts, an
auto parts supplier located in Newport, Tennessee, since 1969.
Mr. Self is active with the Newport Lions Club and serves on the
board of directors of the Stokley Memorial Library.
WILLIAM B. HENRY has been an optometrist in Newport,
Tennessee since 1961. He is presently serving as the secretary
of the Newport Utilities Board and is a member of the
Newport/Cocke County Economic Development Commission.
J. WILLIAM MYERS is a lawyer. He has practiced law in
Newport, Tennessee since 1966. Mr. Myers serves as our Chairman
of the Board. He is active with Habitat for Humanity.
TOMMY C. BIBLE is the General Manager of the Jefferson-Cocke
County Gas Utility District that serves natural and propane gas
to the Jefferson County and Cocke County areas. Prior to
joining Jefferson-Cocke, he worked 15 years for Newport
Utilities Board as the Administrative Manager. Mr. Bible is
Chairman of the Cocke County Election Commission and is a
director for the Newport/Cocke County Economic Development
Commission.
-3-
CLYDE E. DRISKILL, Jr. has been the owner and president of
Driskill's Furniture, Inc., a furniture and appliance retail
establishment located in Newport, Tennessee, since 1960. Mr.
Driskill has served as the Chairman of the Newport Regional
Planning Commission and of the Newport/Cocke County Industrial
Development Commission.
ROBERT L. OVERHOLT has been the owner/manager of Home Supply
of Newport, Tennessee, Inc., a building supply establishment,
since 1966. Mr. Overholt is active with the Shriners and
Habitat for Humanity.
BEN W. HOOPER, III is a partner in general practice with
Campbell & Hooper Attorneys in Newport, Tennessee. Mr. Hooper
also serves as legal counsel to the Cocke County Amvets and Del
Rio Culture & Preservation Society. He is a director and the
current chairman of the Cocke County Recreation Advisory Board
and is a member of the Cocke County Bar Association, Tennessee
Bar Association and Tennessee Trial Lawyers Association.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors holds regular meetings and
special meetings as needed. During the year ended December 31,
1998, the Board met 13 times. No nominee for election as a
director or continuing director attended fewer than 75% in the
aggregate of the total number of Board meetings held while he
was a member during the year ended December 31, 1998 and the
total number of meetings held by committees on which he served
during such fiscal year.
The full Board of Directors acts as an audit committee and
met one time in this capacity in connection with the independent
audit for fiscal 1998.
The Board of Directors has an Executive Committee, which
consists of Chairman Myers and Directors Harwood and Henry and
acts as a compensation committee. This committee reviews the
performance of the Company's officers and met five times for
fiscal 1998.
The Board of Directors does not have a standing nominating
committee. Under the Company's Bylaws, the full Board of
Directors acts as a nominating committee and met one time in
this capacity to select the nominees for election at the Annual
Meeting.
DIRECTOR COMPENSATION
FEES. Directors currently receive fees of $6,000 per year,
plus $300 per regular board meeting attended and $100 per
executive committee meeting attended, plus the amount of any
credit to their account under a long-term incentive plan
implemented in fiscal 1997 and described below. In addition,
the Chairman receives a salary of $5,569 per year. For fiscal
1998, directors' fees totaled $98,400. Directors do not receive
additional compensation for service as directors of the Company.
For additional information, see "Transactions with Management"
below.
DIRECTORS' RETIREMENT PLAN. The Bank adopted a directors'
retirement plan effective June 19, 1997. On the effective date,
a bookkeeping account was established in the name of each
director, and each account was credited with an amount equal to
the product of (i) $1,291 and (ii) the director's full years of
service as a director, up to 20 years. At that time, in
recognition of their accrued years of service, the accounts of
Messrs. Butcher, Driskill, Harwood, Henry, Myers, Overholt and
Self were credited with $25,810, $21,939, $10,324, $24,520,
$25,810, $18,067 and $24,520, respectively. On each December 31
(excluding December 31, 1997), each participant who is then a
director and has 20 or fewer years of service shall have his
account credited with an amount equal to the product of $1,291
and the safe performance factor, which is determined based on our
actual performance as compared to budgeted goals for return on
average equity, non-performing assets and composite regulatory
rating. The safe performance factor may not exceed 1.2. All
amounts credited to participants' accounts are fully vested at
all times. Until distributed in accordance with the terms of the
plan, each participant's account will be credited with a rate of
return equal to our highest rate of interest paid on certificates
of deposit having a term of one year. Each participant may
prospectively elect to have the dividend-
-4-
adjusted rate of return on the Common Stock measure future
appreciation. Beginning with the fiscal year following a
participant's termination of service, the participant's account
will receive an investment return measured by the participant's
election between up to two different mutual funds (or other
investments) selected by the Board of Directors.
Each participant may elect to receive plan benefits in a
lump sum or over a period shorter than ten years, and in the
absence of an election will receive payments in five substan-
tially equal installments. In the event of a participant's
death, the balance of his plan account will be paid in a lump
sum (unless the participant elects a distribution period up to
ten years) to his designated beneficiary or, if none, his
estate.
Any compensation accrued under the plan will be paid from
the Bank's general assets. The Bank has established a trust in
order to hold assets with which to pay compensation. Trust
assets would be subject to claims of the Bank's general
creditors. If a participant were to prevail over the Bank in a
legal dispute as to the terms or interpretation of the plan, he
would be reimbursed for his legal and other expenses. Upon the
implementation of the plan, the Bank recognized compensation
expense totaling $151,000 to provide for participants' initial
account balances.
DEFERRED COMPENSATION PLAN. The Bank has established a
deferred compensation plan for directors and select executive
officers. Before each calendar year begins, each non-employee
director may elect to defer receipt of all or part of his fees
for the year, and any other participant may elect to defer
receipt of up to 25% of his or her compensation for the year.
Deferred amounts are credited at the end of the calendar year to
a bookkeeping account in the participant's name along with the
investment return which would have resulted if such deferred
amounts had been invested, based upon the participant's choice,
between the dividend-adjusted rate of return on the Common Stock
and our highest annual rate of interest on certificates of
deposit having a one-year term. Each participant may make an
election to receive distributions either in a lump sum or in
annual installments over a period up to ten years.
The Bank expects (but are under no legal obligation) to make
quarterly contributions to a grantor trust in an amount equal to
the accrued expense associated with the deferred compensation
plan. In the event of a change in control (as defined in the
employment agreement described below), the Bank will contribute
to the trust an amount sufficient to provide the trust with
assets having an overall value equal to the aggregate account
balances under the plan. The trust's assets would remain
subject to the claims of the Bank's general creditors and be
available for eventual payments to participants.
EXECUTIVE COMPENSATION
SUMMARY. The following table sets forth compensation for
the fiscal years ended December 31, 1998, 1997 and 1996 awarded
to or earned by the Company Chief Executive Officer for services
rendered in all capacities. No executive officer received
salary and bonus in excess of $100,000 during the fiscal year
1998, 1997 or 1996.
ANNUAL COMPENSATION
--------------------------------
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION 1 COMPENSATION 2
- ------------------- ------ ------ ----- --------------- ---------------
Richard G. Harwood 1998 $81,440 $5,916 $ -- $ 41,015
President and Chief 1997 70,118 4,945 -- 11,220
Executive Officer 1996 67,723 1,303 -- 12,403
<FN>
__________
1 Excludes indirect compensation in the form of certain perquisites and other personal
benefits which did not exceed 10% of salary and bonus.
2 Consists of director fees ($11,400), allocation to ESOP account ($27,719) and Company
contribution to defined contribution retirement plan ($1,896) for fiscal 1998; excludes
appraisal fees for services to borrowers.
</FN>
-5-
EMPLOYMENT AGREEMENTS
The Bank has entered into an employment agreement pursuant
to which Richard G. Harwood serves as the Bank's President and
Chief Executive Officer. In such capacities, Mr. Harwood is
responsible for overseeing all of its operations and for
implementing the policies adopted by the Board of Directors.
The Company has entered into a guarantee agreement with Mr.
Harwood pursuant to which it has agreed to be jointly and
severely liable for the payment of amounts due under the
employment agreement.
The employment agreement became effective on January 1, 1998
and provides for a term of three years with an annual base
salary equal to Mr. Harwood's existing base salary rate in
effect on the effective date. On each anniversary date of the
commencement of the employment agreement, the term of Mr.
Harwood's employment may be extended for an additional one-year
period beyond the then-effective expiration date, upon a
determination by the Board of Directors that the performance of
Mr. Harwood has met the required performance standards and that
such employment agreement should be extended. The employment
agreement provides Mr. Harwood with a salary review by the Board
of Directors not less often than annually, as well as with
inclusion in any discretionary bonus plans, retirement and
medical plans, customary fringe benefits, vacation and sick
leave. The employment agreement shall terminate upon Mr.
Harwood's death, may terminate upon Mr. Harwood's disability and
is terminable by the Company for "just cause" (as defined in the
employment agreement). In the event of termination for just
cause, no severance payment is available. If the Company
terminates Mr. Harwood without just cause, Mr. Harwood will be
entitled to a continuation of his compensation from the date of
termination through the remaining term of the employment
agreement. In addition, Mr. Harwood is entitled, at his
election, to either continued participation in compensation
plans which he would have been eligible to participate in
through his employment agreement's expiration date or the cash
equivalent thereof. If Mr. Harwood's employment is terminated
for any reason other than just cause, he shall be entitled to
purchase from the Company, at his own expense which shall not
exceed applicable statutory rates, family medical insurance
under any group health plan that the Company maintains for its
employees. This right shall be in addition to, and not in lieu
of, any other rights that Mr. Harwood has under the employment
agreement and shall continue until he first becomes eligible for
participation in Medicare. If the employment agreement is
terminated due to Mr. Harwood's "disability" (as defined in the
agreement), Mr. Harwood will be entitled to a continuation of
his compensation through the date of such termination, including
any period prior to the establishment of Mr. Harwood's
disability. In the event of Mr. Harwood's death during the term
of the employment agreement, Mr. Harwood's estate will be
entitled to receive his salary through the last day of the
calendar month in which Mr. Harwood's death occurred. Mr.
Harwood is able to voluntarily terminate the employment agree-
ment by providing 90 days' written notice to the Company, in
which case Mr. Harwood would be entitled to receive only his
compensation, vested rights and benefits up to the date of
termination.
In the event of (i) Mr. Harwood's involuntary termination of
employment other than for "just cause" during the 12-month
period following a change in control or (ii) Mr. Harwood's
voluntary termination within 90 days of the occurrence of
certain specified events occurring during that period, Mr.
Harwood will be paid within 10 days of such termination (or the
date of the change in control, whichever is later) an amount
equal to the difference between (a) 2.99 times his base amount,
as defined in Section 280G(b)(3) of the Internal Revenue Code,
and (b) the sum of any other parachute payments, as defined
under Section 280G(b)(2) of the Internal Revenue Code, that he
receives on account of the change in control. "Change in
control" means any one of the following events: (i) the
acquisition of ownership, holding or power to vote more than 25%
of our voting stock, (ii) the acquisition of the ability to
control the election of a majority of the Company's directors,
(iii) the acquisition of a controlling influence over the
Company's management or policies by any person or by persons
acting as a "group" (within the meaning of Section 13(d) of the
Exchange Act) or, (iv) during any period of two consecutive
years, individuals ("continuing directors") who at the beginning
of such period constituted the Company's Board of Directors (the
"existing board") cease for any reason to constitute at least
two-thirds thereof, provided that any individual whose election
or nomination for election as a member of the existing board was
approved by a vote of at least two-thirds of the continuing
directors then in office shall be considered a continuing
director. For purposes of this paragraph only, the term
"person" refers to an individual or a corporation, partnership,
trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any
-6-
other form of entity not specifically listed herein. The
payments that would be made to Mr. Harwood assuming his
termination of employment under the foregoing circumstances at
December 31, 1998, would have been approximately $245,000.
These provisions may have an anti-takeover effect by making it
more expensive for a potential acquirer to obtain control of
the Company. If Mr. Harwood were to prevail over the Company,
or obtain a written settlement, in a legal dispute as to the
employment agreement, he would be entitled to be reimbursed for
his legal and other expenses.
TRANSACTIONS WITH MANAGEMENT
The Company offers loans to directors, officers and
employees. These loans are made in the ordinary course of
business with the same collateral, interest rates and
underwriting criteria as those of comparable transactions
prevailing at the time and do not involve more than the normal
risk of collectibility or present other unfavorable features,
except each director, officer and employee may obtain one
mortgage loan and one consumer loan with waived origination fees
and a 1% discount on the interest rate (on adjustable rate
loans, the discounted rate applies only until the rate adjusts).
At December 31, 1998, no director or executive officer had more
than $60,000 of preferential loans from the Company at any time
since December 31, 1997, except J. William Myers, Chairman of
the Board of Directors, who had an adjustable rate mortgage loan
with an initial interest rate of 7.75% whose largest balance
during that period was approximately $311,000 and whose balance
at the end of that period was $0. At December 31, 1998, the
Company loans to directors and executive officers totaled
approximately $119,000, or 0.6% of its stockholders' equity and
0.1% of its total assets at that date.
J. William Myers is a principal in the law firm of Myers &
Bell, Newport, Tennessee. The law firm performs routine legal
services on behalf of the Company and its borrowers, princi-
pally in connection with the closing of mortgage loans. In
fiscal 1998, the law firm's fees for such services totaled
$96,590.
Richard G. Harwood, the Company's President and Chief
Executive Officer, and Nancy L. Bryant and Peggy Holston, the
Company's Vice President and Treasurer and Assistant Secretary
and Branch Manager, respectively, are licensed real estate
appraisers. They perform routine appraisal services on behalf
of the Company's borrowers principally in connection with the
closing of mortgage loans. In fiscal 1998, Mr. Harwood's and
Mses. Bryant's and Holston's fees for such services totaled
$23,031, $13,150 and $11,891, respectively.
PROPOSAL II--APPROVAL OF THE UNITED TENNESSEE BANKSHARES, INC.
1999 STOCK OPTION PLAN
GENERAL
The Board of Directors of the Company is seeking stock-
holder approval of the United Tennessee Bankshares, Inc. 1999
Stock Option Plan (the "Option Plan"). The Option Plan is
attached hereto as Exhibit A and should be consulted for
additional information. All statements made herein regarding
the Option Plan, which are only intended to summarize the Option
Plan, are qualified in their entirety by reference to the Option
Plan.
PURPOSE OF THE OPTION PLAN
The purpose of the Option Plan is to advance the interests
of the Company by providing directors and selected employees of
the Company and its affiliates, including the Bank, with the
opportunity to acquire shares of Common Stock. By encouraging
such stock ownership, the Company seeks to attract, retain, and
motivate the best available personnel for positions of
substantial responsibility and to provide additional incentive
to directors and employees of the Company and its affiliates to
promote the success of the business of the Company.
-7-
DESCRIPTION OF THE OPTION PLAN
EFFECTIVE DATE. The Option Plan has been formally adopted
by the Board of Directors and became effective on January 15,
1999 (the "Effective Date"), although the Option Plan's
effectiveness is contingent on its approval by the Company's
stockholders.
ADMINISTRATION. The Option Plan is administered by a
committee (the "Committee"), appointed by the Company's Board of
Directors (the "Board"), consisting of at least two directors of
the Board who are "non-employee directors" within the meaning of
the federal securities laws. The Committee has discretionary
authority to select participants and grant options, to determine
the form and content of any options granted under the Option
Plan, to interpret the Option Plan, to prescribe, amend and
rescind rules and regulations relating to the Option Plan, and
to make other decisions necessary or advisable in connection
with administering the Option Plan. All decisions, determina-
tions and interpretations of the Committee are final and
conclusive on all persons affected thereby. Members of the
Committee will be indemnified to the full extent permissible
under the Company's governing instruments in connection with any
claims or other actions relating to any action taken under the
Option Plan. It is expected that the Committee will initially
consist of Directors William B. Henry, Robert L. Overholt, and
Robert D. Self.
ELIGIBLE PERSONS. Under the Option Plan, the Committee has
discretionary authority to grant stock options ("Options") and
stock appreciation rights ("SARs") (collectively, "Awards") to
such employees as the Committee shall designate. In addition,
the Option Plan specifies the automatic grants described below
(see "-- Automatic Grants" below). As of the Record Date, the
Company and its affiliates had approximately 22 employees and
seven non-employee directors who were eligible to participate in
the Option Plan.
SHARES AVAILABLE FOR GRANTS. The Option Plan reserves
145,475 shares of Common Stock for issuance upon the exercise of
Options or SARs. Such shares may be (i) authorized but unissued
shares, (ii) shares held in treasury, or (iii) shares held in a
grantor trust. In the event of any merger, consolidation,
recapitalization, reorganization, reclassification, stock
dividend, split-up, combination of shares, or similar event in
which the number or kind of shares is changed without receipt or
payment of consideration by the Company, the Committee will
adjust the number and kind of shares reserved for issuance under
the Option Plan and the exercise prices of such Options. If
Awards should expire, become unexercisable or be forfeited for
any reason without having been exercised, the shares of Common
Stock subject to such Awards shall, unless the Option Plan shall
have been terminated, be available for the grant of additional
Awards under the Option Plan.
OPTIONS; EXERCISE PRICE. Options may be either incentive
stock options ("ISOs") as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or options that
are not ISOs ("Non-ISOs"). The exercise price as to any Option
may not be less than the fair market value (determined under the
Option Plan) of the optioned shares on the date of grant. In
the case of an optionee who owns more than 10% of the outstand-
ing Common Stock on the date of grant, such exercise price may
not be less than 110%of fair market value of the shares. As
required by federal tax laws, to the extent that the aggregate
fair market value (determined when an ISO is granted) of the
Common Stock with respect to which ISOs are exercisable by an
optionee for the first time during any calendar year (under all
incentive stock option plans of the Company and of any
affiliate) exceeds $100,000, the Options granted in excess of
$100,000 will be treated as Non-ISOs, and not as ISOs. The
exercise price of shares subject to any outstanding Option will
be proportionately adjusted upon the payment of a special large
and nonrecurring dividend that has the effect of a return of
capital to the stockholders.
AUTOMATIC GRANTS. On the Effective Date, certain employees
and directors of the Company and the Bank shall receive one-time
grants of Options to purchase shares of Common Stock at an
exercise price per share equal to its fair market value on that
date; provided that grants shall not be made to employees who
terminate service with the Company on or before the Effective
Date (see " -- Proposed Stock Option Grants" and "New Plan
Benefits" below). The fair market value of the Common Stock on
the Effective Date (January 15, 1999) was $12.75 per share.
-8-
SARs. An SAR may be granted in tandem with all or part of
any Option granted under the Option Plan, or without any rela-
tionship to any Option. An SAR granted in tandem with an ISO
must expire no later than the ISO, must have the same exercise
price as the ISO and may be exercised only when the ISO is exer-
cisable and when the fair market value of the shares subject
to the ISO exceeds the exercise price of the ISO. For SARs
granted in tandem with Options, the optionee's exercise of the
SAR cancels his or her right to exercise the Option, and vice
versa. Regardless of whether an SAR is granted in tandem with
an Option, exercise of the SAR will entitle the optionee to
receive, as the Committee prescribes in the grant, all or a
percentage of the difference between (i) the fair market value
of the shares of Common Stock subject to the SAR at the time of
its exercise, and (ii) the fair market value of such shares at
the time the SAR was granted (or, in the case of SARs granted in
tandem with Options, the exercise price). The exercise price as
to any particular SAR may not be less than the fair market value
of the optioned shares on the date of grant.
EXERCISE OF OPTIONS AND SARs. The exercise of Options and
SARs will be subject to such terms and conditions as are
established by the Committee in a written agreement between the
Committee and the optionee. Unless the Committee specifically
eliminates any vesting requirement or imposes a different
vesting schedule in an agreement granting an Option, 25% of the
shares subject to the Option shall be vested and exercisable by
each optionee on the Effective Date, and an additional 25% of
the shares subject to the Option shall be vested and exercisable
by each optionee upon his or her completion of each of three
years of service after the date of grant. Notwithstanding the
foregoing, an Option will become fully exercisable immediately
upon termination of the participant's continuous service due to
retirement at or after age 70, disability, death, or upon a
change in control (as defined in the Option Plan) or, if
earlier, the execution of a written agreement to effect a change
in control of the Bank or the Company. In the absence of
Committee action to the contrary, an otherwise unexpired Option
shall cease to be exercisable upon (i) an optionee's termination
of employment for "just cause" (as defined in the Option Plan),
(ii) the date that is one year after an optionee terminates
service for a reason other than just cause or death, or (iii)
the date that is two years after an optionee's death. However,
Options held by directors expire one year after they terminate
service as a director or director emeritus (except that this
period is extended to two years in the event of the directors
death).
An optionee may exercise Options or SARs, subject to provi-
sions relative to their termination and limitations on their
exercise, only by (i) written notice of intent to exercise the
Option with respect to a specified number of shares of Common
Stock, and (ii) in the case of Options, payment to the Company
(contemporaneously with delivery of such notice) in cash, in
Common Stock, or a combination of cash and Common Stock, of the
amount of the exercise price for the number of shares with
respect to which the Option is then being exercised. Common
Stock utilized in full or partial payment of the exercise price
for Options shall be valued at its market value at the date of
exercise, and may consist of shares subject to the Option being
exercised.
CONDITIONS ON ISSUANCE OF SHARES. The Committee will have
the discretionary authority to impose, in agreements, such
restrictions on shares of Common Stock issued pursuant to the
Option Plan as it may deem appropriate or desirable, including
but not limited to the authority to impose a right of first
refusal or to establish repurchase rights or both of these
restrictions. In addition, the Committee may not issue shares
unless the issuance complies with applicable securities laws,
and to that end may require that a participant make certain
representations or warranties.
NONTRANSFERABILITY. Optionees may transfer their Options to
family members or trusts under specified circumstances. Awards
may not otherwise be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or
by the laws of descent and distribution. In addition, Common
Stock that is purchased upon the exercise of an Option or SAR
may not be sold within the six-month period following the grant
date of that Award.
EFFECT OF DISSOLUTION AND RELATED TRANSACTIONS. In the
event of (i) the liquidation or dissolution of the Company, (ii)
a merger or consolidation in which the Company is not the
surviving entity, or (iii) the sale or disposition of all or
substantially all of the Company's assets (any of the foregoing
to be referred to herein as a "Transaction"), all outstanding
Awards, together with the exercise prices thereof, will be
equitably adjusted for any change or exchange of shares for a
different number or kind of shares or other securities which
results from the Transaction. However, any
-9-
such adjustment will be made in such a manner as to not consti-
tute a modification, within the meaning of Section 424(h) of the
Code, of outstanding ISOs.
DURATION OF THE OPTION PLAN AND GRANTS. The Option Plan has
a term of 10 years from the Effective Date, after which date no
Awards may be granted. The maximum term for an Award is 10
years from the date of grant, except that the maximum term of an
ISO (and an SAR granted in tandem with an ISO) may not exceed
five years if the optionee owns more than 10% of the Common
Stock on the date of grant.
AMENDMENT AND TERMINATION OF THE OPTION PLAN. The Board may
from time to time amend the terms of the Option Plan and, with
respect to any shares at the time not subject to Options, sus-
pend or terminate the Option Plan. No amendment, suspension, or
termination of the Option Plan will, without the consent of any
affected holder of an Award, alter or impair any rights or obli-
gations under any Award previously granted.
FINANCIAL EFFECTS OF AWARDS. The Company will receive no
monetary consideration for the granting of Awards under the
Option Plan. It will receive no monetary consideration other
than the exercise price for shares of Common Stock issued to
optionees upon the exercise of their Options, and will receive
no monetary consideration upon exercise of SARs. Under appli-
cable accounting standards, recognition of compensation expense
is not required when Options are granted at an exercise price
equal to or exceeding the fair market value of the Common Stock
on the date the Option is granted.
The granting of SARs will require charges to the income of
the Company based on the amount of the appreciation, if any, in
the average market price of the Common Stock to which the SARs
relate over the exercise price of those shares. If the average
market price of the Common Stock declines subsequent to a charge
against earnings due to estimated appreciation in the Common
Stock subject to SARs, the amount of the decline will reverse
such prior charges against earnings (but not by more than the
aggregate of such prior charges).
FEDERAL INCOME TAX CONSEQUENCES
ISOs. An optionee recognizes no taxable income upon the
grant of ISOs. If the optionee holds the shares purchased upon
exercise of an ISO for at least two years from the date the ISO
is granted, and for at least one year from the date the ISO is
exercised, any gain realized on the sale of the shares received
upon exercise of the ISO is taxed as long-term capital gain.
However, the difference between the fair market value of the
Common Stock on the date of exercise and the exercise price of
the ISO will be treated by the optionee as an item of tax pre-
ference in the year of exercise for purposes of the alternative
minimum tax. If an optionee disposes of the shares before the
expiration of either of the two special holding periods noted
above, the disposition is a "disqualifying disposition." In
this event, the optionee will be required, at the time of the
disposition of the Common Stock, to treat the lesser of the gain
realized or the difference between the exercise price and the
fair market value of the Common Stock at the date of exercise as
ordinary income and the excess, if any, as capital gain.
The Company will not be entitled to any deduction for
federal income tax purposes as the result of the grant or exer-
cise of an ISO, regardless of whether or not the exercise of the
ISO results in liability to the optionee for alternative minimum
tax. However, if an optionee has ordinary income taxable as
compensation as a result of a disqualifying disposition, the
Company will be entitled to deduct an equivalent amount.
NON-ISOs. In the case of a Non-ISO, an optionee will
recognize ordinary income upon the exercise of the Non-ISO in an
amount equal to the difference between the fair market value of
the shares on the date of exercise and the option price (or, if
the optionee is subject to certain restrictions imposed by the
federal securities laws, upon the lapse of those restrictions
unless the optionee makes a special tax election within 30 days
after the date of exercise to have the general rule apply).
Upon a subsequent disposition of such shares, any amount
received by the optionee in excess of the fair market value of
the shares as of the exercise will be taxed as capital gain.
The Company will be entitled to
-10-
a deduction for federal income tax purposes at the same time and
in the same amount as the ordinary income recognized by the
optionee in connection with the exercise of a Non-ISO.
SARs. The grant of an SAR has no tax effect on the optionee
or the Company. Upon exercise of the SARs, however, any cash or
Common Stock received by the optionee in connection with the
surrender of his or her SAR will be treated as compensation
income to the optionee, and the Company will be entitled to a
business expense deduction for the amounts treated as
compensation income.
PROPOSED STOCK OPTION GRANTS
Set forth below is certain information relating to all
Options that were granted to the specified individuals and
groups of individuals on the Effective Date of the Option Plan.
All such Options (i) will be subject to the terms and conditions
described above, and are contingent on, and not exercisable
until, the Option Plan receives stockholder approval, and (ii)
will automatically expire ten years after the date of their
grant. The exercise price for these Options will equal the fair
market value of the Common Stock on the date of grant ($12.75
per share). The closing sale price of the Common Stock on March
31, 1999, as reported on the Nasdaq SmallCap Market,SM was
$12.125 per share.
NUMBER OF SHARES
PARTICIPANT OR GROUP SUBJECT TO OPTIONS
-------------------- ------------------
Richard Harwood, President, Chief Executive Officer,
and Director 36,369
Nancy Bryant, Vice President 19,166
Peggy Holston, Branch Manager 17,202
J. William Myers, Chairman of the
Board and Director 10,900
Clyde E. Driskill, Jr., Director 10,900
William B. Henry, Director 10,900
Robert L. Overholt, Director 10,900
Robert D. Self, Director 10,900
Tommy C. Bible, Director 2,500
Ben W. Hooper, III, Director 2,500
All executive officers as a group (3 persons) 72,737
All directors who are not executive officers as a
group (7 persons) 59,500
All employees, including all current officers who are
not executive officers, as a group (19 persons) 0
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors has determined that the Option Plan
is desirable, cost effective, and produces incentives which will
benefit the Company and its stockholders. The Board of Direc-
tors is seeking stockholder approval of the Option Plan in order
to satisfy the requirements of the Internal Revenue Code for
favorable tax treatment of ISOs and to satisfy the requirements
for continued listing on the Nasdaq SmallCap Market.SM
Stockholder approval of the Option Plan requires the affir-
mative vote of the holders of a majority of the votes cast at
the Annual Meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" APPROVAL OF THE OPTION PLAN.
-11-
PROPOSAL III -- APPROVAL OF THE UNITED TENNESSEE BANKSHARES, INC.
MANAGEMENT RECOGNITION PLAN
GENERAL
The Board of Directors of the Company is seeking stock-
holder approval of the United Tennessee Bankshares, Inc.
Management Recognition Plan (the "MRP"). A copy of the MRP is
attached hereto as Exhibit B, and should be consulted for
additional information. All statements made herein regarding
the MRP, which are only intended to summarize the MRP, are
qualified in their entirety by reference to the MRP.
PURPOSE OF THE MRP
The purpose of the MRP is to reward and retain personnel of
experience and ability in key positions of responsibility by
providing employees and directors of the Company, the Bank and
their affiliates with a proprietary interest in the Company,
with compensation for their past contributions to the Company
and the Bank, and with an incentive to make such contributions
in the future.
DESCRIPTION OF THE MRP
EFFECTIVE DATE. The MRP has been formally adopted by the
Board of Directors and became effective on January 12, 1999 (the
"Effective Date"), although the MRP's effectiveness will be
contingent upon its approval by the Company's stockholders.
ADMINISTRATION. The MRP will be administered by an MRP
Committee consisting of not less than two members of the
Company's Board of Directors ("Board") who are "non-employee
directors" within the meaning of the federal securities laws.
Except as limited by the express provisions of the MRP or by
resolutions adopted by the Board, the MRP Committee has sole and
complete authority and discretion (1) to grant MRP awards to
such employees as the MRP Committee may select, (2) to determine
the form and content of MRP awards to be issued under the MRP,
(3) to interpret the MRP, (4) to prescribe, amend, and rescind
rules and regulations relating to the MRP, and (5) to make other
determinations necessary or advisable for the administration of
the MRP. The MRP provides that members of the MRP Committee
shall be indemnified and held harmless for actions taken under
the MRP in good faith and which he or she reasonably believed
to be in the best interests of the Company and its affiliates.
As of the Record Date, the MRP Committee consists of Directors
William B. Henry, Robert L. Overholt, and Robert D. Self.
MRP TRUST; PURCHASE LIMITATIONS. The assets of the MRP
will be held in a trust (the "MRP Trust"), as to which Directors
Henry, Overholt, and Self are expected to act as trustees ("MRP
Trustees") and thereby have the responsibility to invest all
funds contributed to the MRP Trust by the Company or the Bank.
With funds contributed by the Company, the MRP Trust may
purchase, in the aggregate, up to 58,190 shares of the Company's
Common Stock. The number of shares is the maximum that the MRP
Trust may purchase. Such shares may be newly issued shares,
shares held in treasury, or shares held in a grantor trust. In
the event an MRP award is forfeited for any reason or additional
shares are purchased by the MRP Trust associated with the MRP,
the MRP Committee may make awards with respect to such shares.
TYPES OF AWARDS; ELIGIBLE PERSONS. The MRP Committee has
the discretion to select directors and employees of the Company
and/or of the Bank who will receive MRP awards. In selecting
those employees and directors to whom MRP awards will be granted
and the number of shares covered by such awards, the MRP
Committee will consider the position, duties and responsibili-
ties of eligible employees, the value of their services to the
Company and its affiliates (including the Bank) and any other
factors the MRP Committee may deem relevant. In addition, the
MRP specifically
-12-
provides for automatic awards on the Effective Date to certain
employees and non-employee directors of the Company and the Bank
(see "New Plan Benefits" below).
VESTING. The vesting of MRP awards will be subject to such
terms and conditions as are established in a written notice from
the Committee to the award recipient. Unless the Committee
specifically eliminates any vesting requirement or imposes a
different vesting schedule, 25% of the shares subject to an MRP
award will be earned and become non-forfeitable by each partici-
pant on the Effective Date, and an additional 25% of the shares
subject to an MRP award will become earned and non-forfeitable
upon the participant's completion of each of three years of
service after the award date. Notwithstanding the foregoing,
all shares of Common Stock subject to outstanding awards will
become immediately 100% earned and non-forfeitable upon a
participant's retirement at or after age 70, death, disability
(as defined in the MRP), or upon a change in control (as defined
in the MRP) or, if earlier, the execution of an agreement to
effect a change in control of the Bank or the Company.
DISTRIBUTIONS OF SHARES; VOTING. As MRP awards vest, the
MRP Trustees will distribute all shares, together with any
shares representing stock dividends, in the form of Common
Stock. One share of Common Stock will be given for each share
earned. Payments representing cash dividends (and earnings
thereon) will be made in cash. All unvested shares of Common
Stock held by the MRP Trust (whether or not subject to an MRP
award) shall be voted by the MRP Trustees in the same proportion
as the trustee of the Company's Employee Stock Ownership Plan
trust votes Common Stock held therein, and in the absence of any
such voting, shall be voted in the manner directed by the Board.
DIVIDENDS. Whenever shares of Common Stock are paid to an
award recipient or beneficiary thereof, such recipient or bene-
ficiary shall also be entitled to receive, with respect to each
share paid, an amount equal to any cash dividends (including
special large and nonrecurring dividends, including one that has
the effect of a return of capital to the Company's stockholders)
and a number of shares of Common Stock equal to any stock
dividends declared and paid with respect to a share of Common
Stock between the date the relevant MRP award was initially
granted to such participant and the date the shares are being
distributed. There shall also be distributed an appropriate
amount of net earnings, if any, of the Trust with respect to any
cash dividends so paid out.
No shares may be distributed from the MRP Trust prior to
the date which is five years from the date of the Bank's conver-
sion from mutual to stock form to the extent the recipient would
after receipt of such shares own in excess of 10% of the issued
and outstanding shares of Common Stock, unless such action is
approved in advance by a majority vote of the non-employee
directors of the Board. Any shares remaining undistributed
solely by reason of the operation of this rule shall be distri-
buted to the recipient on the date which is five years from the
date of the Bank's conversion to stock form.
DEFERRAL OF AWARDS. The MRP provides that at any time that
is at least six months prior to the next date on which a parti-
cipant becomes vested in any shares subject to his or her award,
the participant may irrevocably elect to defer the receipt of
all or a percentage of the shares that would otherwise be
transferred to the participant upon the vesting of such award
(the "Deferred Shares"). MRP participants shall receive
earnings on dividends paid on Deferred Shares at a rate equal to
the yield on the Common Stock, as determined from time to time
by the MRP Committee in its sole discretion. The MRP Trustees
shall hold each participant's Deferred Shares and deferred
earnings in the MRP Trust until distribution is required
pursuant to the participant's election.
TRANSFERABILITY. Participants may transfer their MRP
awards to family members or trusts under specified circum-
stances. MRP awards and rights to shares held in the MRP Trust
are not otherwise transferable by participants in the MRP, and
during the lifetime of a participant, shares held in the MRP
Trust may only be earned by and paid to the participant.
TAXATION. Participants will recognize compensation income
when their interest vests, or at an earlier date pursuant to a
participant's election to accelerate recognition pursuant to
Section 83(b) of the Internal Revenue Code.
-13-
FINANCIAL EFFECTS OF AWARDS. Neither the Company nor the
Bank will receive any monetary consideration for the granting of
awards under the MRP. Under applicable accounting standards,
when MRP awards are granted, the Company must recognize compen-
sation expense based on the fair market value of the Common
Stock on the date the MRP awards are granted, with such amount
being amortized over the expected vesting period for the award.
ADJUSTMENTS FOR CAPITAL CHANGES. In the event of any
merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of
shares, or similar event in which the number or kind of shares
is changed without receipt or payment of consideration by the
Company, the MRP Committee will adjust both the number and kind
of shares of stock which may be purchased under the MRP and the
number and kind of shares of stock subject to outstanding MRP
awards. In the event of (i) the liquidation or dissolution of
the Company, (ii) a merger or consolidation in which the Company
is not the surviving entity, or (iii) the sale or disposition of
all or substantially all of the Company's assets, all
outstanding MRP awards shall be adjusted for any change or
exchange of shares of Common Stock for a different number or
kind of shares or other securities which results from the
transaction.
AMENDMENT AND TERMINATION OF THE MRP. The Board may, by
resolution, amend or terminate the MRP at any time, provided
that no amendment or termination of the MRP will, without the
written consent of any affected holders of an MRP award, impair
any rights or obligations under any MRP award previously
granted.
The power to amend or terminate includes the power to
direct the MRP Trustees to return to the Company all or any part
of the assets of the MRP Trust, including shares of Common Stock
held in the plan share reserve of the MRP. However, the termi-
nation of the MRP Trust may not affect a participant's right to
earn outstanding MRP awards and to receive Common Stock relating
thereto, including earnings thereon, in accordance with the
terms of the MRP and the particular MRP award made to the
participant.
DURATION OF THE MRP. The MRP and MRP Trust will remain in
effect until the earlier of (i) termination by the Board, or
(ii) the distribution of all assets of the MRP Trust. Termina-
tion of the MRP will not affect any MRP awards previously
granted, and such MRP awards will remain valid and in effect
until they have been earned and distributed from the MRP Trust,
or by their terms expire or are forfeited.
PROPOSED MRP AWARDS. For information relating to proposed
MRP awards, see "New Plan Benefits" below.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors has determined that the MRP is
desirable, cost effective, and produces incentives which will
benefit the Company and its stockholders. The Board of Direc-
tors is seeking stockholder approval of the MRP to satisfy the
requirements for continued listing on the Nasdaq SmallCap
Market.SM
Approval of the MRP requires the affirmative vote of the
holders of a majority of the votes cast at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
MRP.
-14-
NEW PLAN BENEFITS
The following tables set forth certain information regard-
ing the benefits expected to be received under the Option Plan
and the MRP.
[CAPTION]
OPTION PLAN MRP
------------------------ -----------------------
DOLLAR NUMBER DOLLAR NUMBER
NAME AND POSITION VALUE ($)1 OF UNITS VALUE ($)2 OF UNITS
- ----------------- ---------- --------- ---------- --------
Richard Harwood, President, Chief Executive Officer,
and Director $ -- 36,369 $ 176,382 14,547
Nancy Bryant, Vice President $ -- 19,166 $ 92,962 7,667
Peggy Holston, Branch Manager $ -- 17,202 $ 83,432 6,881
All current executive officers as a group (3 persons) $ -- 72,737 $ 352,776 29,095
All current directors who are not executive officers
as a group (7 persons) $ -- 59,500 $ 263,719 21,750
All employees, including all current officers who
are not executive officers, as a group (19 persons) $ -- 0 $ 0 0
<FN>
__________________
1 Based on the fair market value of the Common Stock on the date of grant less the exercise price. All Options
are granted at an exercise price equal to the fair market value of the underlying shares of Common Stock on
the date of the grant.
2 Based on the closing price of the underlying Common Stock of $12.125 per share as quoted on the Nasdaq
SmallCap MarketSM on March 31, 1999.
</FN>
OTHER MATTERS
The Board of Directors is not aware of any business to come
before the Annual Meeting other than those matters described
above in this proxy statement. However, if any other matters
should properly come before the Annual Meeting, it is intended
that proxies in the accompanying form will be voted in respect
thereof in accordance with the determination of a majority of
the Board of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to regulations promulgated under the Exchange Act,
the Company's officers, directors and persons who own more than
ten percent of the outstanding Common Stock are required to file
reports detailing their ownership and changes of ownership in
such Common Stock, and to furnish the Company with copies of all
such reports. Based on the Company's review of such reports
which the Company received during the last fiscal year, or
written representations from such persons that no annual report
of change in beneficial ownership was required, the Company
believes that, during the last fiscal year, all persons subject
to such reporting requirements have complied with the reporting
requirements.
MISCELLANEOUS
The cost of soliciting proxies will be borne by the Company.
The Company will reimburse brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by
them in sending proxy materials
-15-
to beneficial owners of shares of the Common Stock. In addition
to solicitations by mail, our directors, officers and regular
employees may solicit proxies personally or by telegraph or
telephone without additional compensation.
FINANCIAL INFORMATION
The annual report to stockholders, including financial
statements, has been mailed to all stockholders of record as of
the close of business on the Record Date. Any stockholder who
has not received a copy of such annual report may obtain a copy
by writing to the Company's Corporate Secretary. Such annual
report is not to be treated as a part of the proxy solicitation
material or as having been incorporated herein by reference. A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1998 AS FILED WITH THE SEC WILL
BE FURNISHED WITHOUT CHARGE TO EACH STOCKHOLDER AS OF THE RECORD
DATE UPON WRITTEN REQUEST TO THE COMPANY'S CORPORATE SECRETARY,
UNITED TENNESSEE BANKSHARES, INC., 344 W. BROADWAY, NEWPORT,
TENNESSEE 37821-0249.
INDEPENDENT AUDITORS
Pugh & Company, P.C. was the Company's independent auditor
for the 1998 fiscal year and has been retained by the Board of
Directors to be its auditor for the 1999 fiscal year. A repre-
sentative of Pugh & Company, P.C. is expected to be present at
the Annual Meeting to respond to stockholders' questions and
will have the opportunity to make a statement if he or she so
desires.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy
materials for next year's Annual Meeting of Stockholders, any
stockholder proposal to take action at such meeting must be
received at the Company's main office at 344 W. Broadway,
Newport, Tennessee 37821-0249, no later than December 16, 1999.
Any such proposal shall be subject to the requirements of the
proxy rules adopted under the Exchange Act.
Stockholder proposals to be considered at the Annual
Meeting, other than those submitted pursuant to the Exchange
Act, must be stated in writing, delivered or mailed to the
Secretary of the Corporation, not less than thirty days nor more
than sixty days prior to the date of the Annual Meeting. If
less than forty days notice is given to stockholders, such
notice shall be delivered or mailed to the Secretary not later
than the close of business on the tenth day following the day on
which notice of the meeting was mailed to stockholders.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Peggy Holston
PEGGY HOLSTON
SECRETARY
Newport, Tennessee
April 14, 1999
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Exhibit A
UNITED TENNESSEE BANKSHARES, INC.
1999 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The purpose of this Plan is to advance the interests of
the Company through providing select key Employees and Directors
of the Association, the Company, and their Affiliates with the
opportunity to acquire Shares. By encouraging such stock
ownership, the Company seeks to attract, retain and motivate the
best available personnel for positions of substantial respon-
sibility and to provide additional incentives to Directors and
key Employees of the Company or any Affiliate to promote the
success of the business.
2. DEFINITIONS.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or
"subsidiary corporation" of the Company, as such terms are
defined in Section 424(e) and (f), respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered
into in accordance with Paragraph 5(c).
(c) "Awards" shall mean, collectively, Options and SARs,
unless the context clearly indicates a different meaning.
(d) "Bank" shall mean Newport Federal Bank.
(e) "Board" shall mean the Board of Directors of the
Company.
(f) "Change in Control" shall mean any one of the
following events: (i) the acquisition of ownership, holding or
power to vote more than 25% of the voting stock of the
Association or the Company, (ii) the acquisition of the ability
to control the election of a majority of the Association's or
the Company's directors, (iii) the acquisition of a controlling
influence over the management or policies of the Association or
of the Company by any person or by persons acting as a "group"
(within the meaning of Section 13(d) of the Securities Exchange
Act of 1934), or (iv) during any period of two consecutive
years, individuals (the "Continuing Directors") who at the
beginning of such period constitute the Board of Directors of
the Association or of the Company (the "Existing Board") cease
for any reason to constitute at least two-thirds thereof,
provided that any individual whose election or nomination for
election as a member of the Existing Board was approved by a
vote of at least two-thirds of the Continuing Directors then in
office shall be considered a Continuing Director.
Notwithstanding the foregoing, the Company's ownership of the
Association shall not of itself constitute a Change in Control
for purposes of the Agreement. For purposes of this paragraph
only, the term "person" refers to an individual or a
corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed
herein.
(g) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(h) "Committee" shall mean the Stock Option Committee
appointed by the Board in accordance with Paragraph 5(a) hereof,
provided that the Board may at any time act in lieu of the
Committee.
(i) "Common Stock" shall mean the common stock of the
Company.
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(j) "Company" shall mean United Tennessee Bankshares,
Inc.
(k) "Continuous Service" shall mean the absence of any
interruption or termination of service as an Employee or
Director of the Company or an Affiliate. Continuous Service
shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the
Company, in the case of transfers between payroll locations of
the Company or between the Company, an Affiliate or a successor,
or in the case of a Director's performance of services in an
emeritus or advisory capacity.
(l) "Director" shall mean any member of the Board, and
any member of the board of directors of any Affiliate that the
Board has by resolution designated as being eligible for
participation in this Plan.
(m) "Disability" shall mean a physical or mental
condition, which in the sole and absolute discretion of the
Committee, is reasonably expected to be of indefinite duration
and to substantially prevent a Participant from fulfilling his
or her duties or responsibilities to the Company or an
Affiliate.
(n) "Effective Date" shall mean the date specified in
Paragraph 14 hereof.
(o) "Employee" shall mean any person employed by the
Company, the Association, or an Affiliate.
(p) "Exercise Price" shall mean the price per Optioned
Share at which an Option or SAR may be exercised.
(q) "ISO" shall mean an option to purchase Common Stock
which meets the requirements set forth in the Plan, and which is
intended to be and is identified as an "incentive stock option"
within the meaning of Section 422 of the Code.
(r) "Market Value" shall mean the fair market value of
the Common Stock, as determined under Paragraph 7(b) hereof.
(s) "Non-Employee Director" shall have the meaning
provided in Rule 16b-3.
(t) "Non-ISO" means an option to purchase Common Stock
which meets the requirements set forth in the Plan but which is
not intended to be and is not identified as an ISO.
(u) "Option" means an ISO and/or a Non-ISO.
(v) "Optioned Shares" shall mean Shares subject to an
Award granted pursuant to this Plan.
(w) "Participant" shall mean any person who receives an
Award pursuant to the Plan.
(x) "Plan" shall mean this United Tennessee Bankshares,
Inc. 1999 Stock Option Plan.
(y) "Rule 16b-3" shall mean Rule 16b-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934,
as amended.
(z) "Share" shall mean one share of Common Stock.
(aa) "SAR" (or "Stock Appreciation Right") means a right
to receive the appreciation in value, or a portion of the
appreciation in value, of a specified number of shares of Common
Stock.
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(bb) "Year of Service" shall mean a full twelve-month
period, measured from the date of an Award and each annual
anniversary of that date, during which a Participant has not
terminated Continuous Service for any reason.
3. TERM OF THE PLAN AND AWARDS.
(A) TERM OF THE PLAN. The Plan shall continue in effect
for a term of ten years from the Effective Date, unless sooner
terminated pursuant to Paragraph 16 hereof. No Award shall be
granted under the Plan after ten years from the Effective Date.
(B) TERM OF AWARDS. The term of each Award granted
under the Plan shall be established by the Committee, but shall
not exceed 10 years; provided, however, that in the case of an
Employee who owns Shares representing more than 10% of the
outstanding Common Stock at the time an ISO is granted, the term
of such ISO shall not exceed five years.
4. SHARES SUBJECT TO THE PLAN.
(A) GENERAL RULE. Except as otherwise required under
Paragraph 11, the aggregate number of Shares deliverable
pursuant to Awards shall not exceed 145,475 Shares. Such Shares
may either be authorized but unissued Shares, Shares held in
treasury, or Shares held in a grantor trust. If any Awards
should expire, become unexercisable, or be forfeited for any
reason without having been exercised, the Optioned Shares shall,
unless the Plan shall have been terminated, be available for the
grant of additional Awards under the Plan.
(B) SPECIAL RULE FOR SARS. The number of Shares with
respect to which an SAR is granted, but not the number of Shares
which the Company delivers or could deliver to an Employee or
individual upon exercise of an SAR, shall be charged against the
aggregate number of Shares remaining available under the Plan;
provided, however, that in the case of an SAR granted in
conjunction with an Option, under circumstances in which the
exercise of the SAR results in termination of the Option and
vice versa, only the number of Shares subject to the Option
shall be charged against the aggregate number of Shares
remaining available under the Plan. The Shares involved in an
Option as to which option rights have terminated by reason of
the exercise of a related SAR, as provided in Paragraph 10
hereof, shall not be available for the grant of further Options
under the Plan.
5. ADMINISTRATION OF THE PLAN.
(A) COMPOSITION OF THE COMMITTEE. The Plan shall be
administered by the Committee, which shall consist of not less
than two (2) members of the Board who are Non-Employee
Directors. Members of the Committee shall serve at the pleasure
of the Board. In the absence at any time of a duly appointed
Committee, the Plan shall be administered by the Board.
(B) POWERS OF THE COMMITTEE. Except as limited by the
express provisions of the Plan or by resolutions adopted by the
Board, the Committee shall have sole and complete authority and
discretion, subject to compliance with Office of Thrift
Supervision regulations, (i) to select Participants and grant
Awards, (ii) to determine the form and content of Awards to be
issued in the form of Agreements under the Plan, (iii) to
interpret the Plan, (iv) to prescribe, amend and rescind rules
and regulations relating to the Plan, and (v) to make other
determinations necessary or advisable for the administration of
the Plan. The Committee shall have and may exercise such other
power and authority as may be delegated to it by the Board from
time to time. A majority of the entire Committee shall
constitute a quorum and the action of a majority of the members
present at any meeting at which a quorum is present, or acts
approved in writing by a majority of the Committee without a
meeting, shall be deemed the action of the Committee.
(c) AGREEMENT. Each Award shall be evidenced by a
written agreement containing such provisions as may be approved
by the Committee. Each such Agreement shall constitute a
binding contract between the Company and the Participant, and
every Participant, upon acceptance of such Agreement, shall be
bound by the terms and
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restrictions of the Plan and of such Agreement. The terms of
each such Agreement shall be in accordance with the Plan, but
each Agreement may include such additional provisions and
restrictions determined by the Committee, in its discretion,
provided that such additional provisions and restrictions are
not inconsistent with the terms of the Plan. In particular, the
Committee shall set forth in each Agreement (i) the Exercise
Price of an Option or SAR, (ii) the number of Shares subject to
the Award, and its expiration date, (iii) the manner, time, and
rate (cumulative or otherwise) of exercise or vesting of such
Award, and (iv) the restrictions, if any, to be placed upon such
Award, or upon Shares which may be issued upon exercise of such
Award. The Chairman of the Committee and such other Directors
and officers as shall be designated by the Committee are hereby
authorized to execute Agreements on behalf of the Company and to
cause them to be delivered to the recipients of Awards.
(D) EFFECT OF THE COMMITTEE'S DECISIONS. All decisions,
determinations and interpretations of the Committee shall be
final and conclusive on all persons affected thereby.
(E) INDEMNIFICATION. In addition to such other rights
of indemnification as they may have, the members of the
Committee shall be indemnified by the Company in connection with
any claim, action, suit or proceeding relating to any action
taken or failure to act under or in connection with the Plan or
any Award, granted hereunder to the full extent provided for
under the Company's governing instruments with respect to the
indemnification of Directors.
6. GRANT OF OPTIONS.
(A) GENERAL RULE. Only Employees shall be eligible to
receive Awards. In selecting those Employees to whom Awards
will be granted and the number of shares covered by such Awards,
the Committee shall consider the position, duties and
responsibilities of the eligible Employees, the value of their
services to the Company and its Affiliates, and any other
factors the Committee may deem relevant. Notwithstanding the
foregoing, the Committee shall automatically make the Awards
specified in Paragraphs 6(b) and 9 hereof.
(B) AUTOMATIC GRANTS TO EMPLOYEES. On the Effective
Date, each of the following Employees shall receive an Option
(in the form of an ISO, to the extent permissible under the
Code) to purchase the number of Shares listed below (but not to
exceed the OTS Award Limitations), at an Exercise Price per
Share equal to the Market Value of a Share on the Effective
Date; provided that such grant shall not be made to an Employee
whose Continuous Service terminates on or before the Effective
Date:
PARTICIPANT NUMBER OF SHARES
----------- ----------------
Richard Harwood 36,369
Nancy Bryant 19,166
Peggy Holston 17,202
With respect to each of the above-named Participants, the
Option granted to the Participant hereunder (i) shall vest in
accordance with the general rule set forth in Paragraph 8(a) of
the Plan, (ii) shall have a term of ten years from the Effective
Date, and (iii) shall be subject to the general rule set forth
in Paragraph 8(c) with respect to the effect of a Participant's
termination of Continuous Service on the Participant's right to
exercise his Options.
(C) SPECIAL RULES FOR ISOS. The aggregate Market Value,
as of the date the Option is granted, of the Shares with respect
to which ISOs are exercisable for the first time by an Employee
during any calendar year (under all incentive stock option
plans, as defined in Section 422 of the Code, of the Company or
any present or future Affiliate of the Company) shall not exceed
$100,000. Notwithstanding the foregoing, the Committee may
grant Options in excess of the foregoing limitations, in which
case Options granted in excess of such limitation shall be Non-
ISOs.
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7. EXERCISE PRICE FOR OPTIONS.
(A) LIMITS ON COMMITTEE DISCRETION. The Exercise Price
as to any particular Option shall not be less than 100% of the
Market Value of the Optioned Shares on the date of grant. In
the case of an Employee who owns Shares representing more than
10% of the Company's outstanding Shares of Common Stock at the
time an ISO is granted, the Exercise Price shall not be less
than 110% of the Market Value of the Optioned Shares at the time
the ISO is granted.
(B) STANDARDS FOR DETERMINING EXERCISE PRICE. If the
Common Stock is listed on a national securities exchange
(including the NASDAQ National Market System) on the date in
question, then the Market Value per Share shall be the average
of the highest and lowest selling price on such exchange on such
date, or if there were no sales on such date, then the Exercise
Price shall be the mean between the bid and asked price on such
date. If the Common Stock is traded otherwise than on a
national securities exchange on the date in question, then the
Market Value per Share shall be the mean between the bid and
asked price on such date, or, if there is no bid and asked price
on such date, then on the next prior business day on which there
was a bid and asked price. If no such bid and asked price is
available, then the Market Value per Share shall be its fair
market value as determined by the Committee, in its sole and
absolute discretion.
8. EXERCISE OF OPTIONS.
(A) GENERALLY. Unless the Committee, in its sole
discretion, designates a different vesting schedule in an
Agreement, each Option shall become exercisable with respect to
twenty-five percent (25%) of the Optioned Shares upon the date
of the Option's grant, and shall become exercisable with respect
to an additional twenty-five percent (25%) of the Optioned
Shares upon the Participant's completion of each of the next
three Years of Service, provided that an Option shall become
fully (100%) exercisable immediately upon termination of the
Participant's Continuous Service due to the Participant's
retirement at or after age 70, Disability, or death. All
outstanding Options shall also become fully exercisable upon a
Change in Control or the execution of a written agreement that
would effect a Change in Control. An Option may not be
exercised for a fractional Share.
(B) PROCEDURE FOR EXERCISE. A Participant may exercise
Options, subject to provisions relative to its termination and
limitations on its exercise, only by (1) written notice of
intent to exercise the Option with respect to a specified number
of Shares, and (2) payment to the Company (contemporaneously
with delivery of such notice) in cash, in Common Stock, or a
combination of cash and Common Stock, of the amount of the
Exercise Price for the number of Shares with respect to which
the Option is then being exercised. Each such notice (and
payment where required) shall be delivered, or mailed by prepaid
registered or certified mail, addressed to the Treasurer of the
Company at its executive offices. Common Stock utilized in full
or partial payment of the Exercise Price for Options shall be
valued at its Market Value at the date of exercise, and may
consist of Shares subject to the Option being exercised.
(C) PERIOD OF EXERCISABILITY. Except to the extent
otherwise provided in the terms of an Agreement, an Option may
be exercised by a Participant only while he is an Employee and
has maintained Continuous Service from the date of the grant of
the Option, or within one year after termination of such
Continuous Service (but not later than the date on which the
Option would otherwise expire, and the Participant must exercise
an ISO within three months after termination of Continuous
Service in order to preserve the Option as an ISO), except if
the Employee's Continuous Service terminates by reason of --
(1) "Just Cause" which for purposes hereof shall
have the meaning set forth in any unexpired employment or
severance agreement between the Participant and the
Association and/or the Company (and, in the absence of any
such agreement, shall mean termination because of the
Employee's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties,
willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final
cease-and-desist order), then the Participant's rights to
exercise such Option shall expire on the date of such
termination;
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(2) death, then to the extent that the Participant
would have been entitled to exercise the Option
immediately prior to his death, such Option of the
deceased Participant may be exercised within two years
from the date of his death (but not later than the date on
which the Option would otherwise expire) by the personal
representatives of his estate or person or persons to whom
his rights under such Option shall have passed by will or
by laws of descent and distribution;
(3) Disability, then to the extent that the
Participant would have been entitled to exercise the
Option immediately prior to his or her Disability, such
Option may be exercised within one year from the date of
termination of employment due to Disability, but not later
than the date on which the Option would otherwise expire.
(D) EFFECT OF THE COMMITTEE'S DECISIONS. The
Committee's determination whether a Participant's Continuous
Service has ceased, and the effective date thereof, shall be
final and conclusive on all persons affected there-by.
(E) MANDATORY SIX-MONTH HOLDING PERIOD. Notwithstanding
any other provision of this Plan to the contrary, common stock
of the Company that is purchased upon exercise of an Option or
SAR may not be sold within the six-month period following the
grant of that Option or SAR.
9. GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(A) AUTOMATIC GRANTS. Notwithstanding any other
provisions of this Plan, each of Directors Myers, Henry, Self,
Driskill, and Overholt shall receive, on the Effective Date, a
Non-ISO to purchase 10,900 Shares. In addition, Directors Bible
and Hooper shall receive, on the Effective Date, a Non-ISO to
purchase 2,500 shares. All of such Non-ISOs shall have an
Exercise Price per Share equal to the Market Value of a Share on
the date of grant.
(B) TERMS OF EXERCISE. Options received under the
provisions of this Paragraph (i) shall become exercisable in
accordance with paragraph 8(a) of the Plan, and (ii) may be
exercised from time to time by written notice of intent to
exercise the Option with respect to all or a specified number of
the Optioned Shares, and payment to the Company
(contemporaneously with the delivery of such notice), in cash,
in Common Stock, or a combination of cash and Common Stock, of
the amount of the Exercise Price for the number of the Optioned
Shares with respect to which the Option is then being exercised.
Each such notice and payment shall be delivered, or mailed by
prepaid registered or certified mail, addressed to the Treasurer
of the Company at the Company's executive offices. A Director
who exercises Options pursuant to this Paragraph may satisfy all
applicable federal, state and local income and employment tax
withholding obligations, in whole or in part, by irrevocably
electing to have the Company withhold shares of Common Stock, or
to deliver to the Company shares of Common Stock that he already
owns, having a value equal to the amount required to be
withheld; provided that to the extent not inconsistent herewith,
such election otherwise complies with those requirements of
Paragraphs 8 and 19 hereof.
Options granted under this Paragraph shall have a term of
ten years; provided that Options granted under this Paragraph
shall expire one year after the date on which a Director
terminates Continuous Service on the Board for a reason other
than death, but in no event later than the date on which such
Options would otherwise expire. In the event of such Director's
death during the term of his directorship, Options granted under
this Paragraph shall become immediately exercisable, and may be
exercised within two years from the date of his death by the
personal representatives of his estate or person or persons to
whom his rights under such Option shall have passed by will or
by laws of descent and distribution, but in no event later than
the date on which such Options would otherwise expire. Unless
otherwise inapplicable or inconsistent with the provisions of
this Paragraph, the Options to be granted to Directors hereunder
shall be subject to all other provisions of this Plan.
(C) EFFECT OF THE COMMITTEE'S DECISIONS. The
Committee's determination whether a Participant's Continuous
Service has ceased, and the effective date thereof, shall be
final and conclusive on all persons affected thereby.
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10. SARS (STOCK APPRECIATION RIGHTS)
(A) GRANTING OF SARS. In its sole discretion, the
Committee may from time to time grant SARs to Employees either
in conjunction with, or independently of, any Options granted
under the Plan. An SAR granted in conjunction with an Option
may be an alternative right wherein the exercise of the Option
terminates the SAR to the extent of the number of shares
purchased upon exercise of the Option and, correspondingly, the
exercise of the SAR terminates the Option to the extent of the
number of Shares with respect to which the SAR is exercised.
Alternatively, an SAR granted in conjunction with an Option may
be an additional right wherein both the SAR and the Option may
be exercised. An SAR may not be granted in conjunction with an
ISO under circumstances in which the exercise of the SAR affects
the right to exercise the ISO or vice versa, unless the SAR, by
its terms, meets all of the following requirements:
(1) The SAR will expire no later than the ISO;
(2) The SAR may be for no more than the difference
between the Exercise Price of the ISO and the Market
Value of the Shares subject to the ISO at the time
the SAR is exercised;
(3) The SAR is transferable only when the ISO is
transferable, and under the same conditions;
(4) The SAR may be exercised only when the ISO may be
exercised; and
(5) The SAR may be exercised only when the Market Value
of the Shares subject to the ISO exceeds the
Exercise Price of the ISO.
(B) EXERCISE PRICE. The Exercise Price as to any
particular SAR shall not be less than the Market Value of the
Optioned Shares on the date of grant. The provisions of
Paragraph 8(c) regarding the period of exercisability of Options
are incorporated by reference herein, and shall determine the
period of exercisability of SARs.
(C) EXERCISE OF SARS. An SAR granted hereunder shall
be exercisable at such times and under such conditions as shall
be permissible under the terms of the Plan and of the Agreement
granted to a Participant, provided that an SAR may not be
exercised for a fractional Share. Upon exercise of an SAR, the
Participant shall be entitled to receive, without payment to the
Company except for applicable withholding taxes, an amount equal
to the excess of (or, in the discretion of the Committee if
provided in the Agreement, a portion of) the excess of the then
aggregate Market Value of the number of Optioned Shares with
respect to which the Participant exercises the SAR, over the
aggregate Exercise Price of such number of Optioned Shares.
This amount shall be payable by the Company, in the discretion
of the Committee, in cash or in Shares valued at the then Market
Value thereof, or any combination thereof.
(D) PROCEDURE FOR EXERCISING SARS. To the extent not
inconsistent herewith, the provisions of Paragraph 8(b) as to
the procedure for exercising Options are incorporated by
reference, and shall determine the procedure for exercising
SARs.
11. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE
PLAN.
(A) RECAPITALIZATIONS; STOCK SPLITS, ETC. The number
and kind of shares reserved for issuance under the Plan, and the
number and kind of shares subject to outstanding Awards, and the
Exercise Price thereof, shall be proportionately adjusted for
any increase, decrease, change or exchange of Shares for a
different number or kind of shares or other securities of the
Company which results from a merger, consolidation, recapita-
lization, reorganization, reclassification, stock dividend,
split-up, combination of shares, or similar event in which the
number or kind of shares is changed without the receipt or
payment of consideration by the Company.
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(B) TRANSACTIONS IN WHICH THE COMPANY IS NOT THE
SURVIVING ENTITY. In the event of (i) the liquidation or
dissolution of the Company, (ii) a merger or consolidation in
which the Company is not the surviving entity, or (iii) the sale
or disposition of all or substantially all of the Company's
assets (any of the foregoing to be referred to herein as a
"Transaction"), all outstanding Awards, together with the
Exercise Prices thereof, shall be equitably adjusted for any
change or exchange of Shares for a different number or kind of
shares or other securities which results from the Transaction.
(C) SPECIAL RULE FOR ISOS. Any adjustment made pursuant
to subparagraphs (a) or (b)(1) hereof shall be made in such a
manner as not to constitute a modification, within the meaning
of Section 424(h) of the Code, of outstanding ISOs.
(D) CONDITIONS AND RESTRICTIONS ON NEW, ADDITIONAL, OR
DIFFERENT SHARES OR SECURITIES. If, by reason of any adjustment
made pursuant to this Paragraph, a Participant becomes entitled
to new, additional, or different shares of stock or securities,
such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and
restrictions which were applicable to the Shares pursuant to the
Award before the adjustment was made.
(E) OTHER ISSUANCES. Except as expressly provided in
this Paragraph, the issuance by the Company or an Affiliate of
shares of stock of any class, or of securities convertible into
Shares or stock of another class, for cash or property or for
labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, shall not affect,
and no adjustment shall be made with respect to, the number,
class, or Exercise Price of Shares then subject to Awards or
reserved for issuance under the Plan.
(F) CERTAIN SPECIAL DIVIDENDS. The Exercise Price of
shares subject to outstanding Awards shall be proportionately
adjusted upon the payment of a special large and nonrecurring
dividend that has the effect of a return of capital to the
stockholders.
12. NON-TRANSFERABILITY OF AWARDS.
Awards may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or
by the laws of descent and distribution. Notwithstanding the
foregoing, or any other provision of this Plan, a Participant
who holds Awards may transfer such Awards (but not Incentive
Stock Options) to his or her spouse, lineal ascendants, lineal
descendants, or to a duly established trust for the benefit of
one or more of these individuals. Awards so transferred may
thereafter be transferred only to the Participant who originally
received the grant or to an individual or trust to whom the
Participant could have initially transferred the Awards pursuant
to this Paragraph 12. Awards which are transferred pursuant to
this Paragraph 12 shall be exercisable by the transferee
according to the same terms and conditions as applied to the
Participant.
13. TIME OF GRANTING AWARDS.
The date of grant of an Award shall, for all purposes, be
the later of the date on which the Committee makes the deter-
mination of granting such Award, and the Effective Date. Notice
of the determination shall be given to each Participant to whom
an Award is so granted within a reasonable time after the date
of such grant.
14. EFFECTIVE DATE.
The Plan shall become effective January 15, 1999, provided
that the effectiveness of the Plan and any Awards shall be
contingent upon approval of the Plan by a favorable vote of
stockholders owning at least a majority of the total votes cast
at a duly called meeting of the Company's stockholders held in
accordance with applicable laws.
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15. MODIFICATION OF AWARDS.
At any time, and from time to time, the Committee may
authorize execution of an instrument providing for the modifica-
tion of any outstanding Award, provided no such modification
shall confer on the holder of said Award any right or benefit
which could not be conferred on him by the grant of a new Award
at such time, or impair the Award without the consent of the
holder of the Award.
16. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may from time to time amend the terms of the
Plan and, with respect to any Shares at the time not subject to
Awards, suspend or terminate the Plan. No amendment, suspension
or termination of the Plan shall, without the consent of any
affected holders of an Award, alter or impair any rights or
obligations under any Award theretofore granted.
17. CONDITIONS UPON ISSUANCE OF SHARES.
(A) COMPLIANCE WITH SECURITIES LAWS. Shares of Common
Stock shall not be issued with respect to any Award unless the
issuance and delivery of such Shares shall comply with all
relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, any applicable state securities law, and
the requirements of any stock exchange upon which the Shares may
then be listed.
(B) SPECIAL CIRCUMSTANCES. The inability of the Company
to obtain approval from any regulatory body or authority deemed
by the Company's counsel to be necessary to the lawful issuance
and sale of any Shares hereunder shall relieve the Company of
any liability in respect of the non-issuance or sale of such
Shares. As a condition to the exercise of an Option or SAR, the
Company may require the person exercising the Option or SAR to
make such representations and warranties as may be necessary to
assure the availability of an exemption from the registration
requirements of federal or state securities law.
(C) COMMITTEE DISCRETION. The Committee shall have the
discretionary authority to impose in Agreements such
restrictions on Shares as it may deem appropriate or desirable,
including but not limited to the authority to impose a right of
first refusal or to establish repurchase rights or both of these
restrictions.
18. RESERVATION OF SHARES.
The Company, during the term of the Plan, will reserve and
keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
19. WITHHOLDING TAX.
The Company's obligation to deliver Shares upon exercise
of Options and/or SARs shall be subject to the Participant's
satisfaction of all applicable federal, state and local income
and employment tax withholding obligations. The Committee, in
its discretion, may permit the Participant to satisfy the
obligation, in whole or in part, by irrevocably electing to have
the Company withhold Shares, or to deliver to the Company Shares
that he already owns, having a value equal to the amount
required to be withheld. The value of the Shares to be
withheld, or delivered to the Company, shall be based on the
Market Value of the Shares on the date the amount of tax to be
withheld is to be determined. As an alternative, the Company
may retain, or sell without notice, a number of such Shares
sufficient to cover the amount required to be withheld.
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20. NO EMPLOYMENT OR OTHER RIGHTS.
In no event shall an Employee's or Director's eligibility
to participate or participation in the Plan create or be deemed
to create any legal or equitable right of the Employee,
Director, or any other party to continue service with the
Company, the Association, or any Affiliate of such corporations.
Except to the extent provided in Paragraphs 6(b) and 9(a), no
Employee or Director shall have a right to be granted an Award
or, having received an Award, the right to again be granted an
Award. However, an Employee or Director who has been granted an
Award may, if otherwise eligible, be granted an additional Award
or Awards.
21. GOVERNING LAW.
The Plan shall be governed by and construed in accordance
with the laws of the State of Tennessee, except to the extent
that federal law shall be deemed to apply.
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Exhibit B
UNITED TENNESSEE BANKSHARES, INC.
MANAGEMENT RECOGNITION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.01 The Company hereby establishes this Plan upon the
terms and conditions hereinafter stated.
1.02 Through acceptance of their appointment to the
Committee, each member of the Committee hereby accepts his or
her appointment hereunder upon the terms and conditions
hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and retain
personnel of experience and ability in key positions of
responsibility by providing Employees and Directors of the
Company, the Bank, and their Affiliates with a proprietary
interest in the Company, and as compensation for their past
contributions to the Bank, and as an incentive to make such
contributions in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan
with an initial capital letter, shall have the meanings set
forth below unless the context clearly indicates otherwise.
Wherever appropriate, the masculine pronoun shall include the
feminine pronoun and the singular shall include the plural.
3.01 "Affiliate" shall mean any "parent corporation" or
"subsidiary corporation" of the Company, as such terms are
defined in Section 424(e) and (f), respectively, of the Internal
Revenue Code of 1986, as amended.
3.02 "Bank" means Newport Federal Bank.
3.03 "Beneficiary" means the person or persons designated
by a Participant to receive any benefits payable under the Plan
in the event of such Participant's death. Such person or
persons shall be designated in writing on forms provided for
this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence
of a written designation, the Beneficiary shall be the
Participant's surviving spouse, if any or if none, his estate.
3.04 "Board" means the Board of Directors of the Company.
3.05 "Change in Control" shall mean any one of the
following events: (i) the acquisition of ownership, holding or
power to vote more than 25% of the voting stock of the
Association or the Company, (ii) the acquisition of the ability
to control the election of a majority of the Association's or
the Company's directors, (iii) the acquisition of a controlling
influence over the management or policies of the Association or
of the Company by any person or by persons acting as a "group"
(within the meaning of Section 13(d) of the Securities Exchange
Act of 1934), or (iv) during any period of two consecutive
years, individuals (the "Continuing Directors") who at the
beginning of such period constitute the Board of Directors of
the Association or of the Company (the "Existing Board") cease
for any reason to constitute at least two-thirds thereof,
provided that any individual whose election or nomination for
election as a member
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of the Existing Board was approved by a vote of at least
two-thirds of the Continuing Directors then in office shall be
considered a Continuing Director. Notwithstanding the
foregoing, the Company's ownership of the Association shall not
of itself constitute a Change in Control for purposes of the
Agreement. For purposes of this paragraph only, the term
"person" refers to an individual or a corporation, partnership,
trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of
entity not specifically listed herein.
3.06 "Committee" means the Management Recognition Plan
Committee appointed by the Board pursuant to Article IV hereof.
3.07 "Common Stock" means shares of the common stock of
the Company.
3.08 "Company" means United Tennessee Bankshares, Inc.
3.09 "Continuous Service" shall mean the absence of any
interruption or termination of service as an Employee or
Director of the Company or an Affiliate. Continuous Service
shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the
Company in the case of transfers between payroll locations of
the Company or between the Company, an Affiliate or a successor,
or in the case of a Director's performance of services in an
emeritus or advisory capacity.
3.10 "Date of Conversion" means the date of the
conversion of Newport Federal Savings & Loan Association from
mutual to stock form.
3.11 "Director" means a member of the Board.
3.12 "Disability" shall mean a physical or mental
condition, which in the sole and absolute discretion of the
Committee, is reasonably expected to be of indefinite duration
and to substantially prevent a Participant from fulfilling his
or her duties or responsibilities to the Company or an
Affiliate.
3.13 "Effective Date" means the date on which the Plan
first becomes effective, as determined under Section 8.07
hereof.
3.14 "Employee" means any person who is employed by the
Company or an Affiliate.
3.15 "Non-Employee Director" shall have the meaning
provided in Rule 16b-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended.
3.16 "Participant" means an Employee or Director who
holds a Plan Share Award.
3.17 "Plan" means this United Tennessee Bankshares, Inc.
Management Recognition Plan.
3.18 "Plan Shares" means shares of Common Stock held in
the Trust which are awarded or issuable to a Participant
pursuant to the Plan.
3.19 "Plan Share Award" means a right granted under this
Plan to receive Plan Shares.
3.20 "Plan Share Reserve" means the shares of Common
Stock held by the Trustee pursuant to Sections 5.02 and 5.03.
3.21 "Trust" and "Trust Agreement" mean the restated
grantor trust agreement entered into pursuant to the terms
hereof between the Company and the Trustee, and "Trust" means
the trust created thereunder.
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3.22 "Trustee" means that person(s) or entity appointed
by the Board pursuant to the Trust Agreement to hold legal title
to the Plan assets for the purposes set forth herein.
3.23 "Year of Service" shall mean a full twelve-month
period, measured from the date of a Plan Share Award and each
annual anniversary of that date, during which a Participant's
Continuous Service has not terminated for any reason.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 ROLE AND POWERS OF THE COMMITTEE. The Plan shall
be administered and interpreted by the Committee, which shall
consist of not less than two members of the Board who are Non-
Employee Directors. In the absence at any time of a duly
appointed Committee, the Plan shall be administered by those
members of the Board who are Non-Employee Directors, and by the
Board if there are less than two Non-Employee Directors.
The Committee shall have all of the powers allocated to it
in this and other Sections of the Plan. Except as limited by
the express provisions of the Plan or by resolutions adopted by
the Board, the Committee shall have sole and complete authority
and discretion, subject to compliance with the Office of Thrift
Supervision regulations, (i) to make Plan Share Awards to such
Employees as the Committee may select, (ii) to determine the
form and content of Plan Share Awards to be issued under the
Plan, (iii) to interpret the Plan, (iv) to prescribe, amend and
rescind rules and regulations relating to the Plan, and (v) to
make other determinations necessary or advisable for the
administration of the Plan. The Committee shall have and may
exercise such other power and authority as may be delegated to
it by the Board from time to time. Subject to Section 4.02, the
interpretation and construction by the Committee of any
provisions of the Plan or of any Plan Share Award granted
hereunder shall be final and binding. The Committee shall act
by vote or written consent of a majority of its members, and
shall report its actions and decisions with respect to the Plan
to the Board at appropriate times, but in no event less than one
time per calendar year. The Committee may recommend to the
Board one or more persons or entity to act as Trustee(s) in
accordance with the provisions of this Plan and the Trust.
4.02 ROLE OF THE BOARD. The members of the Committee
shall be appointed or approved by, and will serve at the
pleasure of, the Board. The Board may in its discretion from
time to time remove members from, or add members to, the
Committee. The Board shall have all of the powers allocated to
it in this and other Sections of the Plan, may take any action
under or with respect to the Plan which the Committee is
authorized to take, and may reverse or override any action taken
or decision made by the Committee under or with respect to the
Plan, provided, however, that the Board may not revoke any Plan
Share Award already made or impair a participant's vested rights
under a Plan Share Award. Members of the Board who are eligible
for or who have been granted Plan Share Awards (other than
pursuant to Section 6.04) may not vote on any matters affecting
the administration of the Plan or the grant of Plan Shares or
Plan Share Awards (although such members may be counted in
determining the existence of a quorum at any meeting of the
Board during which actions with regard thereto are taken).
Further, with respect to all actions taken by the Board in
regard to the Plan, such action shall be taken by a majority of
the Board where such a majority of the directors acting in the
matter are Non-Employee Directors.
4.03 LIMITATION ON LIABILITY. No member of the Board or
the Committee or the Trustee(s) shall be liable for any
determination made in good faith with respect to the Plan or any
Plan Shares or Plan Share Awards granted under it. If a member
of the Board or the Committee or any Trustee is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of anything done or
not done by him in such capacity under or with respect to the
Plan, the Company shall indemnify such member against expenses
(including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she
acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the Company and its
Affiliates and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.
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ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall
determine the amounts (or the method of computing the amounts)
to be contributed by the Company to the Trust, provided that the
Bank may also make contributions to the Trust. Such amounts
shall be paid to the Trustee at the time of contribution. No
contributions to the Trust by Employees shall be permitted.
5.02 INVESTMENT OF TRUST ASSETS; MAXIMUM PLAN SHARE
AWARDS. The Trustee shall invest Trust assets only in
accordance with the Trust Agreement; provided that the Trust
shall not purchase, and Plan Share Awards shall not be made with
respect to, more than 58,190 Shares (with such number being
subject to adjustment pursuant to Section 8.01(a) hereof, and
increased to the extent necessary to permit the purchase of
Shares with any dividends accrued pursuant to Section 7.02
hereof). Such shares may be newly issued Shares, treasury
Shares, or Shares held in grantor trust.
5.03 EFFECT OF ALLOCATIONS, RETURNS AND FORFEITURES UPON
PLAN SHARE RESERVES. Upon the allocation of Plan Share Awards
under Section 6.02, the Plan Share Reserve shall be reduced by
the number of Shares subject to the Awards so allocated. Any
Shares subject or attributable to an Award which may not be
earned because of a forfeiture by the Participant pursuant to
Section 7.01 shall be added to the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Except as otherwise provided in
Section 6.04 hereof, the Committee shall make Plan Share Awards
only to Employees. In selecting those Employees to whom Plan
Share Awards will be granted and the number of shares covered by
such Awards, the Committee shall consider the position, duties
and responsibilities of the eligible Employees, the value of
their services to the Company and its Affiliates, and any other
factors the Committee may deem relevant. Notwithstanding the
foregoing, the Committee shall automatically make the Plan Share
Awards specified in Section 6.04 hereof.
6.02 ALLOCATIONS. The Committee will determine which
Employees will be granted discretionary Plan Share Awards, and
the number of Shares covered by each Plan Share Award, provided
that in no event shall any Awards be made which will violate the
governing instruments of the Bank or its Affiliates or any
applicable federal or state law or regulation. In the event
Plan Shares are forfeited for any reason or additional shares of
Common Stock are purchased by the Trustee, the Committee may,
from time to time, determine which of the Employees referenced
in Section 6.01 above will be granted additional Plan Share
Awards to be awarded from the forfeited or acquired Plan Shares.
6.03 FORM OF ALLOCATION. As promptly as practicable
after a determination is made pursuant to Section 6.02 that a
Plan Share Award is to be made, the Committee shall notify the
Participant in writing of the grant of the Award, the number of
Plan Shares covered by the Award, and the terms upon which the
Plan Shares subject to the Award may be earned. The date on
which the Committee so notifies the Participant shall be
considered the date of grant of the Plan Share Awards. The
Committee shall maintain records as to all grants of Plan Share
Awards under the Plan.
6.04 AUTOMATIC GRANTS. In addition, on the Effective
Date, each of the following individuals shall receive a Plan
Share Award as to the number of Plan Shares listed below:
SHARES SUBJECT TO
EMPLOYEE PLAN SHARE AWARD
-------- ----------------
Richard Harwood 14,547
Nancy Bryant 7,667
Peggy Holston 6,881
B-4
Each of Directors Myers, Henry, Self, Driskill, and Overholt
shall receive, on the Effective Date, a Plan Share Award for
4,350 Shares. Plan Share Awards received under the provisions
of this Section shall become vested and nonforfeitable according
to the general rules set forth in subsections (a) and (b) of
Section 7.01, and the Committee shall have no discretion to
alter or accelerate said vesting requirements. Unless otherwise
inapplicable or inconsistent with the provisions of this
Section, the Plan Share Awards to be granted hereunder shall be
subject to all other provisions of this Plan.
6.05 ALLOCATIONS NOT REQUIRED. Notwithstanding anything
to the contrary in Sections 6.01 and 6.02, but subject to
Section 6.04, no Employee or Director shall have any right or
entitlement to receive a Plan Share Award hereunder, such Awards
being at the total discretion of the Committee, nor shall any
Employees or Directors as a group have such a right. The
Committee may, with the approval of the Board (or, if so
directed by the Board) return all Common Stock in the Plan Share
Reserve to the Company at any time and cease issuing Plan Share
Awards.
ARTICLE VII
EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
(A) GENERAL RULES. Unless the Committee, in its
discretion, imposes a different vesting schedule on a Plan Share
Award, twenty-five percent (25%) of the Plan Shares subject to a
Plan Share Award shall be earned and non-forfeitable immediately
upon award, and an additional twenty-five percent (25%) shall
become earned and non-forfeitable upon the Participant's
completion of each of the next three Years of Service.
(B) ACCELERATION FOR TERMINATIONS DUE TO RETIREMENT,
DEATH, DISABILITY, OR CHANGE IN CONTROL. Notwithstanding the
general rule contained in Section 7.01(a) above: (i) all Plan
Shares subject to a Plan Share Award held by a Participant whose
service with the Company or an Affiliate terminates due to the
Participant's retirement at or after age 70, death, or
Disability shall be deemed earned and 100% vested as of the
Participant's last day of service with the Company or an
Affiliate, and (ii) all Plan Shares subject to a Plan Share
Award held by a Participant shall be deemed earned and 100%
vested as of the earlier of a Change in Control or, if earlier,
the execution of an agreement to effect a Change in Control.
(C) DISCRETIONARY ACCELERATION. Notwithstanding Sections
7.01(a) and 7.01(b) above, the Committee may at any time and for
any lawful reason accelerate the vesting on all or any part of a
Participant's Plan Share Award.
7.02 ACCRUAL OF DIVIDENDS. Whenever Plan Shares are paid
to a Participant or Beneficiary under Section 7.03, such
Participant or Beneficiary shall also be entitled to receive,
with respect to each Plan Share paid, an amount equal to any
cash dividends (including special large and nonrecurring
dividends, including one that has the effect of a return of
capital to the Company's stockholders) and a number of shares of
Common Stock equal to any stock dividends, declared and paid
with respect to a share of Common Stock between the date the
relevant Plan Share Award was initially granted to such
Participant and the date the Plan Shares are being distributed.
There shall also be distributed an appropriate amount of net
earnings, if any, of the Trust with respect to any cash
dividends so paid out.
7.03 DISTRIBUTION OF PLAN SHARES.
(A) TIMING OF DISTRIBUTIONS: General Rule. Except as
provided in subsections (c) and (d) below, the Trustee shall
distribute Plan Shares and accumulated cash from dividends and
interest to the Participant or his Beneficiary, as the case may
be, as soon as practicable after they have been earned. No
fractional shares shall be distributed.
(B) FORM OF DISTRIBUTION. The Trustee shall distribute
all Plan Shares, together with any shares representing stock
dividends, in the form of Common Stock. One share of Common
Stock shall be given for each Plan Share earned. Payments
representing cash dividends (and earnings thereon) shall be made
in cash.
B-5
(C) WITHHOLDING. The Trustee shall withhold from any
cash payment made under this Plan sufficient amounts to cover
any applicable withholding and employment taxes, and if the
amount of such cash payment is not sufficient, the Trustee shall
require the Participant or Beneficiary to pay to the Trustee the
amount required to be withheld as a condition of delivering the
Plan Shares. The Trustee shall pay over to the Company or
Affiliate which employs or employed such Participant any such
amount withheld from or paid by the Participant or Beneficiary.
(D) TIMING: EXCEPTION FOR 10% SHAREHOLDERS.
Notwithstanding Subsections (a) and (b) above, no Plan Shares
may be distributed prior to the date which is five (5) years
from the Date of Conversion to the extent the Participant or
Beneficiary, as the case may be, would after receipt of such
Shares own in excess of ten percent (10%) of the issued and
outstanding shares of Common Stock unless such action is
approved in advance by a majority vote of non-employee directors
of the Board. To the extent this limitation would delay the
date on which a Participant receives Plan Shares, the
Participant may elect to receive from the Trust, in lieu of
vested Plan Shares, a cash amount equal to the fair market value
of such Plan Shares. Any Plan Shares remaining undistributed
solely by reason of the operation of this Subsection (d) shall
be distributed to the Participant or his Beneficiary on the date
which is five years from the Date of Conversion.
(E) REGULATORY EXCEPTIONS. No Plan Shares shall be
distributed unless and until all of the requirements of all
applicable law and regulation shall have been fully complied
with, including the receipt of approval of the Plan by the
stockholders of the Company by such vote, if any, as may be
required by applicable law and regulations.
7.04 VOTING OF PLAN SHARES. All shares of Common Stock
held by the Trust (whether or not subject to a Plan Share Award)
shall be voted by the Trustee in the same proportion as the
trustee of the Company's Employee Stock Ownership Plan votes
Common Stock held in the trust associated therewith, and in the
absence of any such voting, shall be voted in the manner
directed by the Board.
7.05 DEFERRAL ELECTIONS BY PARTICIPANTS. At any time
that is at least six months prior to the next date on which a
Participant is scheduled to become vested in the unvested
portion of his or her Plan Share Award, the Participant may
irrevocably elect, on the form attached hereto as Exhibit "A"
(the "Election Form"), to defer the receipt of all or a
percentage of the Plan Shares that would otherwise be
transferred to the Participant upon the future vesting of such
award (the "Deferred Shares"). The MRP Committee shall
establish and maintain an individual account in the name of each
Participant who files an Election Form for the purpose of
tracking deferred earnings attributable to cash dividends paid
on Deferred Shares (the "Cash Account"). On the last day of
each fiscal year of the Company, the Committee shall credit to
the Participant's Cash Account earnings on the balance of the
Cash Account at a rate equal to the yield on Common Stock, as
determined from time to time by the MRP Committee in its sole
discretion.
The Deferred Shares, together with any cash or stock
dividends attributable thereto (the "Deferred Earnings"), will
be distributed to the Participant in accordance with the
deferral schedule (the "Deferral Schedule") selected by the
Participant in his or her Election Form. The Trustee shall hold
each Participant's Deferred Shares and Deferred Earnings in the
Trust until distribution is required pursuant to the election
set forth in the Participant's Election Form.
Notwithstanding any other provision of the Plan or a
Participant's Election Form, in the event the Participant
suffers an unforeseeable emergency hardship within the
contemplation of this paragraph, the Participant may apply to
the Committee for a distribution of all or a portion of his
Deferred Shares and Deferred Earnings prior to the basis for any
such distribution. The hardship must result from a sudden and
unexpected illness or accident of the Participant or a dependent
of the Participant, casualty loss of property, or other similar
conditions beyond the control of the Participant. Examples of
purposes which are not considered hardships include post-
secondary school expenses or the desire to purchase a residence.
In no event will a distribution be made to the extent the
hardship could be relieved through reimbursement or compensation
by insurance or otherwise, or by liquidation of the
Participant's nonessential assets to the extent such liquidation
would not itself cause a severe financial hardship. The amount
of any distribution hereunder shall be limited to the amount
necessary to relieve the Participant's financial hardship. The
determination of whether a Participant has a qualifying hardship
and the amount which qualifies for distribution, if any, shall
be made by the
B-6
Committee in its sole discretion. The Committee may require
evidence of the purpose and amount of the need, and may
establish such application or other procedures as it deems
appropriate.
No Participant may assign his or her claim to Deferred
Shares and Deferred Earnings during his or her lifetime, and any
deferral election made hereunder shall be irrevocable. A
Participant's right to Deferred Shares and Deferred Earnings
shall at all times constitute an unsecured promise of the
Company to pay benefits as they come due. The right of the
Participant or his or her beneficiary to receive benefits
hereunder shall be solely an unsecured claim against the general
assets of the Company. Neither the Participant nor his or her
beneficiary shall have any claim against or rights in any
specific assets or other fund of the Company, and any assets in
the Trust shall be deemed general assets of the Company.
All distributions made by the Company and/or the Trustees
pursuant to elections made hereunder shall be subject to
applicable federal, state, and local tax withholding and to such
other deductions as shall at the time of such payment be
required under any income tax or other law, whether of the
United States or any other jurisdiction, and, in the case of
payments to a beneficiary, the delivery to the Committee and/or
Trustees of all necessary waivers, qualifications and other
documentation.
ARTICLE VIII
MISCELLANEOUS
8.01 ADJUSTMENTS FOR CAPITAL CHANGES.
(A) RECAPITALIZATIONS; STOCK SPLITS, ETC. The number
and kind of shares which may be purchased under the Plan, and
the number and kind of shares subject to outstanding Plan Share
Awards, shall be proportionately adjusted for any increase,
decrease, change or exchange of shares of Common Stock for a
different number or kind of shares or other securities of the
Company which results from a merger, consolidation, recapita-
lization, reorganization, reclassification, stock dividend,
split-up, combination of shares, or similar event in which the
number or kind of shares is changed without the receipt or
payment of consideration by the Company.
(B) TRANSACTIONS IN WHICH THE COMPANY IS NOT THE
SURVIVING ENTITY. In the event of (i) the liquidation or
dissolution of the Company, (ii) a merger or consolidation in
which the Company is not the surviving entity, or (iii) the sale
or disposition of all or substantially all of the Company's
assets (any of the foregoing to be referred to herein as a
"Transaction"), all outstanding Plan Share Awards shall be
adjusted for any change or exchange of shares of Common Stock
for a different number or kind of shares or other securities
which results from the Transaction.
(C) CONDITIONS AND RESTRICTIONS ON NEW, ADDITIONAL, OR
DIFFERENT SHARES OR SECURITIES. If, by reason of any adjustment
made pursuant to this Section, a Participant becomes entitled to
new, additional, or different shares of stock or securities,
such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and
restrictions which were applicable to the shares pursuant to the
Plan Share Award before the adjustment was made. In addition,
the Committee shall have the discretionary authority to impose
on the Shares subject to Plan Share Awards to Employees such
restrictions as the Committee may deem appropriate or desirable,
including but not limited to a right of first refusal, or
repurchase option, or both of these restrictions.
(D) OTHER ISSUANCES. Except as expressly provided in
this Section, the issuance by the Company or an Affiliate of
shares of stock of any class, or of securities convertible into
shares of Common Stock or stock of another class, for cash or
property or for labor or services either upon direct sale or
upon the exercise of rights or warrants to subscribe therefor,
shall not affect, and no adjustment shall be made with respect
to, the number or class of shares of Common Stock then subject
to Plan Share Awards or reserved for issuance under the Plan.
B-7
8.02 AMENDMENT AND TERMINATION OF PLAN. The Board may,
by resolution, at any time amend or terminate the Plan; provided
that no amendment or termination of the Plan shall, without the
written consent of a Participant, impair any rights or
obligations under a Plan Share Award theretofore granted to the
Participant.
The power to amend or terminate the Plan in accordance
with this Section 8.02 shall include the power to direct the
Trustee to return to the Company all or any part of the assets
of the Trust, including shares of Common Stock held in the Plan
Share Reserve. However, the termination of the Trust shall not
affect a Participant's right to earn Plan Share Awards and to
receive a distribution of Common Stock relating thereto,
including earnings thereon, in accordance with the terms of this
Plan and the grant by the Committee or the Board.
8.03 NONTRANSFERABILITY. Plan Share Awards may not be
sold, pledged, assigned, hypothecated, transferred or disposed
of in any manner other than by will or by the laws of descent
and distribution. Notwithstanding the foregoing, or any other
provision of this Plan, a Participant who holds Plan Share
Awards may transfer such Awards to his or her spouse, lineal
ascendants, lineal descendants, or to a duly established trust
for the benefit of one or more of these individuals. Plan Share
Awards so transferred may thereafter be transferred only to the
Participant who originally received the grant or to an
individual or trust to whom the Participant could have initially
transferred the Awards pursuant to this Section 8.03. Plan
Share Awards which are transferred pursuant to this Section 8.03
shall be exercisable by the transferee according to the same
terms and conditions as applied to the Participant.
8.04 NO EMPLOYMENT OR OTHER RIGHTS. Neither the Plan nor
any grant of a Plan Share Award or Plan Shares hereunder nor any
action taken by the Trustee, the Committee or the Board in
connection with the Plan shall create any right, either express
or implied, on the part of any Employee or Director to continue
in the service of the Company, the Bank, or an Affiliate
thereof.
8.05 VOTING AND DIVIDEND RIGHTS. No Participant shall
have any voting or dividend rights or other rights of a
stockholder in respect of any Plan Shares covered by a Plan
Share Award prior to the time said Plan Shares are actually
distributed to him.
8.06 GOVERNING LAW. The Plan and Trust shall be governed
and construed under the laws of the State of Tennessee to the
extent not preempted by Federal law.
8.07 EFFECTIVE DATE. The Plan shall become effective
January 12, 1999, provided that the effectiveness of the Plan
and any Plan Share Award shall be contingent upon the Plan's
approval by a favorable vote of stockholders of the Company who
own at least a majority of the total votes cast at a duly called
meeting of the Company's stockholders held in accordance with
applicable law.
8.08 TERM OF PLAN. This Plan shall remain in effect
until the earlier of (i) termination by the Board, or (ii) the
distribution of all assets of the Trust. Termination of the
Plan shall not affect any Plan Share Awards previously granted,
and such Awards shall remain valid and in effect until they have
been earned and paid, or by their terms expire or are forfeited.
8.09 TAX STATUS OF TRUST. It is intended that (i) the
Trust associated with the Plan be treated as a grantor trust of
the Company under the provisions of Section 671 et seq. of the
Code, as the same may be amended from time to time, and (ii)
that in accordance with Revenue Procedure 92-65 (as the same may
be amended from time to time), Participants have the status of
general unsecured creditors of the Company, the Plan constitutes
a mere unfunded promise to make benefit payments in the future,
the Plan is unfunded for tax purposes and for purposes of Title
I of the Employee Retirement Income Security Act of 1974, as
amended, and the Trust has been and will continue to be
maintained in conformity with Revenue Procedure 92-64 (as the
same may be amended from time to time).
B-8
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
REVOCABLE PROXY
UNITED TENNESSEE BANKSHARES, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 18, 1999
The undersigned hereby appoints J. William Myers, William B.
Henry and Ben W. Hooper III, with full powers of substitution,
to act as proxies for the undersigned, to vote all shares of
common stock of United Tennessee Bankshares, Inc. (the
"Company") which the undersigned is entitled to vote at the
annual meeting of stockholders (the "Annual Meeting"), to be
held at Holiday Inn of Newport, Interstate 40 & Highway 32,
Newport, Tennessee, on Tuesday, May 18, 1999 at 5:00 p.m., and
at any and all adjournments thereof, as follows:
[CAPTION]
WITH-
FOR HOLD EXCEPT
1. The election as directors of all
nominees listed (except as
marked to the contrary below): [ ] [ ] [ ]
Richard G. Harwood
Robert D. Self
INSTRUCTION: TO WITHHOLD AUTHORITY TO
VOTE FOR ANY LISTED NOMINEE, MARK
"EXCEPT" AND WRITE THAT NOMINEE'S NAME
IN THE SPACE PROVIDED BELOW.
_______________________________________
FOR AGAINST ABSTAIN
2. Approval of the United Tennessee
Bankshares, Inc. 1999 Stock
Option Plan [ ] [ ] [ ]
3. Approval of the United Tennessee
Bankshares, Inc. Management
Recognition Plan [ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE LISTED NOMINEES AND "FOR" THE 1999 STOCK OPTION
PLAN AND MANAGEMENT RECOGNITION PLAN.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE LISTED NOMINEES. IF
ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, THIS
PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN ACCORDANCE
WITH THE DETERMINATION OF THE BOARD OF DIRECTORS. AT THE
PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS
TO BE PRESENTED AT THE ANNUAL MEETING. THIS PROXY CONFERS
DISCRETIONARY AUTHORITY ON THE HOLDERS THEREOF TO VOTE WITH
RESPECT TO THE ELECTION OF ANY PERSON AS DIRECTOR WHERE THE
NOMINEE IS UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE AND
MATTERS INCIDENT TO THE CONDUCT OF THE ANNUAL MEETING.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
Please be sure to sign and date
this proxy in the box below
Date_________________________
_____________________________ _____________________________
Stockholders sign above. Co-holder (if any) sign above.
Should the above stockholder be present and elect to vote at the
Annual Meeting or at any adjournment thereof and after
notification to the Secretary of the Company at the Annual
Meeting of the stockholder's decision to terminate this proxy,
then the power of said attorneys and proxies shall be deemed
terminated and of no further force and effect.
The above stockholder acknowledges receipt from the Company
prior to the execution of this proxy of notice of the annual
meeting, a proxy statement dated April 14, 1999 and an annual
report to stockholders.
Please sign exactly as your name appears on this proxy card.
When signing as attorney, executor, administrator, trustee or
guardian, please give your full title.
If shares are held jointly, each holder should sign.
PLEASE ACT PROMPTLY
SIGN, DATE AND MAIL YOUR PROXY TODAY