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 of the
[X] Definitive Proxy Statement Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Additional Materials [ ] Soliciting Material under
Rule 14a-12
UNITED TENNESSEE BANKSHARES, INC.
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(Name of Registrant as Specified in Its Charter)
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(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 computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated 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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4. Date Filed:
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United Tennessee Bankshares, Inc.
P.O. Box 458
Newport, TN 37822-0458
April 18, 2002
Dear Fellow Shareholder:
We invite you to attend the 2002 annual meeting of shareholders of
United Tennessee Bankshares, Inc., the holding company for Newport Federal Bank,
to be held at the Bank's main office, 344 W. Broadway, Newport, Tennessee on
Tuesday, May 21, 2002 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, 2001. Our
directors and officers will be present to respond to any questions the
shareholders 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 SHAREHOLDERS
To Be Held on May 21, 2002
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders (the
"Annual Meeting") of United Tennessee Bankshares, Inc. (the "Company") will be
held at the main office of Newport Federal Bank, 344 W. Broadway, Newport,
Tennessee on Tuesday, May 21, 2002 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 for three-year
terms; and
2. 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. Shareholders
of record at the close of business on April 1, 2002 are the shareholders
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 B. HOLSTON
--------------------
PEGGY B. HOLSTON
Secretary
Newport, Tennessee
April 18, 2002
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 SHAREHOLDERS
May 21, 2002
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 shareholders (the "Annual
Meeting") which will be held at the main office of Newport Federal Bank (the
"Bank"), 344 W. Broadway, Newport, Tennessee, on Tuesday, May 21, 2002 at 5:00
p.m. This proxy statement and the accompanying notice and proxy card are being
first provided to shareholders on or about April 18, 2002.
VOTING AND REVOCABILITY OF PROXIES
Shareholders 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 B. Holston, 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. The proxy confers discretionary 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
determination 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
Shareholders of record as of the close of business on April 1, 2002
(the "Record Date") are entitled to one vote for each share then held. At the
Record Date, the Company had 1,325,773 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 tables 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 (1)
- ------------------- --------- -------------
Richard G. and Margaret R. Harwood
344 W. Broadway
Newport, Tennessee 37821-0249 110,752 (2) 8.35%
United Tennessee Bankshares, Inc.
Employee Stock Ownership Plan ("ESOP")
344 W. Broadway
Newport, Tennessee 37821-0249 155,518 (3) 11.73%
Trust Agreement I under
United Tennessee Bankshares, Inc.
1999 Stock Option Plan
("Stock Option Plan Trust I")
344 W. Broadway
Newport, Tennessee 37821-0249 188,422 (4) 14.21%
All directors and executive officers as a group (10 persons) 400,176 (5) 30.18%
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(1) Based on 1,325,773 shares issued and outstanding at April 1, 2002.
(2) Includes 16,062 shares of which Mr. Harwood is the sole owner and 300
shares of which Mrs. Harwood is the sole owner. Also includes 10,250
shares in Mr. Harwood's IRA, 11,718 shares held in his account in the
Company's 401(k) Plan, 18,500 shares allocated to his account in the
ESOP and 53,922 shares which he has the right to acquire pursuant to
options issued under the 1999 Stock Option Plan.
(3) Includes 78,915 allocated shares and 76,603 unallocated shares.
Unallocated shares are held in a suspense account for future
allocation 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. Subject to their common law and
statutory fiduciary duties, the ESOP trustees vote unallocated shares
and shares for which no instructions have been received in the same
ratio as participants directing the voting of allocated shares or, in
the absence of such direction, as directed by the Board of Directors.
(4) Consists of shares held in trust to satisfy potential obligations of
the Company under the United Tennessee Bankshares, Inc. 1999 Stock
Option Plan. Voting rights with respect to Common Stock help by Stock
Option Plan Trust I are exercised by the trustees, Directors Bible and
Hooper in accordance with the terms of the ESOP.
(5) Reflects shares over which one or more directors and executive
officers have sole or shared voting and/or dispositive power. Excludes
76,603 unallocated shares in the ESOP which are voted as described in
note 3. Also excludes 188,422 shares held by Stock Option Plan Trusts
I and II, 5,509 unvested shares held by the Company's Management
Recognition Plan ("MRP") Trust and 17,143 shares held in a grantor
trust for the Bank's directors' retirement plan. The trustees of these
trusts vote all such shares in the same proportions on all matters as
the ESOP trustees vote the ESOP shares. Includes 83,215 shares which
directors and executive officers have the right to acquire pursuant to
options exercisable within 60 days of the Record Date.
2
PROPOSAL I -- ELECTION OF DIRECTORS
General
The Company's Board of Directors currently consists of seven 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 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 any of 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 Bank, the Company's principal subsidiary, on
whose board each director of the Company also serves, the expiration of his term
as a director and the number and percentage of shares of the Common Stock
beneficially owned. With the exception of Messrs. Bible and Hooper who first
became directors in 1998, each director first became a director of the Company
upon its incorporation in 1997.
Year First Shares of Common
Elected as Current Stock Beneficially
Director of Term Owned at the Record Percent
Name Age the Bank to Expire Date (2) of Class (1)
---- --- -------- --------- ------ ----------
BOARD NOMINEES FOR TERMS TO EXPIRE IN 2004
Richard G. Harwood 55 1989 2005 110,752 8.35%
Robert D. Self 71 1978 2005 28,325 2.14
DIRECTORS CONTINUING IN OFFICE
William B. Henry 71 1978 2003 43,176 3.26
J. William Myers 60 1975 2003 41,346 3.12
Tommy C. Bible 48 1998 2003 26,707 2.01
Robert L. Overholt 58 1983 2004 41,042 3.10
Ben W. Hooper, III 37 1998 2004 5,107 0.38
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(1) Based on 1,325,773 shares issued and outstanding at April 1, 2002.
(2) 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. Includes 40,442 shares which Mr.
Harwood has the right to acquire pursuant to options exercisable
within 60 days of the Record Date, 12,133 shares which each of Messrs.
Myers, Henry, Overholt and Self have the right to acquire pursuant to
such options and 2,780 shares of which each of Messrs. Bible and
Hooper have the right to acquire pursuant to such options.
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 of
the Company and the Bank. Mr. Harwood joined the Bank as Senior Vice President
in 1984. He has acted as the Chairman of the Newport/Cocke County Economic
Development Commission. Mr. Harwood also is Chairman of the Allocations
Committee for the United Way of Cocke County and a member of the Newport Lions
Club.
3
Robert D. Self retired in 1999 after having 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 retired in 2001 after having been a practicing
optometrist in Newport, Tennessee since 1961. He is presently serving as the
secretary of the Newport Utilities Board.
J. William Myers is a partner in the law firm of Myers & Bell in
Newport, Tennessee. He has practiced law in Newport, Tennessee since 1966. Mr.
Myers serves as the Chairman of the Board for the Company and the Bank. He is
active with the 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 a member of
the Cocke County Election Commission and is a director for the Newport/Cocke
County Economic Development Commission.
Robert L. Overholt retired in 1999 after having 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 an attorney in general practice with Campbell &
Hooper in Newport, Tennessee. Mr. Hooper also serves as legal counsel to the
Cocke County Amvets and the Cocke County Education Foundation. He is currently
the President of the Cocke County Bar 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, 2001, the Board met 12
times. No nominee for election as a director or continuing director attended
fewer than 75% in the aggregrate of the total number of Board meetings held
while he was a member during the year ended December 31, 2001 and the total
number of meetings held by committees on which he served during such fiscal
year.
The Board of Directors has appointed Ms. Nancy L. Bryant and Directors
Hooper and Self as the Audit Committee. The Audit Committee met four times in
this capacity in connection with the independent audit for fiscal 2001. All of
the members of the Audit Committee are "independent," as "independent" is
defined in Rule 4200(a)(15) of the National Association of Securities Dealers'
listing standards except for Ms. Bryant who serves as Vice President of the
Bank. The Company's Board of Directors has adopted a written charter for the
Audit Committee. A copy of the Audit Committee's charter was attached as
Appendix A to the Company's Proxy Statement relating to the 2001 Annual Meeting
of Shareholders.
The Board of Directors has an Executive Committee, which consists of
Chairman Myers and Directors Bible, Harwood and Henry and acts as a compensation
committee. This committee reviews the performance of the Company's officers and
met 13 times for fiscal 2001.
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 once 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 $400
per regular board meeting attended and $100 per executive committee meeting
attended. Directors serving on the Audit Committee and the ALCO Committee
receive an additional $100 for each meeting of those committees. In addition,
the Chairman receives a salary of $10,800 per year. For fiscal 2001, directors'
fees totaled $90,100. Directors do not receive additional compensation for
service as directors of the Company.
4
Long-Term Incentive Plan. The Bank has adopted a long-term incentive
plan for directors in order to provide competitive compensation to directors,
attract, retain and motivate directors and to encourage the long-term financial
success of the Bank. The long-term incentive plan was designed to provide a
means by which directors may accrue additional retirement benefits based on the
Bank's performance. Pursuant to the plan, a bookkeeping account has been
established in the name of each director. In recognition of past service, the
account of each director serving on the effective date of the plan was credited
with an amount equal to the product of (i) $1,291 and (ii) the director's full
years of services as a director, up to 20 years. On each December 31, the
account of each participant who is then a director and has 20 or fewer years of
service is credited with an amount equal to the product of $1,291 and the safe
performance factor, which is determined based on the Bank's 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 either the
Bank's highest rate of interest paid on certificates of deposit having a term of
one year or the dividend-adjusted rate of return on the Common Stock as elected
by the participant. Beginning with the fiscal year following a participant's
termination of service, the participant's account will be credited with 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 substantially 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 benefits accrued under the plan will be paid from the Bank's
general assets. To provide a funding mechanism, the Bank has established a
grantor trust in order to hold assets with which to pay benefits. Trust assets
would be subject to claims of the Bank's general creditors. In the event of a
change in control, the Bank will contribute to the grantor trust an amount
sufficient to fund the aggregate account balances in the plan.
At December 31, 2001, the accounts of Messrs. Bible, Harwood, Henry,
Hooper, Myers, Overholt and Self were credited with $1,662, $2,154, $1,231,
$1,662, $1,231, $2,523 and $1,231, respectively, including earnings on their
accounts.
Deferred Compensation Plan. Under the Bank's deferred compensation
plan, 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 Bank's 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 is 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.
5
Executive Compensation
Summary. The following table sets forth compensation for the fiscal
years ended December 31, 2001, 2000 and 1999 awarded to or earned by the
Company's Chief Executive Officer for services rendered in all capacities. No
executive officer received salary and bonus in excess of $100,000 during the
fiscal years 2001, 2000 or 1999.
Long-Term Compensation
-----------------------------
Awards
-----------------------------
Annual Compensation Restricted Securities
--------------------------------------
Name and Other Annual Stock Underlying All other
Principal Position Year Salary Bonus Compensation (1) Awards Options Compensation
------------------ ---- ------ ----- -------------- ------ ------- ------------
Richard G. Harwood 2001 $85,713 $9,371 $ -- $ -- -- $ 18,862 (2)
President and Chief 2000 86,363 9,610 $ -- -- $ 9,829 (3)
Executive Officer 1999 82,796 9,861 $ -- 178,201(4) 53,922(5) 54,679
- ----------------
(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 ($11,700), allocation to ESOP account
($4,268), Company contribution to long-term incentive plan ($1,549)
and gain on accounts in long-term incentive and deferred compensation
plans ($1,345) for fiscal 2001; excludes appraisal fees for services
to borrowers.
(3) Consists of director fees ($11,800), allocation to ESOP account
($4,268), Company contribution to long-term incentive plan ($1,549)
and loss on accounts in long-term incentive and deferred compensation
plans ($7,738) for fiscal 2001; excludes appraisal fees for services
to borrowers.
(4) Based on the closing price of the Common Stock on the date of grant
($12.25 per share) multiplied by the number of shares awarded. Mr.
Harwood was awarded 14,547 shares of restricted stock on January 12,
1999 under the United Tennessee Bankshares, Inc. Management
Recognition Plan ("MRP") subject to shareholder approval. Mr.
Harwood's restricted stock award was 25% vested as of the date of
grant and vests at the rate of 25% per year thereafter. Dividends
received in respect of MRP shares are held for the benefit of
participants and distributed upon vesting of the underlying shares.
Based on the last sale price of the Common Stock at December 31, 2001
($8.41 per share), the 3,637 shares held by the MRP trust for Mr.
Harwood on that date had a value of $30,587 not including the value of
the $4.00 special dividend paid with respect to such shares.
(5) Pursuant to the United Tennessee Bankshares, Inc. 1999 Stock Option
Plan (the "Option Plan"), Mr. Harwood was granted options to acquire
36,369 shares of the Common Stock at $12.75 per share effective
January 15, 1999. In accordance with the terms of the Option Plan, the
exercise price of such options was adjusted to maintain the same
relation with the fair market of the Common Stock before and after the
Company's return of capital distribution and the aggregate number of
shares subject to the Option was adjusted to maintain the aggregate
in-the-money value of the options. As a result of this adjustment, the
exercise price of Mr. Harwood's options was adjusted to $8.60 per
share and the number of shares subject to the option was adjusted to
53,922 shares.
6
Option Year-End Value Table. The following table sets forth
information concerning the value of options held by the Chief Executive Officer
at the end of fiscal year 2001. The number of shares underlying such options and
the exercise price therefor have been adjusted for the special distribution paid
November 30, 1999. No options were exercised during fiscal year 2001.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year-End At Year End (1)
------------------- -------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Richard G. Harwood 53,922 -- -- --
- ---------------------
(1) Based on the difference between the closing sale price for the Common
Stock on December 31, 2001 as reported on the Nasdaq SmallCap Market
(SM) ($8.41 per share) and the exercise price per share ($8.60 per
share) multiplied by the number of shares subject to the option.
Options are considered in-the-money if the fair market value of the
underlying securities exceeds the exercise price.
Employment Agreement
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 severally liable for the payment of
amounts due under the employment agreement.
The employment agreement became effective on January 1, 1998 and
provided for an initial 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. Mr. Harwood's
employment agreement has accordingly been extended through August 19, 2004. 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 employment 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 agreement
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
7
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 (the "Code"), and (b)
the sum of any other parachute payments, as defined under Section 280G(b)(2) of
the 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 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, 2001, would have been approximately $171,426.
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.
Certain Transactions
The Company offers loans to directors, officers and employees through
the Bank. 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, 2001, the Company's loans to directors and executive officers
totaled approximately $1,754,371 or 12% of its shareholders' equity and 1.70% of
its total assets at that date. Except as disclosed below, no director or
executive officer had more than $60,000 of preferential loans from the Company
at any time during fiscal year 2001.
Highest Balance at
Name & Relation Balance Since December 31,
to Company Type of Loan Date Originated Interest Rate January 1, 2001 2001
---------- ------------ --------------- ------------- --------------- ----
Lonnie R. Jones Vice Residential 10/14/00 6.00 % $324,000 $321,000
President of Operations Mortgage
Ben W. Hooper, III Residential 4/1/98 5.50% $238,000 $224,000
Director Mortgage
Nancy L. Bryant Residential 5/31/01 6.00% $275,000 $274,376
Vice President Mortgage
J. William Myers Real Estate 12/05/00 6.00% $900,000 $900,000
Director 12/31/01 7.00% $ 35,000 $ 35,000
J. William Myers is a principal in the law firm of Myers & Bell,
Newport, Tennessee, which performs routine legal services on behalf of the
Company and its borrowers, principally in connection with the closing of
mortgage loans. In fiscal 2001, the law firm's fees for such services totaled
$96,560.
Richard G. Harwood, the Company's President and Chief Executive
Officer, and Nancy L. Bryant and Peggy B. Holston, the Company's Vice President
and Treasurer and its Assistant Secretary and Branch Manager, respectively, are
licensed real estate appraisers. They perform routine appraisal services on
behalf of the Bank's borrowers principally in connection with the closing of
mortgage loans. In fiscal 2001, Mr. Harwood's and Mses. Bryant's and Holston's
fees for such services totaled $22,585, $18,771 and $15,328, respectively.
8
INDEPENDENT AUDITORS
Pugh & Company, P.C. was the Company's independent auditor for the
2001 fiscal year and has been retained by the Board of Directors to be its
auditor for the 2002 fiscal year. A representative of Pugh & Company, P.C. is
expected to be present at the Annual Meeting to respond to shareholders'
questions and will have the opportunity to make a statement if he or she so
desires.
Audit Fees. During the fiscal year ended December 31, 2001, the
aggregate fees billed for professional services rendered for the audit of the
Company's annual financial statements and the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-QSB filed
during the fiscal year ended December 31, 2001 were $43,042.
Financial Information Systems Design and Implementation Fees. The
Company did not engage Pugh & Company, P.C. to provide advice to the Company
regarding financial information systems design and implementation during the
fiscal year ended December 31, 2001.
All Other Fees. For the fiscal year ended December 31, 2001, the
aggregate fees paid by the Company to Pugh & Company, P.C., certified public
accountants for all other services (other than audit services and financial
information systems design and implementation services) were $27,248, which were
related to preparation of tax returns, review of OTS Thrift Financial Reports,
review of press release and consulting on various financial, tax and regulatory
compliance issues.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors (the "Audit Committee")
has:
1. Reviewed and discussed the audited financial statements for
the fiscal year ended December 31, 2001 with the management
of the Company.
2. Discussed with the Company's independent auditors the
matters required to be discussed by Statement of Auditing
Standards No. 61, as the same was in effect on the date of
the Company's financial statements; and
3. Received the written disclosures and the letter from the
Company's independent auditors required by Independence
Standards Board Standard No. 1 (Independence Discussions
with Audit Committees), as the same was in effect on the
date of the Company's financial statements and discussed
with the independent auditors their independence.
Based on the foregoing materials and discussions, the Audit Committee
recommended to the Board of Directors that the audited financial statements for
the fiscal year ended December 31, 2001 be included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2001.
MEMBERS OF THE AUDIT COMMITTEE
Nancy L. Bryant
Ben W. Hooper, III
Robert D. Self
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.
9
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMMITTEE
Pursuant to regulations promulgated under the Exchange Act, the
Company's officers, directors and persons who own more than 10% 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
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 telephone without additional compensation.
FINANCIAL INFORMATION
The annual report to shareholders, including financial statements, has
been mailed to all shareholders of record as of the close of business on the
Record Date. Any shareholder 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, 2001 as filed with
the Securities and Exchange Commission will be furnished without charge to each
shareholder 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.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials
for next year's Annual Meeting of Shareholders, any shareholder 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 19, 2002. Any
such proposal shall be subject to the requirements of the proxy rules adopted
under the Exchange Act. Shareholder proposals not submitted for inclusion in the
board of director's proxy statement which are received after March 3, 2003 will
be considered untimely. Accordingly, the proxies may exercise their discretion
and vote on these matters in a manner they determine to be appropriate.
Shareholder 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 Company's Secretary, not less than 30 days nor more
than 60 days prior to the date of the Annual Meeting. If less than 40 days'
notice is given to shareholders, such notice shall be delivered or mailed to the
Secretary not later than the close of business on the 10th day following the day
on which notice of the meeting was mailed to shareholders.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Peggy B. Holston
--------------------
Peggy B. Holston
Secretary
Newport, Tennessee
April 18, 2002
/X/ PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE UNITED TENNESSEE BANKSHARES, INC.
WITH- FOR ALL
ANNUAL MEETING OF SHAREHOLDERS 1. The election as directors of all FOR HOLD EXCEPT
May 21, 2002 nominees listed (except as marked [ ] [ ] [ ]
to the contrary below):
The undersigned hereby appoints Richard G. Harwood Robert D. Self
Peggy B. Holston and William B.
Henry, with full powers of
substitution, to act as proxies
for the undersigned, to vote all INSTRUCTION: TO WITHOLD AUTHORITY TO VOTE FOR ANY LISTED NOMINEE,
shares of common stock of United MARK "FOR ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME IN THE SPACE
Tennessee Bankshares, Inc. (the PROVIDED BELOW.
"Company") which the undersigned
is entitled to vote at the annual ________________________________________________________________
meeting of shareholders (the "Annual
Meeting"), to be held at 344 W.
Broadway, Newport, Tennessee, on
Tuesday, May 21, 2002 at 5:00 p.m.,
and at any and all adjournments
thereof, as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE LISTED NOMINEES.
THIS PROXY WILL BE VOTED AS DIRECTED,
BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE LISTED
NOMINEES AND FOR PROPOSAL 2. 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 / Date /
this proxy in the box below / /
/ /
/______________________________________/_____________________/
/Shareholders sign above. Co-holder (if any) sign above./
- --------------------------------------------------------------------------------
Detach above card, sign, date and mail in postage paid envelope provided.
UNITED TENNESSEE BANKSHARES, INC.
Should the undersigned 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 shareholder'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 undersigned acknowledges receipt from the Company prior to the execution of
this proxy of notice of the Annual Meeting, a proxy statement therefor and an
annual report to shareholders. 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