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 Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-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 14a6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
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):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] 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 249
Newport, TN 37822-0249
April 16, 2004
Dear Fellow Shareholder:
We invite you to attend the 2004 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 18, 2004 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, 2003. 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 18, 2004
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders 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 18,
2004 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, 2004 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 16, 2004
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 18, 2004
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 which will be held
at the main office of Newport Federal Bank (the "Bank"), 344 W. Broadway,
Newport, Tennessee, on Tuesday, May 18, 2004 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 16, 2004.
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, 2004 (the
"Record Date") are entitled to one vote for each share then held. At the Record
Date, the Company had 1,230,379 shares of common stock, no par value, 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.
2
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. 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 (1)
- ------------------- --------- ----------------
Richard G. and Margaret R. Harwood
344 W. Broadway
Newport, Tennessee 37821-0249 121,664 (2) 9.9%
United Tennessee Bankshares, Inc.
Employee Stock Ownership Plan ("ESOP")
344 W. Broadway
Newport, Tennessee 37821-0249 158,744 (3) 12.9%
Trust Agreement I under
United Tennessee Bankshares, Inc.
1999 Stock Option Plan
("Stock Option Plan Trust I")
344 W. Broadway
Newport, Tennessee 37821-0249 101,850 (4) 8.0%
All directors and executive officers as a group (11 persons) 353,950 (5) 28.8%
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1 Based on 1,230,379 shares issued and outstanding at March 31, 2004.
2 Includes 36,826 shares of which Mr. Harwood is the sole owner and 18,936
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, 27,423 shares allocated to his account in the ESOP and 16,511
shares which he has the right to acquire pursuant to options exercisable
within 60 days of the Record Date issued under the 1999 Stock Option Plan.
3 Includes 126,759 allocated shares and 31,985 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 held 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 31,985
unallocated shares in the ESOP which are voted as described in note 3. Also
excludes 100,249 shares held by Stock Option Plan Trusts I and II and
20,337 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.
Includes70,401 shares which directors and executive officers have the right
to acquire pursuant to options exercisable within 60 days of the Record
Date.
3
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 Robert L.
Overholt and Ben W. Hooper, III 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 Company, the expiration of his term as a director
and the number and percentage of shares of the Common Stock beneficially owned.
Year First Shares of Common
Elected as Current Stock Beneficially
Director of Term Owned at the Percent
Name Age the Company to Expire Record Date (1) of Class (2)
---- --- ----------- --------- -------------- ----------
BOARD NOMINEES FOR TERMS TO EXPIRE IN 2007
Robert L. Overholt 61 1997 2004 24,869 2.00
Ben W. Hooper, III 39 1998 2004 1,400 0.10
DIRECTORS CONTINUING IN OFFICE
Richard G. Harwood 57 1997 2005 121,664 9.90
Robert D. Self 73 1997 2005 18,308 1.50
William B. Henry 74 1997 2006 46,291 3.80
J. William Myers 62 1997 2006 41,533 3.80
Tommy C. Bible 50 1998 2006 23,000 1.90
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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. Includes 16,511 shares which Mr. Harwood has the right
to acquire pursuant to options exercisable within 60 days of the Record
Date and 16,161 shares which each of Messrs. Myers, Henry, and 6,161 Self
have the right to acquire pursuant to such options.
2 Based on 1,230,379 shares issued and outstanding at April 1, 2004.
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.
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.
4
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 a member of the Newport Lions Club.
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.
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 the past
President of the Cocke County Bar Association.
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.
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.
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.
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, 2003, the Board met 12
times. No 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,
2003 and the total number of meetings held by committees on which he served
during such fiscal year.
The Board of Directors has appointed Directors Hooper and Self as the
standing Audit Committee. The Audit Committee met four times in this capacity in
connection with the independent audit for fiscal 2003. 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. The Company's Board of Directors has adopted a written charter for
the Audit Committee, a copy of which was attached to the proxy statement
relating to the 2001 annual meeting of shareholders.
The Board of Directors has a standing 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 12 times for fiscal 2003.
The Board of Directors does not have a standing nominating committee or
nominating committee charter. Under the Company's Bylaws, the full Board acts as
a nominating committee and met once in this capacity to select the nominees for
election at the Annual Meeting. The Board does not believe that the Company
would benefit from a separate nominating committee because of its size and
because a majority of the Board is independent, as defined in Rule 4200(a)(15)
of the NASD Standards. The Board of Directors has no set procedures or policy on
the selection of nominees or evaluation of shareholder recommendations, as it
has historically made such determinations on a case-by-case basis. The Board of
Directors will consider shareholder recommendations for director nominees that
are properly received in accordance with the Company's Bylaws and the applicable
rules and regulations of the Securities and Exchange Commission. See the
"Shareholder Proposals" section below.
All directors are encouraged to attend the annual meeting of shareholders.
All Board members attended the 2003 annual meeting.
5
Shareholder Communications with Directors
Shareholder or other interested party communications with the Board of
Directors may be addressed directly to the individual director at P.O. Box 458,
Newport, Tennessee, 37822-0458.
Director Compensation
Fees. Directors of the Company do not receive compensation for service as
directors. However, directors of the Bank currently receive fees of $6,000 per
year, plus $500 per regular board meeting attended and $200 per executive
committee meeting attended. Directors serving on the Audit Committee receive an
additional $200 for each meeting of the committee. In addition, the Chairman
receives $12,000 per year for serving as such. For fiscal 2003, directors' fees
totaled $109,250.
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 service 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, 2003, the accounts of Messrs. Bible, Harwood, Henry,
Hooper, Myers, Overholt and Self were credited with $1,774, $2,320, $1,366,
$1,774, $1,365, $1,180 and $1,366, 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
6
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, 2003, 2002 and 2001 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
2003, 2002 or 2001.
All other
Annual Compensation (1) Compensation
------------------------- ------------
Name and
Principal Position Year Salary Bonus
------------------ ---- ------ -----
Richard G. Harwood 2003 $96,540 $19,482 $ 72,566 (2)
President and Chief 2002 91,005 12,257 57,859 (3)
Executive Officer 2001 85,713 9,371 18,862 (4)
- -----------------
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 ($13,400), allocation to ESOP account ($22,020),
Company contribution to long-term incentive plan ($1,549) and gain on
accounts in long-term incentive and deferred compensation plans ($35,597)
for fiscal 2003; excludes appraisal fees for services to borrowers in the
amount of $24,887 for 2003.
3 Consists of director fees ($12,100), allocation to ESOP account ($22,988),
Company contribution to long-term incentive plan ($1,549) and gain on
accounts in long-term incentive and deferred compensation plans ($21,222)
for fiscal 2002; excludes appraisal fees for services to borrowers in the
amount of $27,573 for 2002.
4 Consists of director fees ($11,700), 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 ($1,345)
for fiscal 2001; excludes appraisal fees for services to borrowers in the
amount of $22,585 for 2001.
Equity Compensation Plan Information
The following table provides information about our 1999 Stock Option Plan
Number of securities to Weighted-average Number of securities
be issued upon exercise of exercise price of remaining available for future
outstanding options, outstanding options, issuance under equity
Plan Category warrants and rights (1) warrants and rights compensation plans
-------------
Equity compensation plans
approved by shareholders
70,401 $8.59 1,656
Equity compensation plans
not approved by
shareholders -0- n/a -0-
--- ---
Total 70,401 1,656
====== =====
7
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 2003.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year End At Year End (2)
------------------- ---------------
Shares
Acquired on Value
Name Exercise (1) Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------- ----------- ------------- ----------- -------------
Richard G.
Harwood 5,000 $46,590 40,511 -- $307,073 --
- ----------------------
1 An option to purchase 2,000 shares was exercised on October 28, 2003, and
the underlying shares were sold at $14.99. An option to purchase 3,000
shares was exercised on December 18, 2003, and the underlying shares were
sold at $17.74.
2 Based on the difference between the closing sale price for the common stock
on December 31, 2003 as reported on the Nasdaq SmallCap Market SM ($16.18
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, 2005. 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
8
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 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 of 1986, as amended (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, 2003, would have been approximately $346,908. 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 Bank makes 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, 2003, loans to
directors and executive officers totaled approximately $852,742 or 5% of
shareholders' equity and .73% of total assets at that date. Except as disclosed
below, no director or executive officer had more than $60,000 of loans as of
December 31, 2003.
Highest Balance at
Name & Relation Balance Since December 31,
to Company Type of Loan Date Originated Interest Rate January 1, 2003 2003
---------- ------------ --------------- ------------- --------------- ----
Lonnie R. Jones Residential 10/14/00 5.25 % $312,680 $306,911
Vice President of Mortgage
Operations
Ben W. Hooper, III Residential 04/01/98 5.50% $218,522 $189,998
Director Mortgage
Nancy L. Bryant Residential 05/31/01 6.00% $167,747 $75,461
Vice President Mortgage
Chris Triplett Real Estate 03/31/01 5.00% $129,200 $123,420
Controller Mortgage
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 2003, the law firm's fees for such services totaled $80,347.
9
INDEPENDENT AUDITORS
Pugh & Company, P.C. ("Pugh & Company") was the Company's independent
auditor for the 2003 fiscal year and has been retained by the Board of Directors
to be its auditor for the 2004 fiscal year. A representative of Pugh & Company
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.
All services provided by Pugh & Company during the fiscal year 2003 were
pre-approved by the Audit Committee. The aggregate fees billed by Pugh in 2002
and 2003 for various services were:
Type of Fees 2002 2003
---- ----
Audit Fees.................................................... $38,225 $49,975
Audit-Related Fees............................................ 2,600 3,025
Tax Fees...................................................... 10,725 11,725
All Other Fees................................................ 2,875 2,950
----- -----
Total.................................................. $54,425 $67,675
======= =======
In the above table, in accordance with SEC definitions and rules, "audit fees"
are fees billed to the Company for professional services for the audit of the
Company's consolidated financial statements included in Form 10-K and review of
financial statements included in Forms 10-Q, or for services that are normally
provided by the accountant in connection with statutory and regulatory filings
or engagements; "audit-related fees" are fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of the Company's financial statements; "tax fees" are fees billed for tax
compliance, tax advice and tax planning; and "all other fees" are fees billed
for any services not included in the first three categories.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors has:
1. Reviewed and discussed the audited financial statements for the fiscal year
ended December 31, 2003 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, 2003 be included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2003.
MEMBERS OF THE AUDIT COMMITTEE
Ben W. Hooper, III - Chairman
Robert D. Self
10
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 COMMITTEE
Pursuant to regulations promulgated under the Securities Exchange Act of
1934, as amended, 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, with the exception that Mr. Jones inadvertently failed
to timely file Forms 4 in March 2003 to report an exercise of stock options, in
July 2003 to report an exercise of stock options, in August 2003 to report the
sale of common stock, and in August 2003 to report an exempt award of common
stock; Mr. Harwood inadvertently failed to timely file a Form 4 in May 2002 to
report an exercise of stock options; Mr. Hooper inadvertently failed to timely
file a Form 4 in May 2002 to report an exercise of stock options; and Mr. Myers
inadvertently failed to timely file a Form 4 in August 2003 to report an exempt
award of common stock. The appropriate forms have been filed with the SEC.
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, 2003 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 17, 2004. 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 2, 2005 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 Securities Exchange Act of 1934, as amended,
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'
11
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 16, 2004
12
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REVOCABLE PROXY - UNITED TENNESSEE BANKSHARES, INC.
Annual Meeting of Shareholders, May 18, 2004
- --------------------------------------------------------------------------------
The undersigned hereby appoints Peggy B. Holston and William B. Henry and each
of them, with full power to each of substitution and revocation as proxies to
vote all shares of common stock of the Company registered in the name(s) of the
undersigned and held by them of record as of April 1, 2004, at the Annual
Meeting of Shareholders to be held at the Main Office of Newport Federal Bank,
344 W. Broadway, Newport, Tennessee, on May 18, 2004, at 5:00 p.m., local time,
and at any and all adjournments, upon the following matters:
1. To elect as directors the nominees listed below (except as marked to
the contrary below).
VOTE
FOR WITHHELD
Robert L. Overholt [ ] [ ]
Ben W. Hooper, III [ ] [ ]
INSTRUCTION: To withhold your vote for any individual nominee, insert that
nominee's name on the line provided below.
- --------------------------------------------------------------------------------
2. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting or any
adjournment thereon.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder(s). If no direction is made this proxy will be
voted for Proposal 1.
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE CORPORATION THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A
SELF-ADDRESSED, POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
[United Tennessee Bankshares, Inc. Logo]
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Please complete, date, sign and mail the
Detached proxy card in the enclosed postage-prepaid envelope.
DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
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 hereby revokes any and all proxies
heretofore given with respect to the shares of common stock held of record by
the undersigned.
The undersigned acknowledges receipt from the Company prior to the execution of
this proxy of a Notice of Annual Meeting, the Company's Proxy Statement for the
Annual Meeting and an Annual Report for the 2004 fiscal year.
Signature
-----------------------------------------
Signature
-----------------------------------------
Date , 2004
----------------------------------------
Please sign exactly as name (or names) appears above. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by authorized officer. If a
partnership, please sign its partnership name by authorized person.