UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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:
[X] Preliminary Proxy Statement
[_] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-12
UNITED TENNESSEE BANKSHARES, INC.
(Name of Registrant as Specified in Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
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[_] 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:
(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:
(2) Form, Schedule or Registration Statement no.:
(3) Filing party:
(4) Date filed:
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Subject to Completion dated June 23, 2005
UNITED TENNESSEE BANKSHARES, INC.
344 W. Broadway
Newport, Tennessee 37821-0249
(423) 623-6088
__________, 2005
To the Shareholders of UNITED TENNESSEE BANKSHARES, INC.
You are cordially invited to attend the annual meeting of shareholders of
United Tennessee Bankshares, Inc. ("United Tennessee"), which will be held at
our offices at 344 W. Broadway, Newport, Tennessee, on ________, ________ __,
2005 at __:__ _.m., Eastern Time.
At the meeting, you will be asked to:
o approve the Agreement and Plan of Merger dated as of June 17, 2005, by
and between United Tennessee and United Tennessee Merger Corp., a
Tennessee corporation and United Tennessee's wholly owned subsidiary
("Merger Corp."), pursuant to which Merger Corp. will merge with
United Tennessee, with United Tennessee being the surviving
corporation (the "Going Private Merger"), and each of the transactions
contemplated thereby, including, without limitation, the Going Private
Merger;
o elect two directors to serve until the 2008 annual meeting of
shareholders; and
o transact other business that properly comes before the meeting or any
adjournment of the meeting.
The first proposal relates to a corporate reorganization approved by our
Board of Directors which will enable United Tennessee to become a private
company. As a result of this Going Private Merger:
o all shareholders who beneficially own (including certain family
ownership as specially defined herein) fewer than 2,500 shares of
common stock will receive a cash payment for such shares in the amount
of $22.00 per share; and
o shareholders who beneficially own (including certain family ownership)
2,500 or more shares of common stock will retain such shares.
The Going Private Merger will be accomplished by United Tennessee engaging
in a merger transaction with Merger Corp. As a result of this Going Private
Merger, United Tennessee will substantially reduce its total number of
shareholders, which will permit it to deregister its shares of common stock
under the Securities Exchange Act of 1934, as amended, and become a privately
held company, which will allow it to eliminate costly public reporting and
burdensome regulation. Before we undertake the Going Private Merger, our
shareholders must vote and approve it.
After the Going Private Merger, United Tennessee intends to deregister its
common stock with the Securities and Exchange Commission and become a private
company. United Tennessee's common stock will cease to be traded on the NASDAQ
SmallCap Market. After the transaction, any trading in United Tennessee common
stock will only occur in the Pink Sheets Electronic Quotation System (the "pink
sheets") or in privately negotiated sales. As a result of the deregistration,
United Tennessee will no longer be subject to the periodic reporting and related
requirements under federal securities laws that are applicable to public
companies.
We have enclosed a notice of the annual meeting of shareholders, a
proxy statement, and a form of proxy. The matters listed in the notice of annual
meeting, including the Going Private Merger, are more fully described in the
proxy statement.
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We have also enclosed a copy of our Annual Report on Form 10-KSB for the year
ended December 31, 2004 and a copy of our Quarterly Report on Form 10-QSB for
the quarter ended March 31, 2005.
It is important that your shares are represented and voted at the meeting,
regardless of the size of your holdings. Accordingly, we would appreciate your
completing the enclosed form of proxy whether or not you plan to attend the
meeting. If you are present at the meeting and wish to vote your shares
personally, your form of proxy can be revoked upon your request prior to
balloting. If you wish to vote personally at the meeting, but your shares are
held in the name of a broker, trust, bank or other nominee, you should bring
with you a form of proxy or letter from the broker, trustee, bank or nominee
confirming your beneficial ownership of the shares.
We urge you to return your form of proxy by mailing it in the enclosed
postage-paid envelope to be received no later than 5:00 p.m. on _______ __,
2005.
Upon request, we will provide to you, without charge, a copy of any
exhibits to our annual report on Form 10-KSB for the year ended December 31,
2004 or our Quarterly Report on Form 10Q-SB for the quarter ended March 31,
2005, as filed with the SEC. Requests should be directed to Peggy G. Holston,
Secretary, by mail to United Tennessee Bankshares, Inc., 344 W. Broadway,
Newport, Tennessee 37821-0249, or by telephone to (423) 623-6088.
Sincerely yours,
Richard G. Harwood
President
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the transaction described herein;
passed upon the merits or fairness of the transaction; or passed upon the
adequacy of the disclosure in this proxy statement. Any representation to the
contrary is a criminal offense.
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UNITED TENNESSEE BANKSHARES, INC.
344 W. Broadway
Newport, Tennessee 37821-0249
(423) 623-6088
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held ________ __, 2005
The regular annual meeting of shareholders of United Tennessee Bankshares,
Inc. ("United Tennessee") will be held at our offices at 344 W. Broadway,
Newport, Tennessee, on ________, ________ __, 2005 at __:__ _.m., Eastern Time,
for the following purposes:
1. Approval of Going Private Transaction. To approve the Agreement and
Plan of Merger dated as of June 17, 2005, by and between United
Tennessee and United Tennessee Merger Corp., a Tennessee corporation
and United Tennessee's wholly owned subsidiary ("Merger Corp."),
pursuant to which Merger Corp. will merge with United Tennessee, with
United Tennessee being the surviving corporation (the "Going Private
Merger"), and each of the transactions contemplated thereby,
including, without limitation, the Going Private Merger.
2. Election of Directors. To elect two directors to serve until the 2008
annual meeting of shareholders or until their successors have been
duly elected and qualified.
3. Other Business. To transact such other business as may properly come
before the meeting or any adjournment of the meeting.
Shareholders of record at the close of business on ________, 2005, are
entitled to notice of and to vote on all matters presented at the annual meeting
of shareholders. On that day 1,185,999 shares of common stock were outstanding.
Each share entitles the holder to one vote.
By Order of the Board of Directors
Peggy G. Holston
Secretary
Newport, Tennessee
_______ __, 2005
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
- --------------------------------------------------------------------------------
Whether or not you expect to attend the meeting and regardless of the
number of shares you own, please mark, sign, date and return the
enclosed form of proxy as promptly as possible in the enclosed
envelope. You may nevertheless vote in person if you attend the annual
meeting.
- --------------------------------------------------------------------------------
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Table of Contents
Page
Information about the Annual Meeting...........................................1
Summary Term Sheet Regarding the Going Private Merger..........................3
The Merger Agreement.....................................................3
Vote Required for the Going Private Merger...............................3
Effects of the Going Private Merger......................................3
Reasons for the Going Private Merger.....................................4
Disadvantages of the Going Private Merger................................4
Background of the Going Private Merger Proposal..........................4
Material U. S. Federal Income Tax Consequences of the
Going Private Merger...................................................4
Dissenters Rights........................................................4
Opinion of Financial Advisor.............................................4
Source and Amount of Funds for the Going Private Merger..................5
Recommendation of the Boards of Directors of United Tennessee
and Merger Corp. and Their Directors
and Executive Officers Regarding the Going Private Merger............5
Effect of Going Private Merger on United Tennessee Shareholders..........5
Effects of Going Private Merger on Officers, Directors and Affiliates
of United Tennessee..................................................6
Shares Held in Street Name...............................................6
Summary Financial Information............................................7
Summary Historical Consolidated Financial Information................7
Summary Unaudited Pro Forma Consolidated Financial Information.......8
Selected Per Share Financial Information.............................9
Per Share Market Price..............................................10
Statement Regarding Forward-Looking Information...............................10
Proposal 1 -- Approval of Merger Agreement....................................11
Special Factors...............................................................11
Background of the Going Private Merger Proposal.........................11
Reasons for the Going Private Merger....................................15
Effects of the Going Private Merger.....................................16
Recommendation of the Board of Directors; Fairness of the Going Private
Merger Proposal.......................................................20
Determination of Fairness of Merger Corp. and Other United
Tennessee Affiliates..................................................23
Opinion of Financial Advisor............................................23
The Merger Transaction........................................................29
Fees and Expenses of the Going Private Merger...........................29
Material U.S. Federal Income Tax Consequences of the Going
Private Merger........................................................30
Source and Amount of Funds for the Going Private Merger.................32
Conduct of United Tennessee's Business after the Going
Private Merger........................................................32
Directors and Executive Officers of United Tennessee and Merger Corp....33
Dissenter's Rights......................................................33
Interests of Officers and Directors in the Going Private Merger.........35
Regulatory Requirements.................................................37
The Merger Agreement..........................................................38
Proposal 2 -- Election of Directors...........................................42
Executive Compensation........................................................45
Stock Ownership of United Tennessee...........................................48
Certain Transactions..........................................................48
Audit Fees....................................................................49
Report of Audit Committee of the Board of Directors...........................49
Other Matters.................................................................50
Section 16(a) Beneficial Ownership Reporting Compliance.......................50
Cost of Solicitation..........................................................50
Shareholder Proposals.........................................................50
Where You Can Find More Information...........................................51
Additional Documents and Other Information Incorporated by Reference..........51
Index to Financial Statements................................................F-1
Annex A -- Agreement and Plan of Merger......................................A-1
Annex B -- Opinion of Triangle Capital Partners, LLC Regarding Common Stock..B-1
Annex C -- Sections 48-21-101 through 48-23-302 of Tennessee Business
Corporation Act..............................................................C-1
Annex D -- Audit Committee Charter...........................................D-1
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UNITED TENNESSEE BANKSHARES, INC.
344 W. Broadway
Newport, Tennessee 37821-0249
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
Your vote is very important. For this reason, the Board is requesting that,
if you are not able to attend the annual meeting of shareholders, you allow your
common stock to be represented at the meeting by the proxies named in the
enclosed proxy card. This proxy statement and the form of proxy are being sent
to you in connection with this request and are being mailed to all shareholders
beginning on ________ __, 2005.
Information About the Annual Meeting
When is the annual meeting?
________, ________ __, 2005 at __:__ _.m. Eastern Time.
Where will the annual meeting be held?
Newport Federal Bank, 344 W. Broadway, Newport, Tennessee.
What items will be voted upon at the annual meeting?
You will be voting upon the following matters:
1. Approval of Going Private Transaction. To approve the Agreement and
Plan of Merger dated as of June 17, 2005, by and between United
Tennessee Bankshares, Inc. ("United Tennessee") and United Tennessee
Merger Corp., a Tennessee corporation and United Tennessee's wholly
owned subsidiary ("Merger Corp."), pursuant to which Merger Corp. will
merge with United Tennessee, with United Tennessee being the surviving
corporation (the "Going Private Merger"), and each of the transactions
contemplated thereby, including, without limitation, the Going Private
Merger.
2. Election of Directors. To elect two directors to serve until the 2008
annual meeting of shareholders or until their successors have been
duly elected and qualified.
3. Other Business. To transact such other business as may properly come
before the meeting or any adjournment of the meeting.
Who can vote?
You are entitled to vote your common stock if our records show that you
held your shares as of the close of business on the record date, ____________
___, 2005. Each shareholder is entitled to one vote for each share of common
stock held on that date. On _________ ___, 2005 there were 1,185,999 shares of
common stock outstanding and entitled to vote.
How do I vote by proxy?
If you sign, date and return your signed proxy card before the annual
meeting, we will vote your shares as you direct. For the election of directors,
you may vote for (1) all of the nominees, (2) none of the nominees, or (3) all
of the nominees except those you designate. For the approval of the Going
Private Merger, you may vote "For" or "Against" or you may "Abstain" from
voting.
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If you return your signed proxy card but do not specify how you want to
vote your shares, we will vote them
o "For" the approval of the Going Private Merger;
o "For" the election of all of our nominees for director; and
The Board knows of no other business to be presented at the annual meeting.
If any matters other than those set forth above are properly brought before the
annual meeting, the individuals named in your proxy card may vote your shares in
accordance with their best judgment.
How do I change or revoke my proxy?
You can change or revoke your proxy at any time before it is voted at the
annual meeting by:
(1) submitting another proxy with a more recent date than that of the
proxy first given;
(2) attending the annual meeting and voting in person; or
(3) sending written notice of revocation to our corporate secretary, Peggy
G. Holston.
How many votes are required?
If a quorum is present at the annual meeting,
o the director nominees will be elected by a plurality of the votes cast
in person or by proxy at the meeting; and
o the approval of the Going Private Merger will require the affirmative
vote of a majority of the outstanding shares of United Tennessee
common stock.
You should note that the officers and directors of United Tennessee have agreed
to vote their shares in favor of the merger and that they beneficially own in
the aggregate 29.83% of the outstanding shares of common stock. Accordingly, if
holders of only an additional 20.27% of the outstanding stock vote in favor of
the proposal, the proposal will be approved.
What constitutes a "quorum" for the meeting?
A majority of the outstanding shares, present or represented by proxy,
constitutes a quorum. A quorum is necessary to conduct business at the annual
meeting. You are part of the quorum if you have voted by proxy. Abstentions,
broker non-votes and votes withheld from director nominees count as "shares
present" at the meeting for purposes of determining a quorum. However,
abstentions and broker non-votes do not count in the voting results. A broker
non-vote occurs when a broker or other nominee who holds shares for another does
not vote on a particular item because the nominee does not have discretionary
authority for that item and has not received instructions from the owner of the
shares.
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Summary Term Sheet Regarding the Going Private Merger
The following summary term sheet highlights information from this proxy
statement about our proposed going private merger and the meeting. This Summary
Term Sheet may not contain all of the information that is important to you. To
better understand, and for a more complete description of the Going Private
Merger on which you will vote, you should carefully read this entire document
and all of its annexes before you vote. For your convenience, we have directed
your attention in parentheses to the locations in this proxy statement where you
can find a more complete discussion of each item listed below.
The Merger Agreement (Page 38)
On June 17, 2005, we signed the merger agreement, pursuant to which Merger
Corp., a newly-formed Tennessee corporation, proposes to merge with and into
United Tennessee. Under the terms of the merger agreement, if the Going Private
Merger is completed:
o United Tennessee shareholders beneficially owning (including certain
family ownership) fewer than 2,500 shares of United Tennessee common
stock as of the effective date of the Going Private Merger will
receive a cash payment of $22.00 per share, unless they perfect
dissenters' rights.
o United Tennessee shareholders beneficially owning (including certain
family ownership) 2,500 or more shares of common stock as of the
effective date of the Going Private Merger will continue to hold such
shares of United Tennessee, unless they perfect dissenters' rights.
Vote Required for the Going Private Merger (Page 2)
Approval of the merger agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of United Tennessee common
stock. You should note that the officers and directors of United Tennessee have
agreed to vote their shares in favor of the merger and that they beneficially
own in the aggregate 29.83% of the outstanding shares of common stock.
Accordingly, if holders of only an additional 20.27% of the outstanding stock
vote in favor of the proposal, the proposal will be approved.
Effects of the Going Private Merger (Page 16)
As a result of the Going Private Merger:
o United Tennessee will immediately deregister its shares of common
stock under the Securities Exchange Act of 1934, as amended (the
Exchange Act);
o cashed-out holders of United Tennessee common stock will no longer
have an interest in, or be a shareholder of, United Tennessee and,
therefore, they will not be able to participate in its future earnings
and growth, if any;
o the number of record shareholders of common stock of United Tennessee
will be reduced from approximately 547 to approximately 96 and the
number of outstanding shares of United Tennessee common stock will be
decreased from 1,185,999 to approximately 926,299;
o the percentage of ownership of common stock of United Tennessee
beneficially held by its officers and directors of United Tennessee,
as a group, as of May 31, 2005 will increase from 29.83% to
approximately 38.17%;
o the aggregate shareholders' equity of United Tennessee as of December
31, 2004, would be reduced from $18.4 million on a historical basis to
approximately $12.6 million on a pro forma basis;
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o the book value per share of common stock of United Tennessee as of
December 31, 2004, would be reduced from approximately $15.39 per
share on a historical basis to approximately $13.40 per share on a pro
forma basis; and
o diluted net income per share of common stock of United Tennessee
(including non-recurring income and expenses) for the year ended
December 31, 2004, would increase from $1.58 on a historical basis to
$1.75 on a pro forma basis.
Reasons for the Going Private Merger (Page 15)
Our primary reason for the Going Private Merger is that it will enable us
to, and we will, deregister our shares of common stock under the Exchange Act.
As a result, we will no longer incur the costs and regulatory burden of
maintaining such registration.
Disadvantages of the Going Private Merger (Page 16)
The following are disadvantages of the Going Private Merger:
o Decreased access to information. If the Going Private Merger and
deregistration of United Tennessee common stock is effected, United
Tennessee will not be subject to the periodic reporting requirements
and the proxy rules of the Exchange Act and executive officers,
directors and other affiliates of United Tennessee would no longer be
subject to many of the reporting requirements and restrictions of the
Exchange Act, including without limitation the reporting and
short-swing profit provisions of Section 16.
o Decreased liquidity. The liquidity of the shares of common stock held
by shareholders will most likely be adversely affected by the Going
Private Merger.
Background of the Going Private Merger Proposal (Page 11)
Please see "Background of the Going Private Merger Proposal" for a
discussion of the events leading up to the signing of the merger agreement.
Material U.S. Federal Income Tax Consequences of the Going Private Merger (Page
30)
The receipt of cash by shareholders in the Going Private Merger will create
either taxable income or taxable loss for federal income tax purposes depending
on a shareholder's tax basis in his or her shares of common stock.
Tax matters are very complicated and the tax consequences to you will depend on
your own situation. To review the material tax consequences in greater detail,
please read the discussion under "Material U.S. Federal Income Tax Consequences
of the Going Private Merger."
Dissenters' Rights (Page 33)
Under Tennessee law, you are entitled to dissent from the Going Private
Merger and you may have dissenters' rights in connection with the Going Private
Merger. To exercise your dissenters' rights, you must comply with all procedural
requirements of Sections 48-23-101 through 48-23-302 of the Tennessee Business
Corporation Act. A description of these sections of the Tennessee Business
Corporation Act is provided in "Approval of the Merger Agreement - Dissenters'
Rights" and the full text of the sections is attached as Annex C to this
document. Failure to take any steps required by Tennessee law may result in a
termination or waiver of your dissenters' rights.
Opinion of Financial Advisor (Page 23)
After the Board of Directors of United Tennessee determined the amount of
the price to be paid in connection with the Going Private Merger, Triangle
Capital Partners, LLC, which we refer to as "Triangle," delivered to the Board a
written
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opinion, dated April 12, 2005, to the effect that, as of that date, the $22.00
per share purchase price to be paid to cashed out shareholders in accordance
with the terms of the Going Private Merger, is fair, from a financial point of
view, to all United Tennessee shareholders. You should carefully read the
discussion under "Recommendation of the Board of Directors; Opinion of Financial
Advisor," as well as Triangle's April 12, 2005 letter attached as Annex B, for a
more complete discussion.
Source and Amount of Funds for the Going Private Merger (Page 32)
We estimate that the total funds required for the payment of the
consideration to cashed-out holders of our common stock and to pay fees and
expenses relating to the Going Private Merger will be approximately $5.8
million. These amounts will be paid from a dividend of up to $6.0 million from
United Tennessee's wholly owned subsidiary Newport Federal Bank to United
Tennessee.
Recommendation of the Boards of Directors of United Tennessee and Merger Corp.
and Their Directors and Executive Officers Regarding the Going Private Merger
(Page 20)
The Boards of Directors of United Tennessee and Merger Corp. and their
directors and executive officers, individually, believe that the merger
agreement is fair to and in the best interests of United Tennessee and its
shareholders, including both affiliated and unaffiliated shareholders, and
unanimously recommend that shareholders of United Tennessee vote "FOR" the
approval of the merger agreement. As used in this proxy statement, the term
"affiliated shareholder" means any shareholder who is a director or executive
officer of United Tennessee or the beneficial owner of 10% or more of United
Tennessee's outstanding common stock, and the term "unaffiliated shareholder"
means any shareholder other than an affiliated shareholder. United Tennessee's
directors and executive officers have indicated that they will vote all of their
shares of United Tennessee stock in favor of the merger agreement. As of May 31,
2005, the directors and executive officers of United Tennessee beneficially
owned a total of 353,834 shares of United Tennessee common stock, or
approximately 29.83% of the total votes eligible to be cast at the meeting. See
"United Tennessee Stock Ownership." No other shareholders have disclosed to
United Tennessee how they intend to vote on this matter.
Effect of the Going Private Merger Proposal on United Tennessee Shareholders
(Page 16)
Shareholders with fewer than 2,500 shares of common stock.
If the Going Private Merger Proposal is implemented and you are a
cashed-out common stock holder (i.e., a shareholder beneficially owning
(including certain family ownership) fewer than 2,500 shares of United Tennessee
common stock as of the effective time of the Going Private Merger):
o You will receive cash equal to $22.00 for each share you hold, unless
you perfect dissenters' rights.
o After the Going Private Merger, you will have no further interest in
United Tennessee with respect to your cashed-out shares, and you will
no longer be entitled to vote as a shareholder or share in the assets,
earnings, or profits, if any, of United Tennessee. Your only right
will be to receive cash for these shares.
o You will likely not have to pay any service charges or brokerage
commissions in connection with the Going Private Merger. However, if
you own your shares through a brokerage account, your broker may
charge a brokerage fee in connection with the Going Private Merger.
o All amounts owed to you will be subject to applicable federal and
state income taxes and state abandoned property laws.
o You will not receive any interest on cash payments owed to you as a
result of the Going Private Merger.
o You will receive a transmittal letter from United Tennessee as soon as
practicable after the Effective Time. The letter of transmittal will
contain instructions on how to surrender your existing certificate(s),
if applicable, to United Tennessee for your cash payment. You will not
receive your cash payment until you surrender your outstanding
certificate(s), if applicable, in accordance with the instructions
provided to you by United Tennessee, together with a completed and
executed copy of the letter of transmittal. Please do not send your
certificates until you receive your letter of transmittal.
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Shareholders with 2,500 or more shares of common stock.
If you beneficially own (including certain family ownership) 2,500 or more
shares of United Tennessee's common stock as of the effective time of the Going
Private Merger, you will continue to hold your shares of United Tennessee common
stock after the Going Private Merger, unless you perfect dissenters' rights.
Effects of Going Private Merger on Officers, Directors and Affiliates of United
Tennessee (Page 16)
o the percentage of beneficial ownership of common stock of United
Tennessee (including the effect of fully vested and exercisable stock
options) held by its officers and directors as a group will increase
from 29.83% of the common stock of United Tennessee to approximately
38.17% based on their securities holdings as of May 31, 2005;
o the collective book value as of December 31, 2004, of the shares of
United Tennessee common stock held by United Tennessee's officers and
directors, as a group (including the effect of fully vested and
exercisable stock options), would decrease from approximately $15.39
on a historical basis to approximately $13.40 on a pro forma basis;
o the collective pro rata interest of United Tennessee's officers and
directors, as a group, in the net income of United Tennessee for the
year ended December 31, 2004, would increase from approximately $1.58
per share on a historical basis (based on the number of shares
beneficially owned by such officers and directors including the effect
of fully vested and exercisable stock options, as of the record date)
to a pro rata interest of approximately $1.75 per share on a pro forma
basis (based on the number of shares which United Tennessee
anticipates such officers and directors to beneficially own
immediately after the Going Private Merger including the effect of
fully vested and exercisable stock options);
o the Going Private Merger will not result in any new employment
arrangements or agreements with the current officers of United
Tennessee and will not trigger any change of control provisions in
existing agreements; and
o Since none of the directors and officers of United Tennessee will be
cashed out in the Going Private Merger they will, therefore, share in
the future growth and profits of United Tennessee while unaffiliated
shareholders who are cashed out will not.
For a description of the assumptions United Tennessee used in determining the
numbers of shares and related percentages that United Tennessee expects to be
held by current officers and directors immediately after the Going Private
Merger, please see the footnotes under "Stock Ownership of United Tennessee."
Shares Held in Street Name (Page 38)
Any shares owned in street name by a third party for your benefit, but excluding
shares owned by this third party for other persons will be added to the number
of any shares you may hold directly in record name in determining the number of
shares you beneficially own. You will be entitled to retain your shares of
United Tennessee common stock in the Going Private Merger only if you certify to
United Tennessee that the total number of shares of common stock you
beneficially own (including certain family ownership) (whether of record or in
street name) is 2,500 or more. The merger agreement has detailed provisions
regarding the treatment of shares held in street name. Please read the
discussion under "Approval of the Merger Agreement - Conversion of Shares in the
Going Private Merger" for a description of these provisions as well as the terms
of the merger agreement.
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Summary Financial Information
Summary Historical Consolidated Financial Information
The following summary historical consolidated financial information of
United Tennessee for the fiscal years ended December 31, 2004 and 2003 was
derived from the audited consolidated financial statements of United Tennessee.
This financial information is only a summary and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition or Plan of
Operation" and the consolidated financial statements of United Tennessee and the
notes thereto included in our Annual Report on Form 10-KSB for the year ended
December 31, 2004.
For the years ended December 31
Consolidated Income Statement Data: 2004 2003
- ----------------------------------- ---- ----
Total Interest Income $6,864,430 $6,926,661
Total Interest Expense 1,649,986 1,679,826
Net Interest Income 5,214,444 5,246,835
Income Before Income Taxes 2,631,613 2,832,665
Income Tax Expense 716,811 826,472
Net Income 1,914,802 2,006,193
Per Share Information:
Basic Income per Common Share $1.58 $1.58
Diluted Income per Common Share $1.58 $1.58
Dividends per Common Share $0.39 $0.36
Weighted Average Diluted Share
Outstanding 1,213,582 1,271,232
Consolidated Balance Sheet Data:
Total Assets $ 122,658,912 $116,982,136
Shareholders' Equity 18,418,727 16,892,956
Bank Tier 1 Capital 15,492,000 13,656,000
Consolidated Ratio of Earnings to Fixed Charges:
Excluding Interest on Deposits 487.88X 1,454.39X %
Including Interest on Deposits 2.59X 2.69X%
For the purpose of computing the ratio of earnings to fixed charges, "earnings"
consist of the basic income applicable to common shareholders before income
taxes plus fixed charges. "Fixed charges" consist of interest expense on
short-term and long-term debt.
7
Summary Unaudited Pro Forma Consolidated Financial Information
The following summary unaudited pro forma consolidated income statement
data and per share information of United Tennessee for the year ended December
31, 2004 give effect to the Going Private Merger as if it had occurred on
January 1, 2004, and the unaudited pro forma consolidated income statement data
and per share information for the year ended December 31, 2003, give effect to
the Going Private Merger as if it had occurred on January 1, 2003. You should
read the summary unaudited pro forma financial information in conjunction with
the Unaudited Pro Forma Consolidated Financial Statements and the related
assumptions and notes included elsewhere in this proxy statement. As described
in such assumptions, the pro forma financial data assumes that 259,700 shares of
United Tennessee common stock are cashed-out in connection with the Going
Private Merger and the expenses of the transaction. The pro forma information
set forth below is not necessarily indicative of what United Tennessee's actual
financial position or results of operations would have been had the Going
Private Merger been consummated as of the above referenced dates or of the
financial position or results of operations that may be reported by United
Tennessee in the future.
PRO FORMA CONSOLIDATED INCOME STATEMENT DATA:
2004 2003
---- ----
Total Interest Income $6,704,430 $6,766,661
Total Interest Expense 1,729,986 1,759,826
Net Interest Income 4,974,444 5,006,835
Income Before Income Taxes 2,291,613 2,492,665
Income Tax Expense 624,200 727,272
Net Income 1,667,413 1,765,393
Basic Income applicable to common
shareholders 1,667,413 1,765,393
PRO FORMA PER SHARE INFORMATION:
Basic Income per Common Share $1.75 $1.75
Diluted Income per Common Share $1.75 $1.75
Dividends per Common Share $0.39 $0.36
Weighted Average Diluted Shares
Outstanding 953,882 1,011,532
PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
Total Assets $118,799,406 $113,121,428
Shareholders' Equity 12,559,221 11,032,248
Bank Tier 1 Capital 9,517,000 7,686,000
8
Selected Per Share Financial Information
The following table sets forth selected historical per share financial
information for United Tennessee and unaudited pro forma per share
financial information for United Tennessee giving effect to the Going
Private Merger as if they had been consummated as of December 31, 2004 and
2003, in the case of book value information, and as of the beginning of the
respective reporting periods, in the case of income statement information.
The information presented below is derived from (i) the consolidated
historical financial statements of United Tennessee, including the related
notes, and (ii) the Unaudited Pro Forma Consolidated Financial Statements,
including the assumptions and related notes, contained elsewhere in this
proxy statement. You should read this table together with the unaudited Pro
Forma Consolidated Financial Statements and the related assumptions and
notes included elsewhere in this proxy statement and the consolidated
financial statements of United Tennessee and the related notes included in
our Annual Report on Form 10KS-B for the year ended December 31, 2004. As
described in the assumptions to the Unaudited Pro Forma Consolidated
Financial Statements, the pro forma per share information assumes that
259,700 shares of United Tennessee common stock are cashed-out in
connection with the Going Private Merger and the expenses of the
transaction. The pro forma information set forth below is not necessarily
indicative of what United Tennessee's actual financial position or results
of operations would have been had the Going Private Merger been consummated
as of the above referenced dates or of the financial position or results of
operations that may be reported by United Tennessee in the future.
Historical: 2004 2003
---- ----
Income per common share:
Basic $ 1.58 $ 1.58
Diluted $ 1.58 $ 1.58
Dividends per common share $ 0.39 $ 0.36
Book Value per common share(1) $15.39 $13.73
Pro Forma:
Income per common share(2):
Basic $ 1.75 $ 1.75
Diluted $ 1.75 $ 1.75
Dividends per common share $ 0.39 $ 0.36
Book Value per common share(3) $13.40 $11.37
- -------------------------
(1) Historical book value per common share is computed by dividing shareholders'
equity at December 31, 2004 and 2003 by the number of common shares outstanding
at each date.
(2) Pro forma earnings per common share is computed by dividing the pro forma
net income by the historical weighted average shares outstanding for the
respective periods less the 259,700 shares of United Tennessee common stock
assumed to be acquired for cash in the Going Private Merger.
(3) Pro forma book value per common share is computed by dividing pro forma
shareholders' equity at December 31, 2004 and 2003, by the number of common
shares outstanding at each date, less the 259,700 shares of United Tennessee
common stock assumed to be acquired for cash in the Going Private Merger.
9
Per Share Market Price
Currently, United Tennessee's common stock is listed on the NASDAQ SmallCap
Market. After the Going Private Merger, there will be no public market for
United Tennessee's common stock. The common stock may be quoted in the
over-the-counter market, on the "pink sheets." The "pink sheets" is a
centralized quotation service that collects and publishes market maker quotes in
real-time primarily through the website, www.Pinksheets.com, which provides
stock and bond price quotes, financial news and information about securities
traded. The chart below lists the high and low sales price as quoted on the
NASDAQ SmallCap Market for the periods indicated.
High Low
Year ended December 31, 2004:
First Quarter ...................... $19.75 $16.18
Second Quarter ..................... $19.74 $16.50
Third Quarter ...................... $20.00 $16.59
Fourth Quarter...................... $20.71 $18.25
Year ended December 31, 2003:
First Quarter ...................... $14.28 $11.66
Second Quarter ..................... $14.18 $12.50
Third Quarter....................... $14.75 $13.20
Fourth Quarter ..................... $19.49 $13.40
The last sale price of common stock that occurred prior to the public
announcement of the transaction was $18.26 per share on April 14,2005. United
Tennessee declared and paid a dividend on its common stock of $0.33 per share in
2003 and $0.36 per share in 2004.
During the past two years the executive officers and directors have
purchased a total of 25,900 shares of common stock of United Tennessee upon the
exercise of stock options at an exercise price of $8.60 per share. None of the
officers and directors continue to hold these shares purchased, except for
Richard G. Harwood who retained 6,211 shares of common stock of United Tennessee
which he obtained on February 14, 2005 upon the exercise of stock options at an
exercise price of $8.60 per share.
Statement Regarding Forward-Looking Information
"Forward-looking statements" are those statements that describe our beliefs
and expectations about the future. We have identified forward-looking statements
by using words such as, "anticipate," "believe," "could," "estimate," "may,"
"expect," and "intend." Although we believe these expectations are reasonable,
our operations involve a number of risks and uncertainties, including those
described in this proxy statement and other documents filed with the Securities
and Exchange Commission. These types of statements may prove to be incorrect.
Further, the safe harbor provisions of Section 27A of the Securities Act of
1933, as amended (the Securities Act), and Section 21E of the Exchange Act do
not apply to the Going Private Merger.
10
PROPOSAL 1 -- Approval of the Merger Agreement
SPECIAL FACTORS
Background of the Going Private Merger Proposal
Of United Tennessee's approximately 547 current record common stock
holders, approximately 451, or approximately 82%, beneficially own fewer than
2,500 shares. Collectively, the approximately 451 record holders of common stock
who beneficially own fewer than 2,500 shares own an aggregate of approximately
259,700 shares of common stock, representing approximately 22.0% of United
Tennessee's outstanding shares of common stock. The Board of Directors and
United Tennessee's management are of the view that the recurring expense and
burden of maintaining so many relatively small shareholder accounts, coupled
with the costs and regulatory burden associated with maintaining registration of
United Tennessee's common stock under Section 12 of the Exchange Act, is not
cost efficient for United Tennessee.
The common stock of United Tennessee is listed on the NASDAQ SmallCap
Market. Our common stock is traded occasionally with reported trades occurring
on 76 days during the twelve months ending December 31, 2004, with an average
trading volume on those days of approximately 634 shares per day. Approximately
29.83% of United Tennessee common stock is beneficially owned or controlled by
the executive officers and directors of United Tennessee. This limited trading
market has not allowed United Tennessee shareholders to recognize the primary
benefit which should be available to shareholders of a more widely held publicly
traded company, which is the ability to buy and sell stock in a liquid market in
which accurate and timely pricing information is readily available.
Although United Tennessee shareholders are provided some benefit due to
United Tennessee's being a publicly traded company, the Board of United
Tennessee has determined that compliance with increasingly stringent reporting
and auditing requirements provides many disadvantages to off-set this benefit.
As a "reporting company" under the Exchange Act, United Tennessee is obligated
to prepare and file with the SEC annual reports on Form 10-KSB, quarterly
reports on Form 10-QSB, current reports on Form 8-K and proxy statements that
comply with Section 14 of the Exchange Act, in addition to other reports and
forms from time to time. In the wake of the Enron and WorldCom scandals, United
Tennessee is subject to increased and constantly changing regulatory
requirements under the Sarbanes-Oxley Act of 2002. Compliance with these SEC
reporting and audit requirements and increased regulatory restrictions diverts
the time of senior management and financial staff from other business of United
Tennessee. Also, as a result of these increased and changing legislative
requirements, outside legal, auditing and accounting costs continue to rise and
are anticipated to continue to rise in the future.
The time that United Tennessee management spends on preparation of required
reports and compliance with the new SEC regulations could be more productively
spent on other business matters that bear a more direct relationship to United
Tennessee's operations and profitability. United Tennessee believes that
becoming a private company will enhance United Tennessee's operating flexibility
and resources to focus upon the long-range plans for United Tennessee and the
needs of its customers. Also, due to United Tennessee's status as a bank holding
company which owns a state chartered savings bank, it will continue to be
extensively regulated under other federal and state laws. United Tennessee will
continue to be subject to periodic reporting requirements and inspections from
certain regulatory agencies, including the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve, the Office of Thrift
Supervision and the Department of Financial Institutions of the State of
Tennessee.
The Board of Directors determined that 2,500 or more shares of common stock
was an appropriate threshold for determining who would remain a shareholder
after the Going Private Merger. Although United Tennessee could have
accomplished this "going private" transaction utilizing a slightly lower
threshold than 2,500 shares of common stock, the Board chose the 2,500 share
threshold for several reasons. United Tennessee's Board believes that it is
necessary to reduce United Tennessee's number of common stock record holders to
ensure that it is initially set at a number substantially under 300 so that
United Tennessee, as a privately held Tennessee corporation, does not become
subject to the Exchange Act reporting requirements as a result of future small
transactions which would expand the shareholder base. The Board believes that
reducing the number of shareholders to approximately 96 record holders assures
the reduction of the recurring expense of maintaining so many relatively small
shareholder accounts.
In making this determination, the Board of Directors considered other means
of achieving the same result but
11
rejected these alternatives because the Board believed that the Going Private
Merger Proposal would be simpler and less costly. These alternatives were:
o A tender offer at a similar price per share. The Board was uncertain
as to whether this alternative would result in shares being tendered
by a sufficient number of record shareholders so as to accomplish the
going private objective and reducing recurring costs. The Board found
it unlikely that many holders of small numbers of shares would make
the effort to tender their shares.
o An odd lot tender offer. Another alternative considered was the odd
lot tender offer. The Exchange Act permits issuers to make a tender
offer only to those shareholders owning fewer than 100 shares of
stock. The ability to exclude those shareholders who own 100 or more
shares in an odd lot tender offer is an exception to the general rule
for tender offers. This alternative is appealing in that it would
probably be less costly to complete than the Going Private Merger.
With the odd lot tender offer, only those shareholders who would have
been completely cashed out would have been paid for their shares.
However, we rejected this alternative because it offered no certainty
that the number of shareholders would be reduced below 300. As of the
Record Date, only 120 of our 547 record shareholders owned fewer than
100 shares. Participation in an odd lot tender offer is voluntary.
Even if 100% of all shareholders eligible to participate in an odd lot
tender offer would have participated, it would not reduce the number
of shareholders below the 300 threshold. Alternatively, the Going
Private Merger will automatically eliminate all record shareholders
holding fewer than 2,500 shares at the time the Going Private Merger
is effective. On the Record Date, approximately 96 of the Company's
547 record shareholders owned fewer than 2,500 shares of common stock.
o A stock repurchase plan. The Board also considered going into the open
market and repurchasing stock from shareholders willing to sell their
shares. This repurchase plan would be crafted so that it complied with
the safe harbor set forth in Rule 10b-18 of the Exchange Act. In order
to avoid manipulation of stock prices, Rule 10b-18 restricts when an
issuer can repurchase its shares, the manner in which the repurchase
is effected, the volume of shares purchased and the price paid. As a
result of these restrictions, there is no guaranty that a stock
repurchase plan would result in any reduction of the number of record
shareholders within the time period required to accomplish our
objectives.
o Sale of the company. The Board of Directors acknowledged that selling
United Tennessee was an available alternative to terminating its
registration as an Exchange Act reporting entity. If United Tennessee
were sold to a larger publicly traded institution, the costs of
complying with SEC reporting rules and the Sarbanes-Oxley Act's
auditing and internal controls requirements would no longer be as
disproportionate to the size of the new entity. However, we believe
that the sale of United Tennessee would not be in the best interests
of its shareholders, customers, employees and community. United
Tennessee has successfully served its target market by diligently
pursuing its community bank business model. Our locally based
management has been able to serve our customer base successfully and
profitably, and we have managed to steadily increase our assets
through controlled growth since 1998. At this time, we do not feel it
is in the best interests of our shareholders to abandon this model. As
a result, we have not solicited any third party bids or firm offers,
however, in March 2004, United Tennessee received an unsolicited offer
from a financial institution in a nearby county for the sale of United
Tennessee. This offer was at $22.00 per share, contained a number of
conditions and proposed to acquire United Tennessee's outstanding
shares of common stock in exchange for a combination of stock of the
financial institution and cash. After considering factors such as the
trading volume, performance and liquidity of that financial
institution's stock, as well as the terms of its offer, among other
things, United Tennessee's Board decided that it was in the best
interests of its shareholders to reject the offer. Furthermore, the
Board of Directors of United Tennessee believed, and continues to
believe, that the current proper course for United Tennessee is to
continue to operate as an independent community bank and work to
improve the business of United Tennessee so that it can achieve its
potential as a competitive community bank in its market area.
o A reverse stock split. This alternative would accomplish the objective
of reducing the number of record shareholders, assuming approval of
the reverse stock split by United Tennessee's shareholders. In a
reverse stock split, United Tennessee would acquire the interests of
the cashed-out shareholders by means of an amendment to United
Tennessee's Charter to reduce the number of issued and outstanding
shares of common stock such that the cashed-out shareholders would own
less than one full share of United Tennessee common stock. United
Tennessee would then distribute cash for the resulting fractional
share interests.
12
Although a reverse stock split and a merger transaction likely would
achieve the same results of eliminating record shareholders, the Board
chose to engage in a merger transaction because the Board believed
that the merger transaction would be a simpler way to reduce United
Tennessee's total number of shareholders and become a privately held
company. If United Tennessee had engaged in a reverse stock split, all
shareholders who owned fewer than 2,500 shares of common stock would
have owned less than one share after the reverse stock split was
completed. Then, United Tennessee would have repurchased all
fractional shares from shareholders owning less than one full share.
The result of this would be similar to a freeze-out merger in that all
shareholders who own fewer than 2,500 shares of common stock before
the transaction would have received cash for their shares. However, in
order for those shareholders who owned 2,500 or more shares of common
stock before the transaction to continue to own their same number of
shares after the transaction, United Tennessee would have to engage in
a forward stock split immediately following its reverse stock split.
Although a reverse stock split immediately followed by a forward stock
split would have the same effect as a merger transaction, the Board
elected to structure the transaction as a merger because it was the
less complex alternative.
The Going Private Merger Proposal is being made at this time because the
sooner the proposal can be implemented, the sooner United Tennessee can cease to
incur the expenses and burdens of public reporting and the sooner shareholders
who are entitled to receive cash in the merger can make use of such cash
payments. After consideration of the various alternatives described above, the
Board determined that the Going Private Merger Proposal was the best choice for
the shareholders and United Tennessee. Significantly, United Tennessee estimates
that following the proposed Going Private Merger, it will have approximately 96
holders of record of common stock, comfortably below the minimum of 300
shareholders of record requiring registration under federal securities laws.
The Sarbanes-Oxley Act provisions became applicable to United Tennessee
commencing with its enactment in July 2002, which provisions resulted in
increased costs and increased regulatory burden on United Tennessee's
management. During 2003 and 2004 the estimated burden and costs to United
Tennessee of being a public company and complying with the Sarbanes-Oxley Act is
estimated at $150,000 annually. For the years beginning 2005 and thereafter, the
additional estimated burden and costs associated with the regulatory
requirements of Section 404 of the Sarbanes-Oxley Act is approximately $150,000
annually, for a total estimated burden and costs of approximately $300,000
beginning in late 2005. Due to the significant annual cost of being a public
company and the increasing burden and cost anticipated in the future, management
recommended from a financial standpoint that the Board consider the option of
going private.
In October 2004, Richard Harwood, President of United Tennessee, first
approached a representative of Triangle regarding the possibility of having
Triangle advise United Tennessee as to a possible "going private" transaction,
as well as another possible transaction and alternatives available to United
Tennessee. During the meeting, Triangle briefly set forth some of the types of
transactions which have historically been employed to reduce an entity's number
of record shareholders below 300, as well as some of the anticipated costs and
time commitments necessary to engage in a going private transaction.
In November 2004, at the request of the Board of United Tennessee,
representatives of Triangle attended the Board meeting to discuss going private
transactions generally. The Board discussed some of the anticipated costs
associated with compliance with the rules and regulations of the SEC, as
supplemented by the Sarbanes-Oxley Act, during the future fiscal years. At the
meeting, the Board analyzed United Tennessee's common stock trading history,
including the volume of shares traded as compared to other entities in the same
industry. The Board also analyzed the current base of its shareholders and the
number of shares issued and outstanding. The Board discussed the option of going
private and the advantages and disadvantages associated with de-registering its
common stock with the SEC. The Board further discussed options which might be
available to reduce the number of shareholders below 300 in order to be able to
deregister with the SEC as a reporting company.
Thereafter, based on the recommendation of United Tennessee's management,
the Board determined that it would further consider and research the possibility
of becoming a private company. The Board did not elect to form a special
committee to consider, structure and later approve the Going Private Merger
because all the members of the Board are interested parties and they will
continue as shareholders of United Tennessee after the completion of the Going
Private Merger. On January 15, 2005, the Board, at its regular meeting, further
discussed this matter. United Tennessee's securities counsel was present and led
the discussion and presented information concerning the going private process
and various issues and considerations related to that process. Representatives
of Triangle were also present to discuss possible going private transactions as
well as other strategic alternatives which might be available to United
Tennessee. At the end of the January Board meeting, United Tennessee's Board
decided to pursue another transaction, which was a potential acquisition of a
financial institution outside of United Tennessee's immediate market area and
not to engage in a going private transaction at that time. This potential
acquisition did not materialize, and at its Board meeting in February 2005, the
Board elected to pursue the going private transaction as the potential
acquisition of another financial institution did not materialize.
13
At its regular meeting on March 15, 2005, the Board resolved to continue to
pursue a going private transaction, subject to determining the final cash-out
price and the total amount of equity involved. The Board approved a preliminary
time schedule submitted by its securities counsel for the going private
transaction and authorized its counsel to draft the necessary proxy statement
and related documents to be filed with the SEC. The Board also approved the
selection of Triangle to serve as its financial advisor for a possible going
private transaction based on Triangle's qualifications, experience and cost.
At its April 12, 2005 special meeting, the Board met to consider the Going
Private Merger. Securities counsel and representatives of Triangle participated
in the meeting. The Board carefully considered the advantages and disadvantages
of de-registering with the SEC, as well as the alternatives available to
accomplish the de-registration. At this meeting the Board unanimously approved
proceeding with a going private transaction and, specifically, engaging in the
Going Private Merger. The Board of Directors addressed whether the going private
transaction is a fair transaction to affiliated and unaffiliated shareholders. A
separate discussion was conducted with respect to those shareholders who will
remain shareholders of United Tennessee and those shareholders which would
receive cash and no longer continue to be a shareholder. After weighing the
transaction's advantages and disadvantages, the Board considered the fact that
the fairness to cashed-out shareholders depended, in large part, upon the price
to be paid for the cashed-out shares resulting from the Going Private Merger. At
the April 12 meeting, Triangle reviewed with the Board its methodology for
considering a range of fair value for United Tennessee's stock, from a financial
point of view, in a going private transaction as well as certain information
regarding the anticipated impact of the Going Private Merger.
Triangle first provided some background on the overall performance of
financial institutions and the S&P 500 over the last three years. Triangle
presented information on the performance of three indices of publicly traded
bank and thrift institutions in the United States deemed comparable to United
Tennessee from April 2002 to March 2005, and compared their trading performance
to United Tennessee during the same time period.
Triangle next discussed its valuation analysis with respect to United
Tennessee's common stock. It presented the Board with information regarding
(i) trading history, including volume and prices of United Tennessee's
common stock,
(ii) industry and peer group analyses of trading prices and underlying
values as compared to United Tennessee's common stock, (iii) dividend
discount valuations of the common stock, and
(iv) summary information regarding premiums paid by other companies in
connection with going private transactions.
The information presented to the Board by Triangle regarding this financial
analysis is described more fully below under "Opinion of Financial Advisor."
Finally, Triangle presented information regarding the anticipated financial
impact of the Going Private Merger based on certain assumptions and information
provided by United Tennessee. Specifically, Triangle estimated the total shares
which would be purchased as a result of the Going Private Merger and considered
its resulting impact to the financial condition of United Tennessee. Summary
prospective financial analysis was provided at several different possible
purchase prices and share exchange ratios. Finally, Triangle estimated the
percentage increase in ownership of the affiliates. For further information
regarding United Tennessee's estimated changes to affiliated stock ownership as
a result of the Going Private Merger, see "Information about the Security Owners
of United Tennessee" below.
At the end of its presentation, Triangle communicated that it considered
any price within the range of $19.00 to $23.00, subject to certain
qualifications and limitations, to be fair, from a financial point of view, to
United Tennessee shareholders. See the discussion in "Recommendation of the
Board of Directors; Opinion of Financial Advisor."
14
In addition, securities counsel reviewed in detail with the Board the
definitive merger agreement and all related documents, copies of which were
delivered to each director before the date of the meeting.
Following extensive review and discussion, the Board unanimously approved
the merger agreement and authorized and directed management to execute and
deliver the merger agreement and related documents. The Board resolved to
cash-out the common stock in the Going Private Merger, for all holders of fewer
than 2,500 shares, and at a price per share of $22.00. Triangle delivered its
opinion dated April 12, 2005 that the $22.00 price as determined by the Board to
be paid was fair, from a financial point of view, to United Tennessee
shareholders on that date. The cost of cashing-out the common stock and the
related fees and expenses of the Going Private Merger will be funded from an up
to $6.0 million dividend from United Tennessee's wholly-owned subsidiary,
Newport Federal Bank.
Reasons for the Going Private Merger
United Tennessee's primary reason for the Going Private Merger is to
cash-out the equity interests in United Tennessee of the approximately 547
record and beneficial holders of common stock that, as of the effective time of
the Going Private Merger, own fewer than 2,500 shares of common stock at a price
determined to be fair by the entire Board of Directors. This will reduce the
number of holders of common stock of record of United Tennessee to approximately
96 persons and relieve United Tennessee from the administrative burden, cost and
regulatory burden associated with filing reports and otherwise complying with
the requirements of registration under the Exchange Act. This will be
accomplished by United Tennessee deregistering its common stock under the
Exchange Act. See "Background of the Going Private Merger Proposal" and "The
Effects of the Going Private Merger" for a discussion regarding the burden of
registration of the United Tennessee common stock and the intended benefits to
United Tennessee of the Going Private Merger Proposal. If the Going Private
Merger is implemented, the officers and directors of United Tennessee (and other
holders of 2,500 or more shares of common stock) will increase their percentage
ownership of common stock of United Tennessee.
The Going Private Merger will provide those shareholders with fewer than
2,500 shares of common stock with a cost-effective way to cash-out their
investments, because United Tennessee will pay all transaction costs in
connection with the Going Private Merger. Although United Tennessee intends to
pay all transaction costs in connection with the Going Private Merger,
shareholders still may be charged a brokerage fee by their broker in connection
with the Going Private Merger. Moreover, United Tennessee will benefit from
substantial future cost savings as a result of the Going Private Merger, as more
fully described below.
The Board believes that the disadvantages of having United Tennessee
continue to be a public company outweigh any advantages. The Board has no
present intention to raise capital through sales of securities in a public
offering in the future or to acquire other business entities using stock as the
consideration for any such acquisition. Accordingly, United Tennessee is not
likely to make use of any advantage (for raising capital, effecting acquisitions
or other purposes) of its status as a public company.
United Tennessee incurs direct and indirect costs associated with
compliance with the SEC's filing and reporting requirements imposed on public
companies. United Tennessee incurs substantial indirect costs as a result of,
among other things, the executive time expended to prepare and review such
filings. Since United Tennessee has relatively few executive personnel, these
indirect costs can be substantial. United Tennessee's direct and indirect costs
related to being a public company are estimated to approximate $150,000 annually
as follows:
Independent accountants $35,000
SEC counsel 12,500
Printing, mailing and other internal/external expenses 102,500
------
Total $150,000
=======
In light of these costs, the Board believes that it is in the best
interests of United Tennessee and its shareholders to eliminate the
administrative burden and costs and regulatory burden associated with being a
public company.
Although many of these factors have existed for some time, United
Tennessee began to consider the Going Private
15
Merger during calendar year 2004, and based upon an analysis of its options,
risks and expenses relating to remaining a public company, which is detailed in
this proxy statement, approved the Going Private Merger Proposal. Another reason
the Board approved the Going Private Merger Proposal is the continued
illiquidity of the United Tennessee stock. You should read the discussion under
"Background of the Going Private Merger Proposal" for more information relating
to the background of the Going Private Merger Proposal and United Tennessee's
reasons for the Going Private Merger Proposal.
The Board has determined that the Going Private Merger Proposal is the most
expeditious and economical way of liquidating the holdings of shareholders
having small share positions and changing United Tennessee's status from that of
a public company to that of a privately-held, non-reporting company. You should
read the discussion under "Recommendation of the Board of Directors; Fairness of
the Going Private Merger Proposal" for more information regarding the Board's
reasons for the Going Private Merger Proposal.
The Going Private Merger Proposal, if approved, will have divergent effects
depending on whether you beneficially own (including certain family ownership)
2,500 or more shares of United Tennessee common stock or fewer shares of common
stock as of the Effective Time. You should read the discussions under "The
Effects of the Going Private Merger," "Recommendation of the Board of Directors;
Fairness of the Going Private Merger Proposal"; and "Approval of the Merger
Agreement" for more information regarding the effects of the Going Private
Merger.
The Going Private Merger is structured to be a "going private"
transaction as defined in Rule 13e-3 promulgated under the Exchange Act because
it is intended to, and, if completed, will make United Tennessee eligible to
terminate its reporting requirements under Section 12(g) of the Exchange Act.
United Tennessee intends to deregister its shares of common stock under the
Exchange Act immediately following the effective time of the Going Private
Merger. In connection with the Going Private Merger Proposal, United Tennessee
and Merger Corp. have filed a Rule 13e-3 Transaction Statement on Schedule 13E-3
with the SEC.
Effects of the Going Private Merger
Effects on United Tennessee
The Going Private Merger will have various effects on United Tennessee, as
described below.
Reduction in the Number of Shareholders and Effect on the Number of Outstanding
Shares
United Tennessee believes that the Going Private Merger will reduce its
number of record common stock holders to from approximately 547 to 96. After the
completion of the Going Private Merger and the private placement offering, the
number of outstanding shares of common stock will be approximately 926,299
compared to 1,185,999 outstanding shares of common stock immediately before the
Going Private Merger.
Transfer of Book Value
Because
(i) the price to be paid to holders who beneficially own (including certain
family ownership) fewer than 2,500 shares of common stock will be $22.00 per
share;
(ii) the number of shares of common stock expected to be cashed-out as a
result of the Going Private Merger is estimated to be approximately 259,700;
(iii) the total cost to United Tennessee (including expenses) of effecting
the Going Private Merger is expected to be approximately $5.8 million; and
(iv) at December 31, 2004, aggregate shareholders' equity in United
Tennessee was approximately $18.4 million, or $15.39 per share, United Tennessee
expects that, as a result of the Going Private Merger:
o aggregate shareholders' equity of United Tennessee as of December 31,
2004, would be reduced from approximately $18.4 million on a
historical basis to approximately $12.6 million on a pro forma basis;
16
o the book value per share of common stock as of December 31, 2004,
would be reduced from approximately $15.39 per share on a historical
basis to approximately $13.40 per share on a pro forma basis;
Becoming a Privately Held Company
The common stock of United Tennessee is currently registered under the
Exchange Act. The Exchange Act registration may be suspended by United Tennessee
if its common stock is no longer held of record by 300 or more shareholders.
Elimination of registration of the common stock of United Tennessee under the
Exchange Act would substantially reduce the information required to be furnished
to the shareholders of United Tennessee and to the SEC and would make certain
provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b), proxy statement disclosure in connection with
shareholder meetings and the related requirement of an annual report to
shareholders, no longer applicable to it. Accordingly, United Tennessee
estimates it will eliminate costs and expenses associated with continued
Exchange Act registration, which it estimates to be approximately $50,000 on an
annual basis.
With respect to the executive officers and directors of United Tennessee,
once the Going Private Merger is completed and United Tennessee deregisters its
common stock:
o executive officers, directors and other affiliates would no longer be
subject to many of the reporting requirements and restrictions of the
Exchange Act, including, without limitation, the reporting and
short-swing profit provisions of Section 16, and
o executive officers and directors of United Tennessee may be deprived
of the ability to dispose of their shares of common stock in
accordance with Rule 144 under the Securities Act.
Effect on Market for Shares.
United Tennessee's common stock is listed on the NASDAQ SmallCap Market,
after the Going Private Merger there will be no public market for its common
stock.
Financial Effects of the Going Private Merger; Financing of the Going Private
Merger.
United Tennessee expects that the Going Private Merger will not have any
material adverse effect on the capital adequacy, liquidity, results of
operations or cash flow of United Tennessee. Because United Tennessee does not
currently know the actual number of shares which will be cashed-out in the Going
Private Merger, United Tennessee does not know the total amount of cash to be
paid to common shareholders by United Tennessee in the Going Private Merger, but
United Tennessee estimates it to be approximately $5.7 million. You should read
the discussion under "The Effects of the Going Private Merger - Fees and
Expenses for the Going Private Merger" for a description of the fees and
expenses United Tennessee expects to incur in connection with the Going Private
Merger.
United Tennessee expects to be able to finance the cash amount to be paid
to common shareholders in the Going Private Merger from an up to $6.0 million
dividend from the Bank to United Tennessee.
Increased Share Ownership of Officers and Directors.
As a result of the Going Private Merger, United Tennessee expects that
(a) the percentage of beneficial ownership of common stock of United Tennessee
(including the effect of fully vested and exercisable stock options) held by its
officers and directors as a group will increase from 29.83% of the common stock
of United Tennessee to approximately 38.17% based on their securities holdings
as of May 31, 2005;
(b) the collective book value as of December 31, 2004, of the shares of United
Tennessee common stock held by United Tennessee's officers and directors, as a
group (including the effect of fully vested and exercisable stock options),
would
17
decrease from approximately $15.39 on a historical basis to approximately $13.40
on a pro forma basis; and
(c) the collective pro rata interest of United Tennessee's officers and
directors, as a group, in the net income of United Tennessee for the year ended
December 31, 2004, would increase from approximately $1.58 per share on a
historical basis (based on the number of shares beneficially owned by such
officers and directors including the effect of fully vested and exercisable
stock options, as of the record date) to a pro rata interest of approximately
$1.75 per share on a pro forma basis (based on the number of shares which United
Tennessee anticipates such officers and directors to beneficially own
immediately after the Going Private Merger including the effect of fully vested
and exercisable stock options).
(d) Since none of the directors and officers of United Tennessee will be cashed
out in the Going Private Merger, they will, therefore, share in the future
growth and profits of United Tennessee while unaffiliated shareholders who are
cashed out will not.
For a description of the assumptions United Tennessee used in determining the
numbers of shares and related percentages that United Tennessee expects to be
held by current officers and directors immediately after the Going Private
Merger, please see the footnotes under "United Tennessee Stock Ownership."
Effects on Unaffiliated Shareholders.
The Going Private Merger will have various effects on shareholders who are
not affiliates of United Tennessee, as described below. The effects of the Going
Private Merger to an unaffiliated shareholder will vary based on whether or not
the unaffiliated shareholder's shares will be cashed-out in the Going Private
Merger. Unaffiliated shareholders beneficially owning (including certain family
ownership) fewer than 2,500 shares of common stock immediately before the
effective time of the Going Private Merger will, upon consummation of the Going
Private Merger:
o receive $22.00 per share in cash, unless they perfect dissenters'
rights;
o no longer have any equity interest in United Tennessee and therefore
will not participate in its future potential earnings or growth, if
any;
o not be able to acquire an equity interest in United Tennessee unless
they purchase shares from existing shareholders, other than upon the
exercise of stock options; and
o be required to pay federal and, if applicable, state and local income
taxes on the cash gain, if any, received in the Going Private Merger;
or, alternatively, may have a tax loss that can be used to offset
capital gains or taxable income in future periods.
Remaining Unaffiliated Shareholders.
Potential effects on unaffiliated United Tennessee shareholders who remain
as shareholders if the Going Private Merger is effected include:
o Decreased access to information. If the Going Private Merger and the
deregistration of common stock is effected, United Tennessee will no
longer be subject to the periodic reporting requirements and the proxy
rules of the Exchange Act. Similarly, executive officers, directors
and other affiliates would no longer be subject to many of the
reporting requirements and restrictions of the Exchange Act, including
without limitation the reporting and short-swing profit provisions of
Section 16.
o Decreased liquidity. The liquidity of the shares of common stock held
by unaffiliated shareholders may be adversely affected by the Going
Private Merger.
Effect on Shareholders of the Going Private Merger
18
If approved at the annual meeting, the Going Private Merger will affect
United Tennessee shareholders as follows after completion:
Shareholder as of Effective Time of the Going Private Merger Net Effect After Going Private Merger
- ------------------------------------------------------------- -------------------------------------
Shareholders beneficially owning (including certain family ownership) Shares of common stock will be retained
2,500 or more shares of United Tennessee common stock
Shareholders beneficially owning (including certain family ownership) Shares of common stock will be cashed-out at a
fewer than 2,500 shares of United Tennessee common stock price of $22.00 per share
As described under "Approval of the Merger Agreement - Conversion of Shares
in the Going Private Merger," the merger agreement contains specific provisions
regarding the treatment of shares held in nominee form, or "street name." In
determining the number of shares held beneficially in street name by any
shareholder, United Tennessee may, in its discretion, rely on "no objection"
lists provided by any nominee holder. Further, after the effective time of the
Going Private Merger, United Tennessee will deliver to each shareholder who
would appear to be entitled to receive cash in the Going Private Merger in
consideration for his or her shares, a letter of transmittal requesting certain
information from such shareholder and requiring the shareholder to certify as to
the number of shares actually beneficially owned (including certain family
ownership), whether in registered form or in street name. Letters of transmittal
will be delivered to any shareholder who (a) beneficially owns of record fewer
than 2,500 shares of common stock or (b) according to records made available to
United Tennessee from the nominee holder for any shares held in street name,
holds fewer than 2,500 shares of common stock in street name or holds shares in
street name and with respect to which United Tennessee is not provided by the
nominee holder the number of shares so held.
Shareholders who retain their shares of common stock will be issued new
share certificates for shares of restricted common stock. These new share
certificates will be affixed with a restrictive legend to the effect that such
shares have not been registered with the SEC and may not be transferred without
such registration or in reliance on an exemption from such registration.
In general, the Going Private Merger can be illustrated by the following
examples:
- -------------------------------------------------------------- ------------------------------------------------------------
Hypothetical Scenario Result
Ms. Smith is a registered shareholder who holds 1,000 shares Ms. Smith's 1,000 shares of common stock will be
of United Tennessee common stock in certificate form at the canceled and converted into the right to receive cash in the
effective time of the Going Private Merger. Ms. Smith holds of $22.00 per share.
no other shares
- -------------------------------------------------------------- ------------------------------------------------------------
Mr. Brown holds 1,000 shares of United Tennessee common Mr. Brown's 1,000 shares of common stock will be
stock in his individual brokerage account as of the effective cancelled and converted into the right to receive cash in
time of the Going Private Merger. Mr. Brown holds no other amount of $22.00 per share.
shares.
- ------------------------------------------------------------- -------------------------------------------------------------
Mr. Jones is a registered shareholder who holds 2,000 shares of If either United Tennessee or Mr. Jones can establish to
United Tennessee common stock in certificate form and 1,500 United Tennessee's satisfaction that he in fact holds 2,500
shares of common stock in his individual brokerage account as or more shares, Mr. Jones' 3,500 shares will remain
of the effective time of the Going Private Merger. Mr. Jones outstanding after the Going Private Merger. Otherwise,
United Tennessee will presume that all of the shares
common stock are held by a holder of fewer than 2,500
shares of common stock and were therefore converted into the
right to receive cash in an amount equal to $22.00 per share.
However, Mr.Jones will be able to rebut the presumption
that his shares were cashed out in the Going
Private Merger by certifying in the letter of transmittal
sent to him after the effective time of the Going Private
Merger that he holds 2,500 or more shares of common stock
and providing United Tennessee such other information as it
may request to verify that fact.
(Note: If either Ms. Smith or Mr. Brown wants to continue
his or her investment in United Tennessee, she or he can
acquire at least 2,500 shares of United Tennessee common
stock (preferably in his or her record account so as to make
it more readily apparent that he or she holds 2,500 or more
shares). Such acquisition should be completed by
_________,__, 2005 so that it is registered on the books
of United Tennessee before the effective time of the Going
Private Merger.
- ------------------------------------------------------------------ ------------------------------------------------------------
19
Recommendation of the Board of Directors; Fairness of the Going Private Merger
Proposal
The Board believes that the Going Private Merger Proposal, taken as a
whole, is fair to, and in the best interests of, United Tennessee and its
shareholders, including unaffiliated shareholders and both shareholders who will
receive cash in the Going Private Merger and those who will continue to hold
their shares of common stock of United Tennessee after the Going Private Merger.
The Board also believes that the process by which the transaction is to be
approved is fair. The Board recommends that the shareholders vote for approval
of the Going Private Merger Proposal. Each member of the Board and each officer
of United Tennessee who owns shares of stock have advised United Tennessee that
he intends to vote his shares in favor of the Going Private Merger Proposal. As
of May 31, 2005, the directors and officers of United Tennessee beneficially
owned a total of 353,834 shares of United Tennessee common stock or
approximately 29.83% of the total shares entitled to vote at the Meeting. No
other shareholders have disclosed to United Tennessee how they intend to vote on
the Going Private Merger Proposal.
The Board has retained for itself the absolute authority to reject (and not
implement) the Going Private Merger Proposal (even after approval by
shareholders) if it determines that the Going Private Merger Proposal is not
then in the best interests of United Tennessee and its shareholders. Such a
determination by the Board would likely be limited to the occurrence of an event
that would have a material adverse effect on the financial condition or results
of operations of United Tennessee. The Board does not anticipate the occurrence
of any such event.
The Board has unanimously approved the Going Private Merger Proposal. The
Board considered a number of factors in determining to approve the merger
agreement. United Tennessee's primary reason for the Going Private Merger is to
enable it to deregister its shares of common stock under the Exchange Act. The
Board considered the views of management relating to cost savings to be achieved
by no longer being a public company. United Tennessee's management determined
that cost savings of approximately $150,000 per year could be achieved if United
Tennessee becomes a private company, including indirect savings resulting from
reductions in the time and effort currently required of management to comply
with the reporting and other requirements associated with registration of the
common stock under the Exchange Act. The Board also considered the
administrative and regulatory burden of being a public company, particularly the
provisions of the recently enacted Sarbanes Oxley Act. Similarly, the Board also
considered the decrease in the expense associated with a high number of
shareholders holding relatively small positions in its common stock after the
Going Private Merger. The Board also considered the effect that becoming private
would have on the market for the common stock and the ability of shareholders to
buy and sell shares. However, the Board determined that, even as a
publicly-traded corporation, there is a very limited market for the shares of
United Tennessee's common stock, especially for sales of large blocks of shares,
and that United Tennessee's shareholders derive little benefit from United
Tennessee's status as a publicly-held corporation. The Board determined that the
cost savings and reduced administrative and regulatory burden on management to
be achieved by becoming a private company outweighed any potential disadvantages
from becoming a private company.
The Board considered several alternative transactions to accomplish the
proposed going-private transaction but ultimately approved the Going Private
Merger Proposal. Please read the discussion under "-Background of the Going
Private Merger Proposal" for a description of these alternatives considered by
the Board.
The Board considered numerous factors, discussed below, in reaching its
conclusion as to the fairness of the Going Private Merger Proposal to our
shareholders, including both affiliated and unaffiliated shareholders. The Board
also engaged the services of an independent financial advisor to provide
advisory services regarding the Going Private Merger as well as to render a
fairness opinion, from a financial point of view, regarding the cash price to be
paid in this transaction. The Board did not assign any specific weights to the
factors listed below. Moreover, in their considerations individual directors may
have given differing weights to different factors.
20
o Current and Historical Market Prices. Our common stock is traded
occasionally with reported trades occurring on 76 days during the
twelve months ending December 31, 2004, with an average trading volume
on those days of approximately 634 shares per day. The Board also
reviewed high and low closing prices for the common stock from January
1, 2003 to December 31, 2004, which ranged from $20.71 to $16.18 per
share. The next highest trading price during that same twelve month
period was $20.52. The last trading price of our common stock prior to
the announcement of the Going Private Merger was $18.26 on April 14,
2005.
o Net Book Value. As of December 31, 2004, the book value per share of
outstanding common stock was approximately $15.39. Although book value
was a factor that was considered by the Board among others in
determining the consideration to be paid to cashed-out shareholders in
the Going Private Merger, the Board determined that it was not
directly relevant in that book value approximates a liquidation value
and liquidation is generally not a viable alternative for a financial
institution. However, the Board noted that the per share cash price of
$22.00 payable in the Going Private Merger reflected a multiple of
over 1.43x United Tennessee's December 31, 2004, book value per share.
o Opinion of Financial Advisor. The Board engaged Triangle to render an
opinion as to the fairness of the Cash Price to be paid in connection
with the Going Private Merger. The Board considered the opinion of
Triangle rendered to the Board effective April 12, 2005 to the effect
that, as of the date of such opinion and based upon and subject to
certain matters stated in such opinion, the cash consideration of
$22.00 per share of common stock to be paid in the Going Private
Merger is fair, from a financial point of view, to the shareholders of
United Tennessee, including shareholders who will receive cash in the
Going Private Merger as well as those who will continue to hold shares
of common stock after the Going Private Merger. The Board also
reviewed and considered the financial analyses presented to the Board
in connection with such opinion and adopted the financial advisor's
analyses as its own. A copy of Triangle's written opinion which
addresses only the financial fairness of the price paid is attached as
Annex b to this proxy statement and is incorporated by reference. You
should read the entire opinion carefully. The opinion does not
constitute a recommendation by Triangle to any shareholder as to how
the shareholder should vote on the Going Private Merger at the annual
meeting or any other matter. In addition, you should read the
discussion under "-- Opinion of Financial Advisor" for more
information relating to this opinion and the related financial
analyses.
o Opportunity to Liquidate Shares of Common Stock. The Board considered
the opportunity the Going Private Merger Proposal presents for
shareholders owning fewer than 2,500 shares of common stock to
liquidate their holdings without paying commissions or transaction
costs, particularly given the relatively illiquid market for shares of
United Tennessee's common stock.
In connection with its deliberations, the Board did not consider, and did
not request that its financial advisor evaluate, United Tennessee's liquidation
value because it believed the liquidation value was not a representative value
to determine in considering the fairness of the Going Private Merger to the
unaffiliated shareholders. The vast majority of United Tennessee's (and
underlying subsidiary Bank's) assets are financial assets, and their book values
roughly approximate their liquidation value. In the event United Tennessee's
assets were sold in an orderly liquidation some portion of United Tennessee's
loans and deposits may be sold at a slight premium above book value. However,
any premium which might be paid over book value, if any, is not material,
particularly when considering the discount for which certain other assets may be
sold and the expense of the liquidation process. As a result, the liquidation
value would not be materially above the book value of $15.39 as of December 31,
2004 and substantially less than the current and historical trading price.
Other than the financial institution offer discussed above, no firm offers,
of which the Board is aware, have been made during the preceding two years for
(i) the merger or consolidation of United Tennessee into or with such person,
(ii) the sale or other transfer of all or any substantial part of the assets of
United Tennessee, or (iii) the purchase of a number of shares of common stock
that would enable the holder to exercise control of United Tennessee. After
consideration of all this information, the Board determined that a fair price to
be paid to cashed-out holders of common stock in the Going Private Merger is
$22.00 per share.
21
The Going Private Merger is not structured so that approval of at least a
majority of unaffiliated shareholders is required. The Board determined that any
such voting requirement would usurp the power of the holders of at least a
majority of United Tennessee's voting power represented at the meeting to
consider and approve the merger agreement as provided under Tennessee law,
United Tennessee's charter documents and the terms of the merger agreement. The
Board also considered such a provision unnecessary in light of the right of
shareholders, whether affiliated or unaffiliated, to dissent from the Going
Private Merger. No independent committee of the Board has reviewed the fairness
of the Going Private Merger Proposal. No unaffiliated representative acting
solely on behalf of the shareholders for the purpose of negotiating the terms of
the Going Private Merger Proposal was retained by United Tennessee or by a
majority of directors who are not employees of United Tennessee. United
Tennessee has not made any provision in connection with the Going Private Merger
to grant unaffiliated shareholders access to United Tennessee's corporate files
or to obtain counsel or appraisal services at United Tennessee's expense. With
respect to unaffiliated shareholders' access to United Tennessee's corporate
files, the Board determined that this proxy statement, together with United
Tennessee's other filings with the SEC and the regulatory filings by United
Tennessee and Newport Federal Bank to their banking regulators, provide adequate
information for unaffiliated shareholders to make an informed decision with
respect to the Going Private Merger Proposal. The Board also considered the fact
that under Tennessee corporate law, and subject to certain conditions set forth
under Tennessee law, shareholders have the right to review United Tennessee's
relevant books and records of account. As for obtaining counsel or appraisal
services for unaffiliated shareholders at United Tennessee's expense, the Board
did not consider these necessary or customary. United Tennessee expects the
Going Private Merger Proposal to result in the cash-out of approximately 259,700
shares of common stock for a total price of approximately $5.7 million,
excluding related costs and expenses estimated at approximately $100,000. After
consideration of the factors described above, the Board believes that the
transaction is fair notwithstanding the absence of such an unaffiliated
shareholder approval requirement, independent committee or unaffiliated
representative. The Board believes that the transaction is procedurally fair
because after consideration of all aspects of the proposed transaction as
described above, all of the directors, including the directors who are not
employees of United Tennessee, approved the Going Private Merger Proposal.
As a result of this analysis outlined above, the Board believes that the
transaction is substantively and procedurally fair to unaffiliated shareholders.
Our Board of Directors also believes that the transaction is fair to
shareholders who will continue to be Company shareholders after the Going
Private Merger. This belief is based on the Board's consideration of the
following material factors:
o If we are able to terminate the registration of our common stock under
the Exchange Act, we believe that the cost savings will benefit
continuing shareholders. These cost savings include known and unknown
expenses which will be incurred by public companies under the
Sarbanes-Oxley Act. Also, our officers, directors and other management
will be able to better focus its resources on the Company's business
opportunities. These cost savings and increase in focus should enhance
our ability to increase the Company's profitability.
o If we succeed in deregistering our common stock with the SEC, we will
no longer be subject to the SEC reporting or proxy disclosure
requirements. However, we intend to continue to provide annual audited
financial information to our shareholders. We will also be subject to
the regulatory and supervisory authority of other governmental
agencies applicable to bank holding companies and state savings banks,
including the Office of Thrift Supervision, the Board of Governors of
the Federal Reserve, the Federal Deposit Insurance Corporation, and
the Department of Financial Institutions of the State of Tennessee.
o If our common stock is no longer subject to the Exchange Act reporting
requirements, we will no longer be eligible to have our stock quoted
on the NASDAQ SmallCap Market. This could adversely affect the
liquidity, trading volume and marketability of our common stock even
further than currently existing. However, we do not anticipate this
change to have a significant impact on the remaining shareholders.
There has not been a very active trading market for the shares of
common stock in the past twelve months on the NASDAQ SmallCap Market.
Also, although we cannot guarantee how and when it will occur, we
anticipate that the Company stock will trade in the "pink sheets" or
in privately negotiated sales.
22
For the reasons discussed above, the Board of Directors believes that the Going
Private Merger is fair to the Company's shareholders, including unaffiliated
shareholders, and in the best interests of the Company and its shareholders.
Determination of Fairness of Merger Corp. and Other United Tennessee Affiliates
of the Going Private Merger Proposal
Merger Corp. and its Board of Directors and each director and executive
officer of United Tennessee and Merger Corp., individually, believe that the
Going Private Merger is fair to, and in the best interests of, each of United
Tennessee's shareholders, including unaffiliated shareholders and both
shareholders who will receive cash in the Going Private Merger and those who
will continue to hold shares of United Tennessee after the Going Private Merger.
In reaching this conclusion, Merger Corp. and each director and executive
officer of United Tennessee and Merger Corp., individually, relied upon the
factors considered by and the analysis and conclusions of the Board of Directors
of United Tennessee as well as the analysis and conclusions of United
Tennessee's financial advisor, Triangle, and Merger Corp. and each director and
executive officer of United Tennessee and Merger Corp., individually, adopts
such analyses as its own. See "Recommendation of the Board of Directors;
Fairness of the Going Private Merger Proposal", "Opinion of Financial Advisor
Regarding the Going Private Merger" and "Directors and Executive Officers and
Executive Officers of United Tennessee and Merger Corp.". Merger Corp.'s Board
of Directors has approved the merger agreement.
Opinion of Financial Advisor
The Board of Directors of United Tennessee retained Triangle Capital
Partners to act as its financial advisor in connection with the Going Private
Merger. As part of its engagement, Triangle rendered an opinion at United
Tennessee's request with respect to the fairness of the $22.00 (which we refer
to in this section as the "Cash Price"), from a financial point of view, to the
Company's shareholders as set forth in the Amendment. On April 12, 2005,
Triangle delivered to the Board an oral report regarding its initial evaluation
of and analysis concerning the Company's common stock. Triangle subsequently
delivered a written opinion dated April 12, 2005, to the Board that the Cash
Price was fair, from a financial point of view, as of the date of the opinion to
all United Tennessee shareholders, including those shareholders who will receive
cash as well as shareholders remaining after the Going Private Merger.
In connection with providing its fairness opinion and other services
rendered in connection the Going Private Merger, Triangle received no specific
instructions from United Tennessee's Board of Directors other than to provide
the Board with an opinion stating whether or not the Cash Price as determined by
the Board would be fair to all Company shareholders from a financial point of
view. No limitation was imposed on Triangle with respect to the scope of
Triangle's investigation in rendering its services.
A copy Triangle's written opinion dated April 12, 2005, which sets forth
the assumptions made, matters considered and extent of review by Triangle, is
attached to this proxy statement as Annex B. You should read the fairness
opinion carefully and in its entirety. The following summary of Triangle's
opinion is qualified in its entirety by reference to the full text of the
opinion. Triangle's opinion is addressed to the Board of Directors of United
Tennessee and does not constitute a recommendation to any shareholder as to how
the shareholder should vote at the meeting with regard to the Going Private
Merger.
Triangle is a regional investment banking firm, and we selected Triangle as
an advisor based on the firm's reputation, its experience in investment banking,
its extensive experience and knowledge of small commercial banking and thrift
institutions generally located in certain portions of the Southeastern United
States, its recognized expertise in the valuation of commercial banking and
thrift institutions, its experience in going private transactions for similar
public companies, and its familiarity with United Tennessee. Triangle, through
its investment banking business, has specialized in commercial banking
institutions and has been regularly engaged in the valuation of such businesses
in connection with mergers and acquisitions, trust preferred security financings
and other corporate transactions requiring advisory services.
United Tennessee has agreed to pay Triangle a fee as compensation for
financial advisory services rendered in connection with the Going Private
Merger, including a portion of such fee that was contingent on receipt of
Triangle's written opinion. In addition, United Tennessee has agreed to
reimburse Triangle for all reasonable expenses, incurred by it on United
Tennessee's behalf, and to indemnify Triangle against certain liabilities,
including any which may arise under the federal securities laws.
23
Prior to rendering its opinion, Triangle reviewed and analyzed, among other
things, (i) the terms of the Going Private Merger Proposal, including the Cash
Price, as communicated to Triangle by United Tennessee, (ii) United Tennessee's
annual report to shareholders and financial statements for each of the three
years ended December 31, 2002, 2003 and 2004, (iii) United Tennessee's quarterly
reports and financial statements for the three, six and nine month periods
ending March 31, June 30 and September 30, 2004, respectively, (iv) certain
information regarding the historical record of reported prices, trading activity
and dividend payments of United Tennessee's common stock ending March 31, 2005,
(v) certain reported financial terms of selected recent going private
transactions which Triangle deemed to be relevant, (vi) publicly available
business financial information regarding United Tennessee, (vii) certain
dividend forecasts and supporting information prepared by our management with
respect to the Going Private Merger Proposal, (viii) discussions with our
management regarding the background of the Going Private Merger and reasons and
basis for the Going Private Merger and management's opinion of future business
prospects for United Tennessee and (ix) certain publicly available financial
information of selected peer groups of United Tennessee; and (x) other studies,
analyses and investigations, particularly of the banking industry, and such
other information as Triangle deemed appropriate.
In connection with rendering its opinion to United Tennessee's Board,
Triangle performed a variety of financial and comparative methodologies, which
are summarized briefly below. Moreover, Triangle believes that these analyses
must be considered as a whole and that selecting portions of them and the
factors considered by Triangle, without considering all of those analyses and
factors, could create an incomplete understanding of the process underlying the
analyses and, more importantly, a misleading or incomplete view of Triangle's
written opinion as to fairness, from a financial point of view, that is based on
those analyses. The preparation of a financial advisor's opinion is a complex
process involving subjective judgments and is not necessarily susceptible to
partial analyses or a summary description of those analyses. In its full
analysis, Triangle also included assumptions with respect to general economic,
financial market and other financial conditions. Furthermore, Triangle drew from
its past experience in similar transactions, as well as its experience in the
valuation of securities and its general knowledge of the banking industry as a
whole. Any estimates in Triangle's analyses were not necessarily indicative of
actual future results or values, which may significantly diverge more or less
favorably from those estimates. Estimates of company valuations do not purport
to be appraisals nor do they necessarily reflect the prices at which a company
or its respective securities may actually be sold. No particular individual
analysis performed by Triangle was assigned a greater significance by Triangle
than any other in forming its written opinion.
The written opinion dated April 12, 2005 provided by Triangle to the Board
was necessarily based upon economic, monetary, financial market and other
relevant conditions as of the date of the opinion. Accordingly, the opinion
states that although subsequent developments may affect the opinion, Triangle
does not have any obligation to further update, revise or reaffirm its opinion.
In connection with its review and arriving at its opinion, with the consent
of the Board of United Tennessee, Triangle assumed and relied upon the accuracy
and completeness of the financial information and other pertinent information
provided by United Tennessee to Triangle for purposes of rendering its opinion.
Triangle did not assume any obligation to independently verify any of the
information provided, including without limitation information from published
sources, as being complete and accurate in all material respects. With regard to
the financial forecasts prepared by United Tennessee's management, including
projections of cost savings, dividend payments, earnings, asset growth and other
key metrics, Triangle assumed that this information reflected the best available
estimates and judgments of United Tennessee as to the future performance and
that the projections provided a reasonable basis upon which Triangle could
formulate its opinion. United Tennessee does not publicly disclose its internal
management projections of the type utilized by Triangle in connection with
Triangle's role as financial advisor to United Tennessee. Therefore, those
projections cannot be assumed to have been prepared with a view towards public
disclosure. The projections were based upon numerous variables and assumptions
that are inherently uncertain, including, among others, factors relative to the
general economic and competitive conditions facing United Tennessee.
Accordingly, actual results could vary significantly from those set forth in the
respective projections.
24
In providing its opinion, Triangle assumed and relied upon, without
independent verification, the accuracy and completeness of all accounting,
legal, tax and other information provided to them by the Company, as well as all
of the materials made available to Triangle by the Company or other public
sources. Triangle assumed that no material change in the Company's assets,
financial conditions, results of operations, business or prospects had occurred
since December 31, 2004 and, if applicable, the most recent financial statements
made available to Triangle.
Triangle has stated to the Board that it does not purport to be an expert
in the evaluation of loan portfolios or the allowance for loan losses with
respect to loan portfolios and, accordingly assumes that those allowances by
United Tennessee are adequate to cover such losses. In addition, Triangle has
not reviewed and does not assume responsibility for any individual credit files
and did not make an independent evaluation, appraisal or physical inspection of
the assets or individual properties of United Tennessee, nor was Triangle
provided with those types of appraisals. In addition, for the purposes of
rendering its written opinion, Triangle assumed that (i) the Going Private
Merger will be consummated in accordance with the terms communicated to
Triangle, without any waiver of its material terms or conditions, and that
obtaining the necessary shareholder approvals for the Going Private Merger will
not have an adverse effect on United Tennessee and (ii) the Going Private Merger
is consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act, the Exchange Act and all other applicable
federal and state statutes, rules and regulations. Triangle was not requested to
and did not solicit any expressions of interest from any other parties with
respect to the actions contemplated in connection with the Going Private Merger.
Triangle expressed no opinion as to whether any alternative transaction might
produce consideration for the holders of United Tennessee's Common stock in an
amount in excess of that contemplated in the Going Private Merger.
Triangle's analyses included (i) a comparison of certain market multiples
between United Tennessee and selected peer groups, (ii) a dividend discount
analysis, and (iii) an analysis of premiums paid with respect to similar
transactions. Triangle also considered the current and historic trading activity
and prices of our common stock. Upon reconciling these separate analyses,
Triangle presented a range of fair values with respect to the price to be paid
to shareholders being cashed out. Triangle presented an oral report of these
analyses to the Board of Directors at its April 12, 2005 meeting.
Triangle first considered and reported the performance of United
Tennessee's common stock over the three year period ended March 31, 2004.
Triangle compared this performance to the market performances of the Standard
and Poor's 500 Index, all publicly traded thrift institutions in the United
States with assets below $250 million and Banks with assets below $500 million
(as identified by SNL Financial, L.C.). During this period, the Company's common
stock had increased 62%, while the Standard and Poor's Index, the indices of all
thrift institutions and the index of thrifts with assets below $250 million
increased 1%, 77% and 63%, respectively. The data indicated that United
Tennessee's stock had increased at a faster rate than the national averages for
the three year period ending March 31, 2005.
Triangle then listed the trading volume and closing prices of the Company's
common stock on each day during the twelve months prior to March 31, 2005 on
which a trade had been reported. In analyzing this trading history, Triangle
reported that the weighted average price per share equaled $18.60, $19.49 and
$19.36 for the prior twelve months, six month and ninety days, respectively,
ending March 31, 2005. Triangle noted that during the same twelve month period,
the Company's common stock was traded only 75 of the possible 250 days for
trading. The average daily volume of United Tennessee stock trading was 737, 727
and 909 shares during the twelve month, six month and ninety day period ending
March 31, 2005. The total number of shares traded during the twelve month period
was 55,280, with a total of 10,320, 11,935 and 17,541 shares traded in the last
5, 10 and 20 days in which trading occurred prior to March 31, 2005,
respectively.
Comparable Company Analysis. In order to establish a range of fair value
for United Tennessee's common stock in connection with the Going Private Merger,
Triangle engaged in several analyses which compared certain Company pricing
ratios to several peer groups discussed below. It also identified a more
specific peer group of 11 companies deemed relevant and looked at historical
pricing and other ratios to consider the Company's common stock value.
To the extent any comparisons were done with peer groups, Triangle noted
that no peer group or member of a peer group was identical to United Tennessee.
Likewise, no reviewed transaction was identical to the Going Private Merger. As
a result, Triangle's analyses with respect to the Going Private Merger were not
intended to be purely mathematical. Rather, Triangle considered complex matters
concerning, and attempted to make reasonable judgments regarding, differences in
financial market and operating characteristics of the companies and other
factors that could affect the public trading volume of the companies to which
United Tennessee is being compared in the course of delivering its report and
written opinion to the Board.
25
First, Triangle selected seven peer groups having one or more common
characteristics with United Tennessee. These peer groups were (i) all publicly
traded thrift institutions in the United States as identified by SNL Financial,
L.C., (ii) all publicly traded thrifts in the geographic southeastern United
States, (iii) all thrifts in the United States with assets between $100 million
and $200 million, (iv) all United States thrifts with market capitalizations
between $15 million and $35 million, (v) all thrifts nationwide with returns on
average assets between 1.40% and 1.80%, (vi) all thrifts in the United States
with returns on average equity between 10.0% and 12.0%, and (vii) all United
States thrifts with ratios of tangible equity to tangible assets being between
12% and 20%. In reviewing these peer groups, Triangle specifically focused on
the following pricing ratios: (i) stock price/book value ratio, (ii) stock
price/tangible book value ratio, (iii) stock price/reported earnings during the
last twelve months for which public information was available and (iv) stock
price/core earnings during the last twelve months for which public information
was available. After determining each of the foregoing median ratios for the
peer groups, Triangle applied each median ratio to United Tennessee's December
31, 2004 financial information to determine what would be the Company's trading
price if reflective of the same median ratio for the specific peer groups.
Triangle determined peer group median pricing ratios based on publicly available
information as of March 31, 2005. The following table set reflects how United
Tennessee's stock price would be calculated if consistent with the peer group
median pricing ratios.
Trading Price Implied By
- ------------------------------ -------------------- -------------------- ---------------------- ----------------------
Price/Book Value Price/ Tangible Price/ LTM Core Price/ LTM
Book Value Earnings(1) Earnings(1)
- ------------------------------ -------------------- -------------------- ---------------------- ----------------------
All Public US Thrifts 141% 155% 17.4x 16.8x
- ------------------------------ -------------------- -------------------- ---------------------- ----------------------
All Public Southeast Thrifts 138% 138% 22.8x 22.3x
- ------------------------------ -------------------- -------------------- ---------------------- ----------------------
All Thrifts $100MM-200MM in 113% 116% 18.9x 18.1
Assets
- ------------------------------ -------------------- -------------------- ---------------------- ----------------------
Thrifts with Market Cap 119% 123% 19.5x 18.9x
$15MM-$35MM
- ------------------------------ -------------------- -------------------- ---------------------- ----------------------
Thrifts with Return on 155% 177% 14.0x 14.0x
Average Assets 1.40%-1.80%
- ------------------------------ -------------------- -------------------- ---------------------- ----------------------
Thrifts with Returns on 151% 166% 14.9x 14.6x
Equity 10.0%-12.0%
- ------------------------------ -------------------- -------------------- ---------------------- ----------------------
Thrifts with Tangible 121% 135% 24.9x 20.5x
Equity/Tangible Assets
12.0%-20.0%
- ------------------------------ -------------------- -------------------- ---------------------- ----------------------
(1) Financial information is based on publicly available information for the
twelve month period ending December 31, 2004. Stock pricing information is as of
March 31, 2005.
Triangle next conducted a similar analysis with respect to a more tailored
peer group of 11 companies deemed reasonably relevant. The thrifts identified
met the following criteria: (i) total assets between $50 million and $500
million, (ii) return on average equity of greater than 8%, (iii) tangible equity
of tangible assets of greater than 8%, and (iv) non-performing assets/total
assets of less than 1.50%. Triangle excluded companies that: (i) were mutual
holding companies, (ii) did not have available pricing ratios, and (iii) were
targets of merger transactions. Triangle calculated the median, first quartile,
and third quartile of previously discussed pricing ratios. The range of these
four pricing multiples within the selected peer group as of March 31, 2005 were
as follows:
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Price/Book Value Price/ Tangible Book Price/ LTM Core Price/ LTM
Value Earnings(1) Earnings(1)
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
High 231% 236% 29.8 29.8
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
3rd Quartile 153% 153% 17.8 17.3
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Median 137% 138% 14.7 14.0
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
1st Quartile 124% 127% 12.8 12.2
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Low 97% 97% 9.9 9.9
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
26
(1) Financial information is based on publicly available information for the
twelve month period ending December 31, 2004. Stock price information is for the
period ending March 31, 2005.
Based on the above information, and considering the pricing multiples of
the seven peer groups previously described, Triangle selected a range of pricing
ratios incorporating these standards which were reflective of the peer group.
Triangle then calculated the trading price of United Tennessee common stock
implied based on these four industry standards. The following table reflects the
indicated price range of United Tennessee's common stock based on those selected
pricing ratios.
- --------------------- -------------------- ------------------------------------ --------------------------------------
Selected Pricing Ratio Indicated Price Range
- --------------------- -------------------- ------------------------------------ --------------------------------------
United Tennessee Low High Low High
- --------------------- -------------------- ----------------- ------------------ ------------------- ------------------
Price/ Book Value $15.39 120% 140% $18.47 $21.54
- --------------------- -------------------- ----------------- ------------------ ------------------- ------------------
Price/ Tangible $14.79 120% 140% $17.75 $20.71
Book Value
- --------------------- -------------------- ----------------- ------------------ ------------------- ------------------
Price/ LTM $1.58 13.0x 15.0x $20.54 $23.70
Earnings(1)
- --------------------- -------------------- ----------------- ------------------ ------------------- ------------------
Price/ LTM Core $1.57 13.0x 15.0x $20.36 $23.49
Earnings(1)
- --------------------- -------------------- ----------------- ------------------ ------------------- ------------------
(1) Financial information is based on publicly available information for the
twelve month period ending December 31, 2004. Stock price information is for the
period ending March 31, 2005.
Triangle estimated that a range of fair values based on this more tailored peer
group trading market analysis was $17.75 to $23.50 per share.
Discount Analysis. Triangle also performed a dividend discount analysis to
determine a range of fair value of United Tennessee's common stock based on the
present value of expected future dividends to be received. United Tennessee's
management provided Triangle with financial projections through December 31,
2009. Specifically, United Tennessee's management (for purposes of this exercise
only) estimated United Tennessee's dividends per share and earnings per share
for each of the fiscal years ending December 31, 2005, 2006, 2007, 2008 and
2009. At the time that United Tennessee's management provided Triangle with any
forecasts, it was not anticipated that these would be disclosed to our
shareholders or the public in this proxy statement or otherwise. Management
provided these forecasts in the limited time allotted to them, and these
forecasts may change upon further analysis. Such forecasts were delivered to
Triangle solely for its use in determining the fairness of the Cash Price, and
should not be used by any person for any other purpose. No shareholder should
rely on these forecasts in deciding whether to buy or sell United Tennessee's
securities. In estimating United Tennessee's future dividend payments, United
Tennessee assumed a total asset growth of 5%. It then attempted to project asset
income and interest bearing liabilities based on such asset growth and changes
to interest rates using the "Blue Chip Interest Rate Forecast" budgeting model.
Adjustments were made for non-interest bearing liabilities associated with
employee growth and a possible branch expansion, should the opportunity arise.
As a result, United Tennessee's management estimated (for purposes of this
exercise) that the dividends per share would total $0.40, $0.44, $0.48, $0.52
and $0.56 for the fiscal years ending December 31, 2005, 2006, 2007, 2008 and
2009 respectively.
Triangle capitalized these estimated future dividends and discounted that
value to a present value at a discount rate between 11% and 13%. Triangle
estimated that this was an appropriate range of discount rates based on average
long-term required rates of return for companies identified as similar to United
Tennessee. Triangle then calculated the estimated trading price of United
Tennessee's common stock in the year 2009 based on the 2009 earnings per share
projected by management and multiplying this earnings per share by a 13x to 15x
trading multiple. Triangle estimated that this was an appropriate trading
multiple to determine the possible trading price of United Tennessee common
stock based on United Tennessee's trading history as well as industry averages
for companies identified as similar to United Tennessee. Triangle estimated that
this was an appropriate range of discount rates based on average long-term
required rates of return for companies identified as similar to United
Tennessee.
27
Triangle added the sums of the estimated discounted future dividends and
discounted estimated stock price. Based on these calculations, Triangle
calculated that a range of price for our common stock implied by this discount
analysis was between $18.25 and $22.00 per share.
Going Private Merger Premium Analysis. In addition to the other financial
analyses performed by Triangle, Triangle also looked at transactions deemed
similar to the Going Private Merger to determine what premium, if any, has been
paid in some other transactions deemed similar. In its analysis, Triangle
selected nineteen transactions deemed comparable during the past two years
engaged to ultimately deregister that company's common stock from Exchange Act
reporting requirements. The nineteen selected transactions included only reverse
stock splits and cash out mergers conducted by bank or thrift institutions or
their holding companies. None of the comparable transactions selected resulted
in a change of control of the entity. Triangle relied on the reported
acquisition price paid by these companies in connection with the comparable
transactions and compared that price to the recently reported trading prices for
the same shares to determine an average premium paid. By observing premiums paid
in other similar transactions of publicly traded banks, Triangle was able to
estimate a range of premiums comparable for the price to be paid in the Going
Private Merger. Triangle did not consider the trading history of the nineteen
subject companies other than the recent trading price as compared to the
acquisition price paid pursuant to the comparable transactions.
The following is a listing of the nineteen transactions considered by Triangle
in its Going Private Merger premium analysis:
Company Announce Date Assets ($000's) Transaction Value % Shares Premium
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
ASB Financial Corp. 3/3/05 172,961 1,985,659 5.0% 11.4%
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
First Manitowoc 2/25/05 606,753 1,844,700 1.4% 27.9%
Bancorp, Inc.
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
Benchmark Bankshares, 12/23/04 284,623 11,796,169 20.9% 11.8%
Inc.
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
KS Bancorp Inc. 12/22/04 223,208 1,418,040 4.9% 23.1%
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
Commercial National 11/18/04 243,859 8,750,000 17.1% 13.6%
Financial Corp.
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
Fidelity Federal 11/11/04 201,842 2,000,000 10.0% 6.3%
Bancorp
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
Central Federal 10/22/04 128,953 1,940,811 6.1% 14.2%
Corporation
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
Blackhawk Bancorp, 10/22/04 415,911 995,566 2.6% 27.1%
Inc.
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
Sturgis Bancorp, Inc. 9/29/04 312,431 588,832 1.3% 18.1%
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
Southern Michigan 9/03/04 310,815 1,213,215 5.1% 20.3%
Bancorp Inc.
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
First Banking Center, 8/20/04 565,408 21,660,000 24.2% 17.6%
Inc.
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
Coddle Creek 3/30/04 137,652 500,000 2.0% 4.1%
Financial Corp.
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
Eaton Bancorp Inc. 1/02/04 101,837 3,013,650 24.3% (6.9%)
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
IBW Financial Corp. 12/31/03 302,720 470,230 1.9% 65.9%
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
HFB Financial 10/28/03 256,689 468,400 1.6% 3.4%
Corporation
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
Valley Ridge 9/19/03 193,008 1,660,000 4.9% 11.1%
Financial Corp.
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
BankPlus, FSB 7/15/03 313,234 200,000 0.8% 6.7%
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
Capital Directions, 6/25/03 129,839 551,450 1.7% (3.8)%
Inc.
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
Chesapeake Financial 9/03/02 332,424 1,979,073 6.5% 18.7%
Shares, Inc.
- ----------------------- -------------------- ----------------------- ----------------------- ------------ ------------
28
The premiums paid with respect to the above selected transactions had a
median premium paid of 13.6%, and first quartile and third quartile premium paid
of 6.5% and 19.5%, respectively. Triangle reviewed the 19 transactions and
concluded that a reasonable premium to be paid based on premiums paid in
connection with the selected transactions would be between 5% and 20%. As a
result, and since United Tennessee's common stock has consistently traded within
a fairly narrow range during the twelve months prior to Triangle's report, the
peer group premium analysis implies that a reasonable range of the fair Cash
Price to be paid in connection with the Going Private Merger would be between
$19.50 to $23.00.
Triangle Fairness Opinion. Based upon these analyses, Triangle delivered a
written opinion dated April 12, 2005 to United Tennessee's Board of Directors
that the Cash Price of $22.00 established by the Board of Directors was fair,
from a financial point of view, as of the date of the opinion to all United
Tennessee shareholders, including those shareholders receiving cash as a result
of the Going Private Merger and those remaining shareholders after the Going
Private Merger.
Triangle's opinion does not address the underlying business decision to
engage in the Going Private Merger. Triangle is not expressing an opinion or
recommendation as to how shareholders should vote with respect to the Amendment
or the Going Private Merger. The full text of Triangle's opinion, which sets
forth many of the assumptions made, matters considered and limits on the review
undertaken, is attached as Annex B to this proxy statement with Triangle's
consent. The description of the Triangle opinion set forth herein is qualified
in its entirety by reference to Annex B and the text of the written opinion.
As noted above, the discussion in this section is merely a summary of the
analyses and examinations that Triangle considered to be material to its
opinion. It is not a comprehensive description of all analyses and examinations
actually conducted by Triangle. The fact that any specific analysis has been
referenced in the summary above is not meant to indicate that the analysis was
given greater weight than any other analysis. Accordingly, the ranges of
valuations resulting from any particular analysis described above should not be
taken to be Triangle's view of the actual value of United Tennessee.
In performing its analysis, Triangle made numerous assumptions with respect
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of United Tennessee. The analyses
performed by Triangle are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than those
suggested by those analyses. The analyses do not purport to be appraisals or to
reflect the prices at which any securities have traded or may trade at any time
in the future. Accordingly, those analyses and estimates are inherently subject
to uncertainty, being based upon numerous factors or events beyond the control
of the parties or their respective advisors, and Triangle does not assume any
responsibility if future results are materially different from those projected.
The Merger Transaction
Fees and Expenses of the Going Private Merger
United Tennessee estimates that Going Private Merger and other related fees
and expenses, consisting primarily of SEC filing fees, fees and expenses of
investment bankers, attorneys and accountants and other related charges, will
total approximately $100,000, assuming the transactions are completed. This
amount consists of the following estimated fees:
29
Description Amount
Advisory fees and expenses $ 30,000
Legal fees and expenses 40,000
Accounting fees and expenses 20,000
SEC filing fee 2,500
Printing, solicitation and mailing costs 5,000
Transfer Agent fee 2,500
-------
Total $100,000
=======
Material U.S. Federal Income Tax Consequences of the Going Private Merger
Summarized below are the material federal income tax consequences to United
Tennessee and its shareholders resulting from the Going Private Merger. This
summary is based on existing U.S. federal income tax law, which may change, even
retroactively. This summary does not discuss all aspects of federal income
taxation, which may be important to you in light of your individual
circumstances. Many shareholders (such as financial institutions, insurance
companies, broker-dealers, tax-exempt organizations, and foreign persons) may be
subject to special tax rules. Other shareholders may also be subject to special
tax rules, including but not limited to shareholders who received United
Tennessee common stock as compensation for services or pursuant to the exercise
of an employee stock option, or shareholders who have held, or will hold, stock
as part of a straddle, hedging, or conversion transaction for federal income tax
purposes. In addition, this summary does not discuss any state, local, foreign,
or other tax considerations.
This summary assumes that you are one of the following:
(1) a citizen or resident of the United States;
(2) a corporation or other entity taxable as a corporation created or
organized under U.S. law (federal or state);
(3) an estate the income of which is subject to U.S. federal income
taxation regardless of its sources;
(4) a trust if a U.S. court is able to exercise primary supervision over
administration of the trust and one or more U.S. persons have
authority to control all substantial decisions of the trust; or
(5) any other person whose worldwide income and gain is otherwise subject
to U.S. federal income taxation on a net basis.
This summary also assumes that you have held and will continue to hold your
shares as capital assets for investment purposes under the Internal Revenue Code
of 1986, as amended.
For federal income tax purposes, it is intended that neither United
Tennessee nor Merger Corp. will recognize gain or loss for federal or state
income tax purposes as a result of the Going Private Merger.
Shareholders are encouraged to consult their own tax advisor as to the
particular federal, state, local and other tax consequences, in light of their
specific circumstances.
Federal Income Tax Consequences to Shareholders Who Are Not Cashed-Out in the
Going Private Merger
If you (1) continue to hold State of Franklin common stock immediately
after the Going Private Merger, and (2) you receive no cash as a result of the
Going Private Merger, you will not recognize any gain or loss in the Going
Private Merger and you will have the same adjusted tax basis and holding period
in your State of Franklin common stock as you had immediately before the Going
Private Merger. Since each of the directors of State of Franklin beneficially
owns in excess of 3,000 shares of common stock, and it is anticipated that each
director will continue to hold State of Franklin common stock immediately after
the Going Private Merger and will receive no cash as a result of the Going
Private Merger, it is anticipated that no director will recognize gain or loss
in the Going Private Merger.
30
Federal Income Tax Consequences to Shareholders Who Receive Cash in the Going
Private Merger
If you receive cash as a result of the Going Private Merger, your tax
consequences will depend on whether you or a person or entity related to you (as
determined by the Internal Revenue Code) continues to hold shares or is treated
as continuing to hold shares of United Tennessee common stock after the Going
Private Merger, as explained below. If you (1) receive cash in exchange for
United Tennessee common stock as a result of the Going Private Merger, (2) do
not continue to hold shares, and (3) are not related to any person or entity
which holds United Tennessee common stock immediately after the Going Private
Merger, or are not otherwise treated as continuing to hold shares of United
Tennessee common stock after the Going Private Merger, you will recognize a
capital gain or loss. The amount of capital gain or loss you recognize will
equal the difference between the cash you receive for your cashed-out stock and
your aggregate adjusted tax basis in such stock.
In some instances you may be entitled to receive cash in the Going Private
Merger for shares you hold in one capacity but continue to hold shares you hold
in another capacity. For instance, if you own shares in your own name and hold
other shares jointly with another person, the joint holdings would not be
combined with your individual holdings for purposes of the Going Private Merger.
As a result, in some instances the shares you hold in one capacity might be
cashed out in the Going Private Merger while the shares you hold in another
capacity remain outstanding. However, in that situation you would be deemed for
federal income tax purposes both to have received cash in the Going Private
Merger and to continue to hold shares after the Going Private Merger.
If you both receive cash as a result of the Going Private Merger and are
considered to or actually continue to hold United Tennessee common stock after
the Going Private Merger for federal income tax purposes, you generally will
recognize gain, but may not be able to recognize loss, in an amount equal to the
difference between the cash received in the Going Private Merger and the
adjusted tax basis in the cashed-out shares.
If you receive cash and are considered to or actually continue to hold
stock, any gain recognized in the Going Private Merger will be treated, for
federal income tax purposes, as capital gain, provided that your receipt of cash
either (1) is not essentially equivalent to a dividend with respect to you as
determined under Section 302(b)(1) of the Internal Revenue Code, or (2) is a
substantially disproportionate redemption of stock with respect to you as
determined under Section 302(b)(2) of the Internal Revenue Code. If your gain is
not treated as capital gain under any of these tests, the gain will be treated
as ordinary dividend income to you to the extent of your ratable share of United
Tennessee's undistributed earnings and profits, then as a tax-free return of
capital to the extent of your aggregate adjusted tax basis in your shares, and
any remaining gain will be treated as a capital gain.
If you are related to a person or entity who holds United Tennessee common
stock immediately after the Going Private Merger (as determined by the Internal
Revenue Code) you will be treated as owning shares actually or constructively
owned by such individuals or entities. Because of your deemed ownership of
United Tennessee common stock, your receipt of cash in exchange for United
Tennessee common stock may be treated first as ordinary dividend income to the
extent of your ratable share of United Tennessee's undistributed earnings and
profits, then as a tax-free return of capital to the extent of your aggregate
adjusted tax basis in your shares, and any remaining amount will be treated as
capital gain. If you are related to a person or entity who holds United
Tennessee common stock immediately after the Going Private Merger, a waiver of
the family attribution rules is available under Section 302(c)(2) of the
Internal Revenue Code which will allow the transaction to be treated as a sale.
The waiver is permitted if the shareholder (1) retains no interest in United
Tennessee after the Going Private Merger (including any proprietary interest as
well as interest as officer, director or employee of United Tennessee), other
than an interest as a creditor; (2) does not acquire any such interest (other
than stock acquired by bequest or inheritance) within ten (10) years from the
date of the distribution; and (3) agrees to notify the Internal Revenue Service
of the acquisition of any such interest within the ten (10) year period. There
are additional restrictions that apply to such waiver.
If you or a person or entity related to you continues to hold United
Tennessee common stock immediately after the Going Private Merger, you are urged
to consult your tax advisor as to the particular federal, state, local, foreign,
and other tax consequences of the transaction, in light of your specific
circumstances.
31
Capital Gain and Loss
For individuals, net capital gain (defined generally as your total capital
gains in excess of capital losses for the year) recognized upon the sale of
capital assets that have been held for more than 12 months generally will be
subject to tax at a rate not to exceed 15%. Net capital gain recognized from the
sale of capital assets that have been held for 12 months or less will continue
to be subject to tax at ordinary income tax rates. In addition, capital gain
recognized by a corporate taxpayer will continue to be subject to tax at the
ordinary income tax rates applicable to corporations.
There are limitations on the deductibility of capital losses. In general,
the capital losses of individuals may only be deducted to the extent of the
individual's capital gains plus $3,000 each year. Any capital loss of an
individual which is not deductible by reason of the foregoing limitation may be
carried forward to subsequent years. In the case of corporations, capital losses
may only be deducted to the extent of capital gains. Any capital loss of a
corporation which is not deductible by reason of the foregoing limitation may be
carried back three years and carried forward five years.
Backup Withholding
Shareholders will be required to provide their social security or other
taxpayer identification numbers (or, in some instances, additional information)
in connection with the Going Private Merger to avoid backup withholding
requirements that might otherwise apply. The letter of transmittal will require
each shareholder to deliver such information when the common stock certificates
are surrendered following the effective date of the Going Private Merger.
Failure to provide such information may result in backup withholding.
As explained above, the amounts paid to you as a result of the Going Private
Merger may result in dividend income, capital gain income, some combination of
dividend and capital gain income, or capital loss to you depending on your
individual circumstances. The U.S. federal income tax discussion set forth above
is based upon present law, which is subject to change possibly with retroactive
effect. You should consult your tax advisor as to the particular federal, state,
local and other tax consequences of the transaction, in light of your specific
circumstances.
Source and Amount of Funds for the Going Private Merger
United Tennessee will fund the Going Private Merger with an up to $6.0
million dividend from its wholly owned subsidiary, Newport Federal Bank to
United Tennessee.
Conduct of United Tennessee's Business after the Going Private Merger
United Tennessee expects its business and operations to continue as they
are currently being conducted after the Going Private Merger, and, except as
disclosed below, the Going Private Merger is not anticipated to have any effect
upon the conduct of such business. United Tennessee believes the going private
transaction is consistent with United Tennessee's vision of maintaining an
independent banking strategy. If the Going Private Merger is consummated,
persons owning fewer than 2,500 shares of common stock at the effective time of
the Going Private Merger will no longer have any equity interest in, and will
not be shareholders of, United Tennessee and therefore will not participate in
its future potential for earnings and growth, if any. Instead, each such owner
of United Tennessee common stock will have the right to receive $22.00 per share
in cash, without interest.
If the Going Private Merger Proposal is effected, United Tennessee believes
that, based on United Tennessee's shareholder records, approximately 96
shareholders of record will remain. In addition, as of May 31, 2005 individuals
who are currently members of the Board of Directors and of management of United
Tennessee beneficially own approximately 29.83% of the common stock and will
beneficially own approximately 38.17% of the common stock after the Going
Private Merger. See "United Tennessee Ownership." As a result of the Going
Private Merger, United Tennessee plans to become a privately-held company by
deregistering its shares of common stock under the Exchange Act. As a result,
United Tennessee will be relieved of the obligation to comply with the proxy
rules of Regulation 14A under Section 14 of the Exchange Act, and its officers
and directors and shareholders owning more than 10% of the common stock will be
relieved of certain other reporting obligations under the Exchange Act. You
should read the discussion under "--The Effects of the Going Private
32
Merger " for more discussion regarding the effects of United Tennessee becoming
a privately held company. United Tennessee estimates that becoming a privately
held company will save United Tennessee approximately $150,000 per year in
legal, accounting and other expenses. This amount also includes various
internally-allocated resources, principally salaries of employees responsible
for performing the necessary work to comply with the regulatory guidelines.
United Tennessee believes that there are significant advantages to it in
effecting the Going Private Merger Proposal and "going private" and United
Tennessee plans to avail itself of any opportunities it may have as a private
company, including, but not limited to, making any public or private equity
offerings, or entering into any other arrangement or transaction as it may deem
appropriate. Management does not presently have an intent to enter into any
transaction involving a merger or sale of United Tennessee nor is management
currently in negotiations with respect to any such transaction. Management
believes that United Tennessee can continue to be an effective community bank in
its local market area, and management and the Board are committed to pursuing
that strategy.
Other than as described in this proxy statement, neither United Tennessee
nor its management has any current plans or proposals to effect any
extraordinary corporate transaction, such as a merger, reorganization or
liquidation; to sell or transfer any material amount of its assets; to change
its Board of Directors or management; to change materially its indebtedness or
capitalization; or otherwise to effect any material change in its corporate
structure or business.
Although United Tennessee cannot guarantee the continual payment of a
dividend, it does not intend to change its current dividend policy or practice
at this time. The shares of United Tennessee common stock acquired will, after
the Going Private Merger, be included in United Tennessee's authorized but
unissued shares and will be available for issuance in the future.
Directors and Executive Officers of United Tennessee and Merger Corp.
The directors and executive officers of United Tennessee and Merger Corp.
are the same individuals. Information regarding these individuals can be found
below in the section entitled "Proposal 2 -- Election of Directors."
All of these individuals are citizens of the United States. During the past
five years, none of the above individuals was convicted in a criminal proceeding
or was a party to any judicial or administrative proceeding (excluding traffic
violations or similar misdemeanors) that resulted in a judgment, decree or final
order enjoining him from future violations of, or prohibiting activities subject
to, federal or state securities laws or a finding of any violation of federal or
state securities laws.
Dissenters' Rights
Any shareholder of United Tennessee entitled to vote on the Going Private
Merger has the right to receive payment of the fair value of his shares of
United Tennessee common stock upon compliance with Sections 48-23-202 and
48-23-204 of the TBCA. A shareholder may not dissent as to less than all of the
shares that he beneficially owns. A nominee or fiduciary may not dissent on
behalf of any beneficial owner as to less than all of the shares of such
beneficial owner held of record by such nominee or fiduciary. A beneficial owner
asserting dissenters' rights to shares held on his behalf must submit to United
Tennessee the record shareholder's written consent to the dissent not later than
the time the beneficial shareholder asserts dissenters' rights. Any United
Tennessee shareholder intending to enforce this right must not vote in favor of
the Going Private Merger and must file as written notice of his intent to demand
payment for his shares (the Objection Notice) with the Corporate Secretary of
United Tennessee either before the United Tennessee meeting or before the vote
is taken at the meeting. The Objection Notice must state that the shareholder
intends to demand payment for his shares of United Tennessee common stock if the
Going Private Merger is effected. A vote against approval of the Going Private
Merger will not, in and of itself, constitute an Objection Notice satisfying the
requirements of Section 48-23-202 of the TBCA. A failure to vote will not
constitute a waiver of dissenters' rights as long as the requirements of
Sections 48-23-101 through 48-23-302 of the TBCA are complied with. However, any
shareholder who executes a proxy card and who desires to effect his dissenters'
rights must mark the proxy card "Against" the proposal relating to the Going
Private Merger because if the proxy card is left blank, it will be voted "For"
the proposal relating to the Going Private Merger.
33
If the Going Private Merger is approved by United Tennessee's shareholders
at the meeting, each shareholder who has filed an Objection Notice will be
notified by United Tennessee of such approval within 10 days of the meeting (the
Dissenters' Notice). The Dissenters' Notice will
(i) state where dissenting shareholders must (a) send the Payment Demand
(as defined below) and where and when they must (b) deposit their United
Tennessee common stock certificates ,
(ii) inform holders of uncertified shares of United Tennessee common stock
of the extent of any restrictions on the transferability of such shares,
(iii) be accompanied by a form for demanding payment that includes the date
of the first announcement to the news media or to shareholders of the terms of
the proposed Going Private Merger,
(iv) set a date by which United Tennessee must receive the Payment Demand,
which may not be fewer than 1 or more than 2 months after the date the
Dissenters' Notice is delivered, and
(v) be accompanied by a copy of Sections 48-23-101 through 48-23-302 of the
TBCA.
Within the time prescribed in the Dissenters' Notice, a shareholder
electing to dissent must make a demand for payment (the Payment Demand), certify
whether he acquired beneficial ownership of the shares of United Tennessee
common stock before _____________, 2005, (the date of the first public
announcement of the principal terms of the Going Private Merger), and deposit
his certificates in accordance with the terms of the Dissenters' Notice. Upon
filing the Payment Demand and depositing the certificates, the shareholder will
retain all other rights of a shareholder until these rights are cancelled or
modified by consummation of the Merger. A Payment Demand may not be withdrawn
unless United Tennessee consents.
Failure to comply with these procedures will cause the shareholder to lose
his dissenters' rights to payment for the shares. Consequently, any United
Tennessee shareholder who desires to exercise his rights to payment for his
shares is urged to consult his legal adviser before attempting to exercise such
rights.
As soon as the Going Private Merger is consummated, or upon receipt of a
Payment Demand, United Tennessee shall, pursuant to Section 48-23-206, pay to
each dissenting shareholder who has complied with the requirements of Section
48-23-204 of the TBCA the amount that United Tennessee estimates to be the fair
value of the shares of United Tennessee common stock, plus accrued interest.
Section 48-23-206 of the TBCA requires the payment to be accompanied by
(i) certain of United Tennessee's financial statements,
(ii) a statement of United Tennessee's estimate of fair value of the shares
and explanation of how the interest was calculated,
(iii) notification of rights to demand payment, and
(iv) a copy of Sections 48-23-101 through 48-23-302 of the TBCA.
As authorized by Section 48-23-208, United Tennessee intends to delay any
payments with respect to any shares (the after-acquired shares) held by a
dissenting shareholder which were not held by such shareholder on April 7, 2005,
the date of the first public announcement of the terms of the Going Private
Merger. When payments are so withheld, Sections 48-23208(b) and 48-23-209(a)
will require United Tennessee, after the Merger, to send to the holder of the
after-acquired shares an offer to pay the holder an amount equal to United
Tennessee's estimate of their fair value plus accrued interest, together with an
explanation of the calculation of interest and a statement of the holder's right
to demand payment under Section 48-23-209.
If the Going Private Merger is not consummated within two months after the
date set for demanding payment and depositing certificates, United Tennessee
shall return the deposited certificates and release the transfer restrictions
imposed
34
on uncertificated shares. If, after returning deposited certificates and
releasing transfer restrictions, the Going Private Merger is consummated, United
Tennessee must send a new Dissenters' Notice and repeat the payment demand
procedure.
If the dissenting shareholder believes that the amount paid by United
Tennessee pursuant to Section 48-23-206 or offered under Section 48-23-208 is
less than the fair value of his shares or that the interest due is calculated
incorrectly, or if United Tennessee fails to make payment (or, if the Merger has
not consummated, United Tennessee does not return the deposited Certificates or
release the transfer restrictions imposed on uncertificated shares) within two
months after the date set in the Dissenters' Notice, then the dissenting
shareholder may, within one month after (i) United Tennessee made or offered
payment for the shares or failed to pay for the shares or (ii) United Tennessee
failed to return deposited certificates or release restrictions on
uncertificated shares timely, notify United Tennessee in writing of his own
estimate of the fair value of such shares (including interest due) and demand
payment of such estimate (less any payment previously received). Failure to
notify United Tennessee in writing of a demand for payment within one month
after United Tennessee made or offered payment for such shares will constitute a
waiver of the right to demand payment.
If United Tennessee and the dissenting shareholder cannot agree on a fair
price two months after United Tennessee receives such a demand for payment, the
statute provides that United Tennessee will institute judicial proceedings in a
court of record with equity jurisdiction in Cocke County, Tennessee, (the Court)
to fix (i) the fair value of the shares immediately before consummation of the
Going Private Merger, excluding any appreciation or depreciation in anticipation
of the Going Private Merger, and (ii) the accrued interest. The "fair value" of
the United Tennessee common stock could be more than, the same as, or less than
$22.00 per share. United Tennessee must make all dissenters whose demands remain
unsettled parties to the proceeding and all such parties must be served with a
copy of the petition. The Court may, in its discretion, appoint an appraiser to
receive evidence and recommend a decision on the question of fair value. The
Court is required to issue a judgment for the amount, if any, by which the fair
value of the shares, as determined by the Court, plus interest, exceeds the
amount paid by United Tennessee or for the fair value, plus accrued interest, of
his after-acquired shares for which United Tennessee elected to withhold
payment. If United Tennessee does not institute such proceeding within such two
month period, United Tennessee shall pay each dissenting shareholder whose
demand remains unsettled the respective amount demanded by each shareholder.
The Court will assess the costs and expenses of such proceeding (including
reasonable compensation for and the expenses of the appraiser by excluding fees
and expenses of counsel and experts) against United Tennessee, except that the
Court may assess such costs and expenses as it deems appropriate against any or
all of the dissenting shareholders if it finds that their demand for additional
payment was arbitrary, vexatious or otherwise not in good faith. The Court may
assess fees and expenses of counsel and experts in amounts the Court finds
equitable: (1) against United Tennessee if the Court finds that United Tennessee
did not substantially comply with the relevant requirements of the TBCA or (ii)
against either United Tennessee or any dissenting shareholder, if the Court
finds that the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously or not in good faith. If the Court finds that the
services of counsel for any dissenter were of substantial benefit to other
dissenters and that the fees of such counsel should be assessed against United
Tennessee, the Court may award reasonable fees to such counsel to be paid out of
amounts awarded to benefited dissenters.
The foregoing summary of the applicable provisions of Sections 48-23-101 through
48-23-302 of the TBCA is not intended to be a complete statement of such
provisions, and is qualified in its entirety by reference to such sections,
which are included as Annex "C" hereof.
Interests of Officers and Directors in the Going Private Merger
We refer you to the information under the heading "United Tennessee Stock
Ownership" for information regarding our officers and directors and their stock
ownership in United Tennessee. As a result of the Going Private Merger, United
Tennessee expects that
(a) the percentage of beneficial ownership of common stock of United Tennessee
(including the effect of fully vested and exercisable common stock warrants and
stock options) held by current officers and directors of as a group will be
38.17% compared to 29.83% before the effective time of the Going Private Merger,
based on their equity holdings as of May 31, 2005,
35
(b) the book value as of December 31, 2004, of the shares of United Tennessee
common stock held by United Tennessee's officers and directors, as a group
(including the effect of fully vested and exercisable stock options), would
decrease from $15.39 on a historical basis to approximately $13.40 on a pro
forma basis, and
(c) the pro rata interest of United Tennessee's officers and directors, as a
group, in the net income of United Tennessee for the year ended December 31,
2004, would increase from approximately $1.58 per share on a historical basis
(based on the number of shares beneficially owned by such officers and directors
including the effect of fully vested and exercisable stock options as of the
record date) to a pro rata interest of approximately $1.75 per share on a pro
forma basis (based on the number of shares United Tennessee anticipates such
officers and directors to beneficially own including the effect of fully vested
and exercisable stock options immediately after the Going Private Merger). For a
description of the assumptions United Tennessee used in determining the numbers
of shares and related percentages that United Tennessee expects to be held by
current officers and directors immediately after the Going Private Merger,
please see footnotes under "United Tennessee Stock Ownership."
The following table sets forth the interests of the directors and executive
officers in United Tennessee's net book value and net earnings in both dollar
amounts and percentages before and after the Going Private Merger (dollars in
thousands).
36
Net Book Value Net Book Value Net Income Before Net Income After
Before Going After Going Going Private Going Private
Private Merger(1) Private Merger(2) Merger(3) Merger (4)
---------------- ----------------- ----------------- ----------------
$ % $ % $ % $ %
Richard G. Harwood......... 1,862 10.11 1,610 12.82 194 10.11 214 12.82
Tom W. Inman................ 20 0.11 19 0.15 2 0.11 3 0.15
William B. Henry........... 646 3.51 558 4.45 67 3.51 74 4.45
J. William Myers........... 596 3.24 516 4.11 62 3.24 69 4.11
Tommy C. Bible............. 357 1.94 309 2.46 37 1.94 41 2.46
Robert L. Overholt......... 442 2.40 381 3.04 46 2.40 51 3.04
Ben W. Hooper, III......... 31 0.17 26 0.21 3 0.17 4 0.21
Robert D. Self............. 252 1.37 219 1.74 26 1.37 29 1.74
Directors and executive
officers as a group (12
persons)................... 5,494 29.83 4,794 38.17 571 29.83 636 38.17
- -------------------
(1) Based upon the book value of United Tennessee of $18,418,727 as of December
31, 2004.
(2) Based upon the book value of United Tennessee, which is anticipated to
reduce to approximately $12,559,221 on a pro forma basis following the
Going Private Merger.
(3) Based upon the diluted net income of United Tennessee (including
non-recurring income and expenses) of $1,914,802 for the year ended
December 31, 2004.
(4) Based upon the diluted net income of United Tennessee (including
non-recurring income and expenses) which is anticipated to decrease to
$1,667,413.
Regulatory Requirements for the Going Private Merger
In connection with the Going Private Merger and deregistration of United
Tennessee's common stock under the Exchange Act, United Tennessee will be
required to make a number of filings with and obtain a number of approvals from
various federal and state governmental agencies, including:
o a director who will own more than 10% of the voting shares of United
Tennessee as a result of the Going Private Merger must receive
approval from the Office of Thrift Supervision as a condition to the
effectuation of the Going Private Merger;
o filing of articles of merger with the Secretary of State of the State
of Tennessee in accordance with the Tennessee Business Corporation Act
after the approval of the merger agreement by United Tennessee's
shareholders;
o complying with federal and state securities laws, including United
Tennessee's filing, before the date of this proxy statement, of a Rule
13e-3 Transaction Statement on Schedule 13E-3 with the Securities and
Exchange Commission; and
o filing a Form 15 with the Securities and Exchange Commission to
deregister the shares of common stock of United Tennessee after the
effective time of the Going Private Merger.
37
The Merger Agreement
Summary
United Tennessee and Merger Corp. entered into the merger agreement on June
17, 2005. A copy of the merger agreement is attached to this proxy statement as
Annex A. If the merger agreement is approved by United Tennessee's shareholders,
holders beneficially owning (including certain family ownership) fewer than
2,500 shares of United Tennessee common stock will receive a cash payment of
$22.00 per share and other holders of common stock will continue to hold their
shares of United Tennessee common stock after the Going Private Merger. The
merger agreement requires the approval of the holders of at least a majority of
the shares of United Tennessee's common stock entitled to vote at the Annual
meeting.
Exchange and Payment Procedures
Soon after the Going Private Merger becomes effective, United Tennessee
will mail to each shareholder who may be entitled to a cash payment pursuant to
the Going Private Merger a letter of transmittal and instructions explaining how
to exchange their stock certificates for cash, as applicable. Upon surrender to
United Tennessee of valid share certificates and properly completed letters of
transmittal, along with such other documents as United Tennessee may reasonably
require, cashed-out holders of common stock will be entitled to receive $22.00
in cash per share. Until surrendered in this manner, each stock certificate
representing cashed-out shares will represent only the right to receive the cash
consideration payable in the Going Private Merger. No service charges will be
payable by shareholders in connection with the exchange of certificates or the
payment of cash pursuant to the merger agreement, all expenses of which will be
borne by United Tennessee. Service charges payable in the event of a lost
certificate will be borne by the shareholder.
If you will continue to hold your shares of United Tennessee common stock
after the Going Private Merger, you should not surrender your shares upon the
consummation of the Going Private Merger.
You should not send your stock certificate now. You should send them only after
you receive a letter of transmittal from United Tennessee. Letters of
transmittal will be mailed soon after the Going Private Merger is completed.
Conversion of Shares in the Going Private Merger
The merger agreement provides that, at the effective time of the Going
Private Merger (the Effective Time) and subject to the exercise of dissenters'
rights: (a) all outstanding shares of United Tennessee stock, whether Record
Shares (as defined below) or Street Shares (as defined below), held of record by
a Holder (as defined below) beneficially owning (as defined below) fewer than
2,500 shares of United Tennessee stock immediately before the Effective Time
shall, without any action on the part of the holder thereof, be canceled and
converted into the right to receive cash equal to $22.00 per share; provided,
however, that United Tennessee may presume that all Street Shares are held by
Holders holding fewer than 2,500 shares immediately before the Effective Time
unless United Tennessee or a beneficial owner of Street Shares is able to
demonstrate to United Tennessee's satisfaction that such shares are held
beneficially by a Holder holding 2,500 or more shares immediately before the
Effective Time, in which event such Shares shall remain outstanding with all
rights, privileges, and powers existing immediately before the Effective Time;
(b) all outstanding shares of United Tennessee common stock other than those
described in (a), shall remain outstanding and held by the same holders; and (c)
the outstanding shares of Merger Corp. shall, without any action on the part of
the holder thereof, be canceled.
For purposes of the merger agreement:
o the term "Record Shares" means shares of United Tennessee stock other
than Street Shares, and any Record Share shall be deemed to be held by
the registered holder thereof as reflected on the books of United
Tennessee;
o the term "Street Shares" means shares of United Tennessee stock held
of record in street name, and any Street Share shall be deemed to be
held by the beneficial owner thereof as reflected on the books of the
nominee holder thereof;
o the term "Holder" means a) any record holder or holders of Record
Shares who would be deemed, under Rule 12g5-1 under the Exchange Act
as described below, to be a single "person" for purposes of
determining the number of record shareholders of United Tennessee, and
b) any other person or persons who would be deemed to be a "Holder"
under the above clause if the shares it holds beneficially in street
name were held of record by such person or persons.
38
o The term "beneficially owned" means (i) beneficially owned as that
term is defined in the Securities Exchange Act of 1934, as amended and
(ii) shares owned by one of more family members, specifically, spouses
and dependent children, which shall be aggregated in calculating total
beneficial ownership.
The merger agreement provides that United Tennessee (along with any other
person or entity to which it may delegate or assign any responsibility or task
with respect thereto) shall have full discretion and exclusive authority
(subject to its right and power to so delegate or assign such authority) to:
o make such inquiries, whether of any shareholder(s) or otherwise, as it
may deem appropriate for purposes of the above provisions, and
o resolve and determine, in its sole discretion, all ambiguities,
questions of fact and interpretive and other matters relating to such
provisions, including, without limitation, any questions as to the
number of Shares held by any Holder immediately before the effective
time of the Going Private Merger. All such determinations by United
Tennessee shall be final and binding on all parties, and no person or
entity shall have any recourse against United Tennessee or any other
person or entity with respect to such determinations.
For purposes of the above provisions, United Tennessee may in its sole
discretion, but shall not have any obligation to do so,
o presume that any shares of United Tennessee common stock held in a
discrete account (whether record or beneficial) are held by a person
distinct from any other person, notwithstanding that the registered or
beneficial holder of a separate discrete account has the same or a
similar name as the holder of a separate discrete account; and
o aggregate the shares held (whether of record or beneficially) by any
person or persons that United Tennessee determines to constitute a
single Holder for purposes of determining the number of shares held by
such Holder.
Rule 12g5-1 under the Exchange Act provides that, for the purpose of determining
whether an issuer is subject to the registration provisions of the Exchange Act,
securities shall be deemed to be "held of record" by each person who is
identified as the owner of such securities on records of security holders
maintained by or on behalf of the issuer, subject to the following:
o In any case where the records of security holders have not been
maintained in accordance with accepted practice, any additional person
who would be identified as such an owner on such records if they had
been maintained in accordance with accepted practice shall be included
as a holder of record.
o Securities identified as held of record by a corporation, a
partnership, a trust whether or not the trustees are named, or other
organization shall be included as so held by one person.
o Securities identified as held of record by one or more persons as
trustees, executors, guardians, and custodians or in other fiduciary
capacities with respect to a single trust, estate or account shall be
included as held of record by one person.
o Securities held by two or more persons as co-owners shall be included
as held by one person.
o Each outstanding unregistered or bearer certificate shall be included
as held of record by a separate person, except to the extent that the
issuer can establish that, if such securities were registered, they
would be held of record, under the provisions of this rule, by a
lesser number of persons.
o Securities registered in substantially similar names where the issuer
has reason to believe because of the address or other indications that
such names represent the same person, may be included as held of
record by one person.
Rule 12g5-1 further provides in pertinent part that, notwithstanding the
foregoing provisions:
39
o Securities held, to the knowledge of the issuer, subject to a voting
trust, deposit agreement or similar arrangement shall be included as
held of record by the record holders of the voting trust certificates,
certificates of deposit, receipts or similar evidences of interest in
such securities; provided however, that the issuer may rely in good
faith on such information as is received in response to its request
from a non-affiliated issuer of the certificates or evidences of
interest.
o If the issuer knows or has reason to know that the form of holding
securities of record is used primarily to circumvent the provisions of
Section 12(g) or 15(d) of the Exchange Act, the beneficial owners of
such securities shall be deemed to be the record owners of such
securities.
Exchange of Certificates
The merger agreement provides that promptly after the effective time of the
Going Private Merger, United Tennessee will mail to each holder of a stock
certificate for United Tennessee shares immediately before the effective time,
other than shares as to which dissenters' rights have been perfected, a letter
of transmittal. The letter of transmittal shall contain a certification as to
the number of shares of common stock held and such other matters as United
Tennessee may determine. It shall specify that delivery shall be effected, and
risk of loss and title to the stock certificates shall pass, only upon delivery
of the stock certificates to United Tennessee and instructions to effect the
surrender of the stock certificates in exchange for the applicable merger
consideration, if any, payable with respect to such stock certificates.
Upon surrender of a common stock certificate for cancellation to United
Tennessee, together with the duly completed letter of transmittal, certifying
that the holder of the stock certificate holds fewer than 2,500 shares of common
stock, and other customary documents as may be required by United Tennessee, the
holder of a stock certificate shall be entitled to receive a cash payment of
$22.00 per share payable in exchange for the shares formerly represented by the
common stock certificate. The common stock certificate surrendered will be
canceled.
Shareholders who will continue to hold shares of common stock of United
Tennessee after the effective time of the Going Private Merger, will continue to
hold their certificates. Subsequently, United Tennessee will send a letter of
transmittal to its shareholders with instructions to exchange their certificates
for shares of common stock of United Tennessee for restricted shares of United
Tennessee, which shall bear an appropriate legend to indicate that the shares
are not registered under the Securities Act.
Timing of Closing
If the merger agreement is approved by the United Tennessee shareholders,
the Going Private Merger closing will take place as soon as practicable after
the annual meeting, provided that all other conditions to the closing have been
satisfied or waived. On the date the Going Private Merger closes, articles of
merger will be filed with the Secretary of State of the State of Tennessee. The
Going Private Merger will become effective when the certificate of merger has
been duly filed with the Secretary of State of the State of Tennessee.
Directors and Officers
The merger agreement provides that the directors and officers of United
Tennessee, immediately before the effective time of the Going Private Merger,
shall be the directors and officers of United Tennessee, as the surviving
corporation, immediately after the Going Private Merger.
Charter and Bylaws
The merger agreement provides that the Charter and Bylaws of United
Tennessee in effect immediately before the effective time of the Going Private
Merger shall be the Charter and Bylaws of United Tennessee as the surviving
corporation, immediately after the Going Private Merger.
Representations and Warranties
40
The merger agreement contains customary representations and warranties made
by United Tennessee and Merger Corp. regarding various matters, including
representations as to the enforceability of the merger agreement.
Conditions to the Completion of the Going Private Merger
The obligations of United Tennessee and Merger Corp. to complete the Going
Private Merger are subject to the satisfaction or waiver of all of the following
conditions, among others:
o approval of the merger agreement by the holders of a majority of the
outstanding shares of United Tennessee common stock; and
o no litigation is pending regarding the Going Private Merger.
Termination of Merger Agreement
The merger agreement may be terminated by the Board of Directors of either
United Tennessee or Merger Corp. at any time before the effective time of the
Going Private Merger.
The Board of Directors believes that the Going Private Merger is in the
best interests of United Tennessee and its shareholders and recommends a vote
"FOR" approval of the Going Private Merger.
41
PROPOSAL 2 -- Election of Directors
General
United Tennessee's Board of Directors currently consists of seven members.
United Tennessee'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 director Richard G.
Harwood for reelection and Tom W. Inman for election to serve as directors for
three-year terms. Director Robert D. Self is not eligible to run under the
bylaws, but will remain as Director Emeritus. 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 Board of Directors recommends that you vote "FOR" the election of
Richard G. Harwood and Tom W. Inman to serve on the Board of Directors for
three-year terms.
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 United Tennessee, and the expiration of his term as a
director.
Name Age Year First Elected as Director Current Term to Expire
- ---- --- ------------------------------ ----------------------
BOARD NOMINEES FOR TERMS TO EXPIRE IN 2008
Richard G. Harwood.......................... 58 1997 2005
Tom W. Inman................................ 49 2005 2005
DIRECTORS CONTINUING IN OFFICE
William B. Henry............................ 75 1997 2006
J. William Myers............................ 63 1997 2006
Tommy C. Bible.............................. 51 1998 2006
Robert L. Overholt.......................... 62 1997 2007
Ben W. Hooper, III.......................... 40 1998 2007
Robert D. Self............................. 75 1997 2005
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. Mr. Bible is a member of the Cocke County Election
Commission and is the Chairman for the Newport/Cocke County Economic Development
Commission.
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 is currently the Vice Chairman of the Newport/Cocke County Economic
Development Commission. He serves as Vice Chairman of the Board of Directors of
the Newport Housing Authority. 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.
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.
42
Tom W. Inman is the agency manager for the Cocke County office of the
Tennessee Farmers Insurance Companies. He has been an Insurance agent with the
company since 1990. Mr. Inman is a member of the Gideon's and the Newport/Cocke
County Chamber of Commerce.
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. Mr. Overholt is also a director
of the Jefferson-Cocke County Gas Utility District.
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 a member of the Newport Lions Club.
Meetings and Committees of the Board of Directors
United Tennessee's Board of Directors holds regular meetings and special
meetings as needed. During the year ended December 31, 2004, the Board met 13
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,
2004 and the total number of meetings held by committees on which he served
during such fiscal year.
Board Committees
The Board of Directors has standing Audit and Executive Committees.
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 2004. 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 Audit Committee does not have a financial expert because of its
small company size and because a majority of the Board is independent; however,
the Committee may appoint a financial expert in the future. The Company's Board
of Directors has adopted a written charter for the Audit Committee, a copy of is
attached hereto as Annex "D". See the "Report of the Audit Committee" section
below.
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 United
Tennessee's officers and met 12 times for fiscal 2004.
The Board of Directors does not have a standing nominating committee or
nominating committee charter. Under United Tennessee'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
United Tennessee 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 United Tennessee's Bylaws and the applicable rules and regulations of the
Securities and Exchange Commission. See the "Shareholder Proposals" section
below.
Director Attendance at Annual Meeting
All directors are encouraged to attend the annual meeting of shareholders.
All Board members attended the 2004 annual meeting.
43
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 United Tennessee do not receive compensation for service
as directors. However, directors of Newport Federal 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 2004,
directors' fees totaled $119,350.
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, 2004, the accounts of Messrs. Bible, Harwood, and Hooper
were credited with $1,549.20, 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.
44
Executive Compensation
Summary. The following table sets forth compensation for the fiscal years
ended December 31, 2004, 2003 and 2002 awarded to or earned by United
Tennessee's Chief Executive Officer for services rendered in all capacities. No
other executive officer received salary and bonus in excess of $100,000 during
the fiscal years 2004, 2003 or 2002.
All other
Annual Compensation 1 Compensation
--------------------- ------------
Name and
Principal Position Year Salary Bonus
Richard G. Harwood 2004 $104,205 $20,464 $ 76,026 (2)
President and Chief 2003 96,540 19,482 72,566 (3)
Executive Officer 2002 91,005 12,257 57,859 (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 ($14,900), allocation to ESOP account ($20,980),
Company contribution to long-term incentive plan ($1,549) and gain on
accounts in long-term incentive and deferred compensation plans ($38,597)
for fiscal 2004; excludes appraisal fees for services to borrowers in the
amount of $23,701 for 2004.
3 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.
4 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.
45
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 2004.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year End At Year End (2)
------------------- ---------------
Shares
Acquired on Value Realized
Name Exercise (1) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ----------- ------------- ----------- -------------
Richard G.
Harwood 32,600 $80,525 7,911 -- $94,141 --
- ----------------------
(1) An option to purchase 24,000 shares was exercised on March 12, 2004, and an
option to purchase 700 shares was exercised on November 16, 2004, at the
exercise price of $8.60. An option to purchase and sell 4,000 shares was
exercised on April 16, 2004, and the underlying shares were sold at $19.00;
an option to purchase and sell 3,000 shares was exercised on May 10, 2004,
and the underlying shares were sold at $18.38; and an option to purchase
and sell 900 shares was exercised on November 16, 2004, and the underlying
shares were sold at $19.25.
(2) Based on the difference between the closing sale price for the common stock
on December 31, 2004 as reported on the Nasdaq SmallCap Market SM ($20.50
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, 2008. 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.
46
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 vot
ing 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, 2004, would have
been approximately $372,760. 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.
Equity Compensation Plan Information
The following table provides information about our 1999 Stock Option Plan
Number of securities
to be issued upon Weighted-average Number of securities
exercise of exercise price of remaining available for
outstanding options, outstanding options, future issuance under
Plan Category warrants and rights warrants and rights equity compensation plans
-------------
Equity compensation plans
approved by shareholders
45,388 $8.59 1,655
Equity compensation plans
not approved by
shareholders -0- n/a -0-
------ --- -----
Total 45,388 1,655
====== =====
47
Stock Ownership of United Tennessee
Set forth below is the number and percentage of shares of the common stock
beneficially owned by the officers and directors and owners of 5% or greater of
the outstanding shares of United Tennessee as of May 31, 2005, as well as the
percentage of shares they will own after the Going Private Merger.
Shares of Common Stock Percent Percent of Class After
Name Beneficially Owned of Class 2 Going Private Merger
- ---- ------------------ -------- --------------------
Richard G. Harwood................................... 119,868 10.11 12.82
Tom W. Inman......................................... 1,405 0.11 0.15
William B. Henry..................................... 41,630 3.51 4.45
J. William Myers..................................... 38,470 3.24 4.11
Tommy C. Bible....................................... 23,000 1.94 2.46
Robert L. Overholt................................... 28,438 2.40 3.04
Ben W. Hooper, III................................... 1,400 0.17 0.21
Robert D. Self...................................... 18,308 1.37 1.74
Directors and executive officers as a group 353,834 29.83 38.17
( 12 persons)..........................................................
- ------------------------
1. Based on 1,185,999 shares issued and outstanding at May 31, 2005.
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. Unless otherwise indicated, beneficial ownership
consists of sole voting and investing power based on 926,999 shares issued
and outstanding on May 31, 2005. Options to purchase 25,661 shares are
exercisable or become exercisable within 60 days of May 31, 2005. These
shares issuable under options are deemed to be outstanding for the purpose
of computing the percentage of outstanding shares owned by each person to
whom a portion of these options relate but are not deemed to be outstanding
for the purpose of computing the percentage owned by any other person.
Includes shares issuable pursuant to options exercisable within 60 days of
the Record Date as follows: 10,000 held by Mr. Myers; 11,500 held by Mr.
Henry; and 4,161 held by Mr. Self.
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, 2004, loans to
directors and executive officers totaled approximately $1,053,658 or 5.7% of
shareholders' equity and .86% 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, 2004.
J. William Myers is a principal in the law firm of Myers & Bell, Newport,
Tennessee, which performs routine legal services on behalf of United Tennessee
and its borrowers, principally in connection with the closing of mortgage loans.
In fiscal 2004, the law firm's fees for such services totaled $73,296.
48
Audit Fees
Pugh & Company, P.C. (Pugh & Company) was United Tennessee's independent
auditor for the 2004 fiscal year and has been retained by the Board of Directors
to be its auditor for the 2005 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 2004 were
pre-approved by the Audit Committee. The aggregate fees billed by Pugh in 2003
and 2004 for various services were:
Type of Fees 2003 2004
---- ----
Audit Fees........................................ $49,975 $51,755
Audit-Related Fees................................ 3,025 1,535
Tax Fees.......................................... 11,725 8,965
All Other Fees.................................... 2,950 2,340
----- -----
Total...................................... $67,675 $64,595
======= ======
In the above table, in accordance with SEC definitions and rules, "audit fees"
are fees billed to United Tennessee for professional services for the audit of
United Tennessee's consolidated financial statements included in Form 10-KSB and
review of financial statements included in Forms 10-QSB, 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 United Tennessee'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, 2004 with the management of United Tennessee.
2. Discussed with United Tennessee'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 United Tennessee's financial statements; and
3. Received the written disclosures and the letter from United Tennessee'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 United Tennessee's financial statements and discussed
with the independent auditors their independence.
49
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, 2004 be included in United Tennessee's Annual
Report on Form 10-KSB for the year ended December 31, 2004.
MEMBERS OF THE AUDIT COMMITTEE
Ben W. Hooper, III - Chairman
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.
Section 16(a) Beneficial Ownership Reporting
Pursuant to regulations promulgated under the Securities Exchange Act of
1934, as amended, United Tennessee'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 United Tennessee with copies of all such reports. Based on United
Tennessee's review of such reports which United Tennessee received during the
last fiscal year, or written representations from such persons that no annual
report of change in beneficial ownership was required, United Tennessee believes
that, during the last fiscal year, all persons subject to such reporting
requirements have complied with the reporting requirements.
Cost of Solicitation
The cost of soliciting proxies will be borne by United Tennessee. United
Tennessee 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.
Shareholder Proposals
In order to be eligible for inclusion in United Tennessee's proxy materials
for next year's annual meeting of shareholders, any shareholder proposal to take
action at such meeting must be received at United Tennessee's main office at 344
W. Broadway, Newport, Tennessee 37821-0249, no later than ____________, 2005.
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
___________, 2006 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 United Tennessee'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.
50
Please note, however, should the Going Private Merger be approved and
completed prior to next year's annual meeting, the requirements regarding
submission of proposals in compliance with the Exchange Act as described above
will no longer be applicable.
Where You Can Find More Information
We file reports, proxy statements and other information with the SEC under
the Exchange Act. Copies of these reports, proxy statements and other
information can be obtained by mail at prescribed rates from the Public
Reference Section of the SEC located at 450 Fifth Street, N.W., Washington, D.C.
20549, or by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
website, located at www.sec.gov, which contains reports, proxy and information
statements and other information regarding United Tennessee, including the
reports, proxy statements and other information incorporated by reference herein
as more fully described below.
United Tennessee and Merger Corp. and the members of the Board of Directors
of each have jointly filed a Schedule 13E-3 under the Exchange Act in connection
with the Going Private Merger. You may inspect and copy the Schedule 13E-3 at
the SEC as described above or may obtain it electronically from the SEC's
website at www.sec.gov. This document does not contain all of the information
contained in the Schedule 13E-3 because certain parts have been omitted in
accordance with the rules and regulations of the SEC.
Additional Documents and Other Information Incorporated by Reference
The SEC allows United Tennessee to incorporate by reference information
into this document. This means that we can disclose important information to you
by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be a part of this
document.
As required by the Exchange Act, we currently file annual and quarterly
reports with the SEC. Our annual report on Form 10-KSB for the year ended
December 31, 2004, includes financial statements and schedules and is
incorporated herein by reference. Our most recent quarterly report on Form
10-QSB for the three months ended March 31, 2005 also includes financial
statements and schedules that are incorporated herein by reference. We are
delivering copies of these documents that are incorporated by reference to
shareholders in connection with this proxy statement. They contain important
information about United Tennessee and its financial condition.
51
Index to Financial Statements
Unaudited Pro Forma Consolidated Financial Statements F-2
Pro Forma Consolidated Balance Sheet (Unaudited) F-3
Pro Form Consolidated Income Statement (Unaudited) F-5
F-1
Unaudited Pro Forma Consolidated Financial Statements
The following unaudited pro forma consolidated balance sheets as of
December 31, 2004 and 2003 and the unaudited pro forma consolidated income
statements for the years ended December 31, 2004 and 2003, give effect to the
following:
o We have assumed that the Going Private Merger occurred as of December 31,
2004 and 2003, for purposes of the consolidated balance sheet as of
December 31, 2004, and 2003, and as of January 1, 2004 and January 1, 2003,
for the consolidated income statements for the years ended December 31,
2004 and 2003, respectively.
o We have assumed that a total of 259,700 shares of common stock are
cashed-out in the Going Private Merger at a price of $22.00 per share for a
total of $5.7 million. Additionally, we have assumed that we have incurred
or will incur $100,000 in expenses related to the transactions.
o We have assumed that we would have sold approximately $4.0 million in
investment securities and incurred approximately $2.0 million in FHLB
advances to fund the transaction. We have also assumed that the rate of
interest on each instrument would have been approximately 4.0%. In
addition, we have assumed that our effective tax rate for each year would
be the same as historically reported.
The unaudited pro forma financial statements should be read in conjunction
with the historical financial statements and accompanying footnotes of United
Tennessee included in our 2004 Annual Report to Shareholders.
F-2
Pro Forma Consolidated Balance Sheets (Unaudited)
December 31, 2004
December 31, December 31,
2004 - Unaudited 2003 - Unaudited
----------------- ----------------
ASSETS
Cash and amounts due from depository institutions $ 3,584,768 $ 5,335,038
Investment securities available for sale, at fair value 31,579,028 25,756,283
Loans receivable, net 78,829,531 77,952,692
Premises and equipment, net 1,713,961 996,014
Accrued interest receivable 573,146 559,217
Real estate acquired through foreclosure 128,085 48,368
Intangible assets, net 713,258 793,250
Cash surrender value of life insurance 1,597,352 1,529,270
Prepaid expenses and other assets 80,277 151,296
----------- -----------
Total Assets $ 118,799,406 $ 113,121,428
=========== ===========
LIABILITIES AND EQUITY
Liabilities:
Deposits:
Demand $ 39,077,645 $ 40,912,082
Term 61,841,807 57,195,215
----------- ------------
Total Deposits 100,919,452 98,107,297
Advances from Federal Home Loan Bank 3,000,000 2,000,000
Accrued interest payable 135,322 79,290
Deferred income taxes 560,974 652,623
Accrued benefit plan liabilities 1,530,740 1,182,688
Other liabilities 93,697 67,282
----------- -----------
Total Liabilities 106,240,185 102,089,180
=========== ===========
Shareholders' Equity:
Common Stock, No Par Value, authorized 20,000,000 shares;
issued and outstanding 937,
299 shares in 2004 (970,679 shares in 2003) 5,384,938 5,951,290
Unearned compensation -- Employee Stock Ownership Plan (179,990) (350,526)
Shares in Grantor Trust - Contra Account (223,661) (216,281)
Shares in Stock Option Plan Trusts - Contra Account (749,754) (1,122,198)
Retained earnings 7,111,288 5,638,219
Accumulated other comprehensive income 1,216,400 1,131,744
--------- ---------
Total Shareholders' Equity 12,559,221 11,032,248
---------- ----------
Total Liabilities and Equity $ 118,799,406 $ 113,121,428
=========== ===========
F-3
Pro Forma Consolidated Income Statement
For the Years Ended
December 31, December 31,
2004 - Unaudited 2003 - Unaudited
---------------- ----------------
Interest Income:
Loans $5,432,343 $5,741,974
Investment securities 1,259,250 992,917
Other interest-earning assets 12,837 31,770
---------- ----------
Total Interest Income 6,704,430 6,766,661
Interest Expense:
Deposits 1,644,581 1,677,877
Advances from Federal Home Loan Bank 85,405 81,949
Total Interest Expense 1,729,986 1,759,826
---------- ----------
Net Interest Income 4,974,444 5,006,835
Provision for Loan Losses 100,000 144,000
---------- ----------
Net Interest Income After Provision for Loan Loss 4,874,444 4,862,835
---------- ----------
Noninterest Income:
Deposit account service charges 300,681 200,269
Loan service charges and fees 74,170 73,760
Net gain on sales of investment securities available for sale 25,549 105,025
Increase in cash surrender value of life insurance 68,082 29,270
Other 53,011 53,253
---------- ----------
Total Noninterest Income 521,493 560,577
---------- ----------
Noninterest Expense:
Compensation and benefits 1,693,093 1,535,181
Occupancy and equipment 258,596 259,484
Federal Deposit Insurance premiums 54,000 60,000
Data processing fees 348,535 296,592
Advertising and promotion 75,228 83,207
Amortization 79,992 79,992
Other 594,880 616,291
---------- ----------
Total Noninterest Expense 3,104,324 2,930,747
---------- ----------
Income Before Income Tax 2,291,613 2,492,665
Income Taxes 624,200 727,272
---------- ----------
Net Income $1,667,413 $1,765,393
========== ==========
F-4
PER SHARE INFORMATION:
Basic Income per Common Share $1.75 $1.75
===== =====
Diluted Income per Common Share $1.75 $1.75
===== =====
Weighted Average Basic Shares Outstanding 953,882 1,011,532
======= =========
Weighted Average Diluted Shares
Outstanding 953,882 1,011,532
======= =========
F-5
ANNEX A
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger effective as of June 17, 2005 (this
"Agreement"), is entered into by and between United Tennessee Bankshares, Inc.,
a Tennessee corporation (the "Company"), and United Tennessee Merger Corp., a
Tennessee corporation (the "Merger Corp.").
WITNESSETH
WHEREAS, the Company is a corporation duly incorporated and validly
existing under the laws of the State of Tennessee having its principal office at
344 W. Broadway, Newport, Tennessee 37821-0249, with authorized capital stock
consisting of 20,000,000 shares of common stock, no par value per share (the
"Common Stock"), of which 1,185,999 shares are issued and outstanding, and
5,000,000 shares of preferred stock, no par value per share (the "Preferred
Stock"), of which no shares are issued and outstanding.
WHEREAS, there are issued and outstanding options to acquire _________
shares of Common Stock granted under the Company's Stock Option Plan (the
"Options");
WHEREAS, Merger Corp. is a corporation duly organized and validly existing
under the laws of the State of Tennessee having its principal office at 344 W.
Broadway, Newport, Tennessee 37821-0249, with authorized capital stock
consisting of 1,000 shares of common stock, no par value per share (the "Merger
Corp. Stock"), of which 100 shares are issued and outstanding; and
WHEREAS, the boards of directors of the Company and Merger Corp. have
approved the terms and conditions of this Agreement pursuant to which Merger
Corp. will be merged with and into the Company (the "Merger") with the Company
surviving the Merger.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants and undertakings contained herein, and for such other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties to this Agreement hereby agree as follows:
ARTICLE I
MERGER
1.01. General. At the Effective Time (as defined in Article VIII below) of the
Merger and pursuant to the provisions of this Agreement, the corporate existence
of Merger Corp. will be merged with and into the Company (hereinafter referred
to as the "Surviving Corporation" whenever reference is made to it as of the
Effective Time or thereafter) and continued in the Surviving Corporation, and
the Surviving Corporation shall be deemed to be a continuation of the entities
and identities of Merger Corp. and the Company.
1.02. Name and Organization. The name of the Surviving Corporation shall remain
and thereafter be "United Tennessee Bankshares, Inc." The Charter and Bylaws of
the Company in effect at the Effective Time shall remain as the Charter and
Bylaws of the Surviving Corporation until changed as provided therein or by law.
The established offices and facilities of the Company shall remain the
established offices and facilities of the Surviving Corporation. The registered
office and registered agent of the Company shall remain the registered office
and registered agent of the Surviving Corporation.
1.03. Rights and Interests. At the Effective Time, all rights, franchises, and
interests of the Company and Merger Corp., respectively, in and to every type of
property shall be transferred to and vested in the Surviving Corporation by
virtue of the Merger without any deed or other transfer. At the Effective Time,
the Surviving Corporation, without any order or other action on the part of any
court or otherwise, shall hold and enjoy all rights of property, franchises, and
interests, including appointments, powers, designations, and nominations, and
all other rights and interests as trustee, executor, administrator, agent,
transfer agent, registrar of stocks and bonds, administrator of estates,
assignee, and receiver, and in every other fiduciary and agency capacity in the
same manner and to the same extent as such rights, franchises, and interests
were held or enjoyed by the Company and Merger Corp., respectively, immediately
before the Effective Time.
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1.04. Liabilities and Obligations. Except as otherwise provided herein, the
Surviving Corporation shall be liable for all liabilities of the Company and
Merger Corp. All debts, liabilities, obligations, and contracts of the Company
and Merger Corp., matured or unmatured, whether accrued, absolute, contingent,
or otherwise, and whether or not reflected or reserved against on the balance
sheets, books of account, or records of the Company or Merger Corp., as the case
may be, shall be those of, and are hereby expressly assumed by, the Surviving
Corporation and shall not be released or impaired by the Merger. All rights of
creditors and other obligees and all liens on property of either the Company or
Merger Corp. shall be preserved unimpaired.
1.05. Directors and Officers. The directors and officers of the Surviving
Corporation at the Effective Time shall be those persons who were directors and
officers, respectively, of the Company immediately before the Effective Time.
The committees of the Board of Directors of the Surviving Corporation at the
Effective Time shall be the same as, and shall be composed of the same persons
who were serving on, the committees appointed by the Board of Directors of the
Company as they existed immediately before the Effective Time.
1.06. Adoption. Unless contrary to the laws of the State of Tennessee or the
United States of America or other applicable laws, all corporate acts, plans,
policies, applications, agreements, orders, registrations, licenses, approvals,
and authorizations of the Company and Merger Corp., their respective
shareholders, boards of directors, committees elected or appointed by their
boards of directors or officers, and agents that were valid and effective
immediately before the Effective Time shall be taken for all purposes at and
after the Effective Time as the acts, plans, policies, applications, agreements,
orders, registrations, licenses, approvals, and authorizations of the Surviving
Corporation and shall be effective and binding thereon as the same were with
respect to the Company and Merger Corp. immediately before the Effective Time.
ARTICLE II
TERMS OF THE MERGER
2.01. General. The manner of exchanging and converting the issued and
outstanding shares of Common Stock and Merger Corp. Stock and of treating the
Options shall be as hereinafter provided in this Article II.
2.02. Conversion and Cancellation of Common Stock; Treatment of Options. At the
Effective Time,
(a) all outstanding shares of Common Stock (other than shares of Common Stock,
the holders of which exercise and perfect dissenters' rights as set forth in
Section 2.04), whether Record Shares (as hereinafter defined), or Street Shares
(as hereinafter defined), held by a Holder (as hereinafter defined) beneficially
owning (as hereinafter defined) fewer than 2,500 shares of Common Stock
immediately before the Effective Time shall, without any action on the part of
the holder thereof, be canceled and converted into the right to receive cash
equal to $22.00 per share of Common Stock (the "Common Stock Merger
Consideration"); provided, however, that the Company may presume that all Street
Shares are held by Holders holding fewer than 2,500 shares of Common Stock
immediately before the Effective Time unless either the Company or a beneficial
owner of Street Shares are able to demonstrate to the Company's satisfaction
that such shares are held beneficially by a Holder holding 2,500 or more shares
of Common Stock immediately before the Effective Time, in which event such
shares shall remain outstanding with all rights, privileges, and powers existing
immediately before the Effective Time;
(b) all outstanding shares of Common Stock other than those described in
paragraph (a) as being converted into the right to receive the Common Stock
Merger Consideration shall remain outstanding with all rights, privileges, and
powers existing immediately before the Effective Time;
(c) the outstanding shares of Merger Corp. Stock shall, without any action on
the part of the holder thereof, be canceled; and
(d) the outstanding Options shall, without any action on the part of the holders
thereof, remain outstanding without any change in their terms and conditions.
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In no event shall any Holder holding, of record or beneficially, immediately
before the Effective Time 2,500 or more shares of Common Stock (including any
combination of Record Shares and Street Shares) in the aggregate be entitled to
receive any Common Stock Merger Consideration with respect to the shares of
Common Stock so held. It shall be a condition precedent to the right of any
Holder to receive the Common Stock Merger Consideration, if any, payable with
respect to the shares of Common Stock held by such Holder that such Holder
certify to the Company in the letter of transmittal delivered by the Company as
described in Section 2.03 that such Holder held, of record or beneficially,
immediately before the Effective Time fewer than 2,500 shares of Common Stock
(including any combination of Record Shares and Street Shares) in the aggregate.
For purposes hereof:
(1) the term "Record Shares" shall mean shares of Common Stock other than Street
Shares, and any Record Share shall be deemed to be held by the registered holder
thereof as reflected on the books of the Company;
(2) the term "Street Shares" shall mean shares of Common Stock held of record in
street name, and any Street Share shall be deemed to be held by the beneficial
owner thereof as reflected on the books of the nominee holder thereof;
(3) the term "Holder" shall mean (i) any record holder or holders of Record
Shares who would be deemed, under Rule 12g5-1 promulgated under the Securities
Exchange Act of 1934, as amended, to be a single "person" for purposes of
determining the number of record shareholders of the Company, and (ii) any other
person or persons who would be deemed to be a "Holder" under clause (i) above if
the shares of Common Stock such person holds beneficially in street name were
held of record by such person or persons; and
(4) the term "Cash-Out Shares" shall mean any shares of Common Stock that are
converted into the right to receive the Common Stock Merger Consideration
pursuant to this Section 2.02.
(5) The term "beneficially owned" means (i) beneficially owned as that term is
defined in the Securities Exchange Act of 1934, as amended and (ii) shares owned
by one of more family members, specifically, spouses and dependent children,
which shall be aggregated in calculating total beneficial ownership.
The Company (along with any other person or entity to which it may delegate or
assign any responsibility or task with respect thereto) shall have full
discretion and exclusive authority (subject to its right and power to so
delegate or assign such authority) to (i) make such inquiries, whether of any
shareholder(s) or otherwise, as it may deem appropriate for purposes of this
Section 2.02 and (ii) resolve and determine, in its sole discretion, all
ambiguities, questions of fact and interpretive and other matters relating to
this Section 2.02, including, without limitation, any questions as to the number
of shares of Common Stock held by any Holder immediately before the Effective
Time. All determinations by the Company under this Section 2.02 shall be final
and binding on all parties, and no person or entity shall have any recourse
against the Company or any other person or entity with respect thereto.
For purposes of this Section 2.02, the Company may in its sole discretion, but
shall not have any obligation to do so, (i) presume that any shares of Common
Stock held in a discrete account (whether record or beneficial) are held by a
person distinct from any other person, notwithstanding that the registered or
beneficial holder of a separate discrete account has the same or a similar name
as the holder of a separate discrete account; and (ii) aggregate the shares of
Common Stock held (whether of record or beneficially) by any person or persons
that the Company determines to constitute a single Holder for purposes of
determining the number of shares of Common Stock held by such Holder.
2.03. Exchange of Certificates.
(a) Payment Procedure. Promptly after the Effective Time, the Surviving
Corporation will mail to each holder of a certificate or certificates which
immediately before the Effective Time evidenced outstanding shares of Common
Stock that appear, based on information available to the Company, may have been
converted into the right to receive the Common Stock Merger Consideration (other
than shares as to which rights of dissent have been perfected as provided in
Section 2.04) ("Certificates"), a letter of transmittal (which shall contain the
certification described in Section 2.02 and such other matters as the Surviving
Corporation may determine and shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the
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Surviving Corporation) and instructions to effect the surrender of the
Certificates in exchange for the Common Stock Merger Consideration payable with
respect to such Certificates. Upon surrender of a Certificate for cancellation
to the Surviving Corporation, together with such letter of transmittal, duly
completed and executed and containing the certification contemplated by Section
2.02, and such other customary documents as may be required pursuant to such
instructions, the holder of such Certificate shall, subject to the provisions of
Section 2.02, be entitled to receive in exchange therefor the Common Stock
Merger Consideration payable with respect to the shares formerly represented by
such Certificate and the Certificate so surrendered shall forthwith be canceled.
If there is a transfer of ownership of shares of Common Stock which is not
registered in the share transfer records of the Company, the Common Stock Merger
Consideration payable in respect thereof may be paid or issued to the transferee
if the Certificate representing such shares is presented to the Surviving
Corporation, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid.
(b) Abandoned Property Laws. The Surviving Corporation shall not be liable to
any holder of a Certificate for any cash properly delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.04. Dissenters' Rights of Shareholders. Shareholders may dissent from the
Merger and exercise their dissenters' rights pursuant to and subject to the
provisions of Sections 48-23-101 through 48-23-302 of the Tennessee Business
Corporation Act.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company hereby represents, warrants, and covenants to and with Merger Corp.
as of the date of this Agreement and as of the Closing Date (as defined in
Article VIII below) as follows:
3.01. Organization. The Company is a corporation duly incorporated, validly
existing, and in good standing under the laws of the State of Tennessee. The
Company has the corporate power to carry on its business as is presently being
conducted and is qualified to do business in every jurisdiction in which the
character and location of the assets owned by it or the nature of the business
transacted by it requires qualification.
3.02. Governmental Authorizations. The Company is in compliance in all material
respects with all applicable federal, state, and local laws, rules, regulations,
and orders, including, without limitation, those imposing taxes. The approval,
execution, delivery, and performance of this Agreement, and the consummation of
the transactions contemplated hereby, subject to the receipt of the consents and
approvals described in Section 6.03 below, will not violate in any material
respect any provision of, or constitute a default under, any applicable law,
rule, or regulation of any governmental agency or instrumentality, either
domestic or foreign, applicable to the Company.
3.03. No Conflict with Other Instruments. The consummation of the Merger in
accordance with the terms, conditions, and provisions of this Agreement will not
conflict with, or result in a breach of, any term, condition, or provision of,
or constitute a default under, any indenture, mortgage, deed of trust, or other
material agreement or instrument to which the Company is a party, and will not
conflict with any provisions of the Charter or Bylaws of the Company or any of
its subsidiaries, and will not constitute an event that with the lapse of time
or action by a third party could result in any default under any of the
foregoing, or result in the creation of any lien, charge, or encumbrance upon
any of the assets or properties of the Company or upon the Common Stock.
3.04. No Conflict with Judgments or Decrees. The consummation of the Merger in
accordance with the terms, conditions, and provisions of this Agreement will not
conflict with, or result in a breach of, any term, condition, or provision of
any judgment, order, injunction, decree, writ, or ruling of any court or
tribunal, either domestic or foreign, to which the Company is a party or is
subject.
3.05. Approval of Agreement. The board of directors of the Company has approved
this Agreement and the transactions contemplated hereby and has authorized the
execution and delivery of this Agreement by the Company. The Company has full
corporate power, authority, and legal right to enter into this Agreement.
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3.06. Capital Stock. The authorized capital stock of the Company consists solely
of Common Stock and Preferred Stock. All of the issued and outstanding shares of
Common Stock are validly issued, fully paid, non-assessable and not issued in
violation of the preemptive rights of any shareholder. There are no shares
Preferred Stock issued and outstanding. In addition, the outstanding Options are
validly issued.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF MERGER CORP.
Merger Corp. hereby represents, warrants, and covenants to and with the Company
as of the date of this Agreement and as of the Closing Date (as defined in
Article VIII below) as follows:
4.01. Organization. Merger Corp. is duly incorporated, validly existing, and in
good standing under the laws of the State of Tennessee. Merger Corp. has the
corporate power and authority to carry on its business as is presently being
conducted and is qualified to do business in every jurisdiction in which the
character and location of the assets owned by it or the nature of the businesses
conducted by it requires qualification.
4.02. Capital Stock. The authorized capital stock of Merger Corp. consists
solely of the Merger Corp. Stock, of which 100 shares are currently issued and
held by the Company. There are no outstanding subscriptions, warrants, options,
or rights of any kind to acquire from Merger Corp. any shares of Merger Corp.
Stock, other equity securities, or debt securities.
4.03. Subsidiaries or Affiliates. Merger Corp. does not own of record or
beneficially, and is not obligated to acquire any capital stock, other equity
securities, debt securities, or other interest of or in any corporation,
government, or other entity. Between the date hereof and the Effective Time,
Merger Corp. will not create or acquire any subsidiaries without the prior
written consent of the Company.
4.04. Approval of Agreement. The Board of Directors of Merger Corp. has approved
this Agreement and the transactions contemplated hereby and has authorized the
execution and delivery by Merger Corp. of this Agreement. Merger Corp. has full
corporate power, authority, and legal right to enter into this Agreement and,
upon appropriate vote of the shareholders of Merger Corp., to approve this
Agreement and consummate the transactions contemplated hereby.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF MERGER CORP.
The obligations of Merger Corp. to consummate the Merger shall be subject to the
satisfaction on or before the Closing Date of all of the following conditions,
except as Merger Corp. may waive such conditions in writing:
5.01. Litigation. On the Closing Date, there shall not be pending or threatened
litigation in any court or any proceeding by any governmental commission, board,
or agency with a view to seeking, or in which it is sought, to restrain or
prohibit consummation of the Merger, or in which it is sought to obtain
divestiture, rescission, or damages in connection with the Merger or the
consummation of the Merger, and to the knowledge of any of the parties hereto,
no investigation by any governmental agency shall be pending or threatened that
might result in any such suit, action, or other proceeding.
5.02. Representations and Warranties. All representations and warranties of the
Company contained in this Agreement, other than any representations and
warranties as to future events, shall be true in all material respects on and as
of the Closing Date as if such representations and warranties were made on and
as of the Closing Date, and the Company shall have performed all agreements and
covenants required by this Agreement to be performed by it on or before the
Closing Date.
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ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the Merger shall be subject to the
satisfaction on or before the Closing Date of all the following conditions,
except as the Company may waive such conditions in writing:
6.01. Litigation. On the Closing Date, there shall not be pending or threatened
litigation in any court or any proceeding by any governmental commission, board,
or agency with a view to seeking, or in which it is sought, to restrain or
prohibit consummation of the Merger, or in which it is sought to obtain
divestiture, rescission, or damages in connection with the Merger or the
consummation of the Merger, and to the knowledge of any of the parties hereto,
no investigation by any governmental agency shall be pending or threatened that
might result in any such suit, action, or other proceeding.
6.02. Representations and Warranties. All representations and warranties of the
Merger Corp. contained in this Agreement, other than any representations and
warranties as to future events, shall be true in all material respects on and as
of the Closing Date as if such representations and warranties were made on and
as of the Closing Date, and the Company shall have performed all agreements and
covenants required by this Agreement to be performed by it on or before the
Closing Date.
6.03. Shareholder Approval. This Agreement shall have been approved by a vote of
the holders of not less than a majority of the outstanding shares of Common
Stock and by the holders of not less than a majority of the outstanding shares
of Merger Corp. Stock.
ARTICLE VII
EXPENSES
Costs and expenses relating to the negotiation and drafting of this Agreement
and the transactions contemplated hereby shall be borne and paid by the Company.
ARTICLE VIII
CLOSING DATE; EFFECTIVE TIME
The closing of this Agreement and the transactions contemplated hereby shall be
held on the Closing Date (as defined in this Article VIII) at such time and
place as the parties hereto may mutually agree upon. The "Closing Date" shall be
such date as the Presidents of the Company and Merger Corp., respectively, may
agree upon. Subject to the terms and upon satisfaction on or before the Closing
Date of all requirements of law and conditions specified in this Agreement, the
Company and Merger Corp. shall, at the Closing Date, execute, acknowledge, and
deliver such other documents and instruments and take such further action as may
be necessary or appropriate to consummate the Merger. The "Effective Time" is
the date on which the Merger is effective, which shall be on the date specified
in the certificate of merger to be issued by the Secretary of State of the State
of Tennessee, and if no date is specified in such certificate, then the
Effective Time shall be the time of the opening of business on the date the
certificate of merger is recorded by the Secretary of State of the State of
Tennessee.
ARTICLE IX
AMENDMENTS
This Agreement may be amended only by written agreement duly authorized by the
boards of directors of the parties hereto before the Closing Date.
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ARTICLE X
TERMINATION
This Agreement may be terminated by either the Company or Merger Corp. at any
time before the Effective Time. If this Agreement is terminated, this Agreement
shall become void and shall have no effect and create no liability on the part
of any of the parties hereto or their respective directors, officers, or
shareholders.
ARTICLE XI
NOTICES
All notices, requests, demands, and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given at the time
either personally delivered or sent by registered or certified mail, postage
prepaid, as follows:
If to the Company or Merger Corp., at:
344 W. Broadway
Newport, Tennessee 37821-0249
Attention: Richard G. Harwood, President
ARTICLE XII
MISCELLANEOUS
12.01. Further Assurances. Each party hereto agrees to perform any further acts
and to execute and deliver any further documents that may be reasonably
necessary to carry out the provisions of this Agreement.
12.02. Severability. If any of the provisions, or portions thereof, of this
Agreement are held to be illegal, unenforceable, or invalid by any court of
competent jurisdiction, the legality, enforceability, and validity of the
remaining provisions, or portions thereof, shall not be affected thereby, and,
in lieu of the illegal, unenforceable, or invalid provision, or portion thereof,
there shall be added a new legal, enforceable, and valid provision as similar in
scope and effect as is necessary to effectuate the results intended by the
deleted provision or portion.
12.03. Construction. Whenever used herein, the singular number shall include the
plural, and the plural number shall include the singular.
12.04. Gender. Any references herein to the masculine gender, or to the
masculine form of any noun, adjective, or possessive, shall be construed to
include the feminine or neuter gender and form, and vice versa.
12.05. Headings. The headings contained in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning of any of the
provisions contained herein.
12.06. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
12.07. Governing Law. This Agreement has shall be governed by the laws of the
State of Tennessee, without giving effect to the conflict of laws rules thereof
or of any other state.
12.08. Court Costs and Attorneys' Fees. If any action at law or in equity,
including an action for declaratory relief, is brought to enforce or interpret
the provisions of this Agreement, the prevailing party shall be entitled to
recover costs of court and reasonable attorneys' fees from the other party or
parties to such action, which fees may be set by the court in the trial of such
action or may be enforced in a separate action brought for that purpose, and
which fees shall be in addition to any other relief that may be awarded.
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12.09. Inurement. Subject to any restrictions against transfer or assignment as
may be contained herein, the provisions of this Agreement shall inure to the
benefit of, and shall be binding on, the assigns and successors in interest of
each of the parties hereto.
12.10. Waivers. No waiver of any provision or condition of this Agreement shall
be valid unless executed in writing and signed by the party to be bound thereby,
and then only to the extent specified in such waiver. No waiver of any provision
or condition of this Agreement shall be construed as a waiver of any other
provision or condition of this Agreement, and no present waiver of any provision
or condition of this Agreement shall be construed as a future waiver of such
provision or condition.
12.11. Entire Agreement. This Agreement contains the entire understanding
between the parties hereto concerning the subject matter contained herein. There
are no representations, agreements, arrangements, or understandings, oral or
written, between or among the parties hereto relating to the subject matter of
this Agreement that are not fully expressed herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by as
of the date first written above.
UNITED TENNESSEE BANKSHARES, INC.
By: /s/ Richard G. Harwood
Title: President
UNITED TENNESSEE MERGER CORP.
(In organization)
By: /s/ Richard G. Harwood
Title: President
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ANNEX B
3600 Glenwood Avenue, Suite 104
Raleigh, North Carolina 27612
919.7194770
Fax: 919.7194777
TRIANGLE CAPITAL PARTNERS www.trianglecapiwlpanners.com
- -------- ------- -------- -----------------------------
Investment Bankers April 12, 2005
Board of Directors
United Tennessee Bankshares, Inc.
344 West Broadway
Newport, TN 37821 0249
Gentlemen:
You have asked us to render our opinion relating to the fairness, from a
financial point of view, to holders of the common stock of United Tennessee
Bankshares, Inc. ("UTBI") of the cash consideration to be paid to certain UTBI
shareholders in connection with a proposed reorganization of UTBI's common
stock.
It is our understanding that UTBI intends to form a new Tennessee
corporation ("Merger Corp.") for the sole purpose of effecting a merger whereby
Merger Corp. will be merged with and into UTBI. UTBI shall be the surviving
corporation. When the merger becomes effective, each shareholder owning less
than 2,500 shares of UTBI's common stock (excluding shares held by UTBI's
shareholders who have perfected their dissenters rights of appraisal) will be
converted into the right to receive cash in the amount of $2200 per share (the
"Conversion Price"). All other shares not so convened will continue to be
outstanding after the merger. The foregoing merger and related transactions are
hereinafter referred to as the "Reorganization."
Specifically, it is our understanding that if UTBI's stockholders approve
the Reorganization, each stockholder:
o Holding fewer than 2,500 shares of UTBI common stock at the effective time
of the Reorganization will receive the Conversion Price for each share of
UTBI common stock owned by that stockholder; or
o Holding 2,500 or more shares at the effective time of the Reorganization
will continue to hold all of the shares they own.
Triangle Capital Partners, LLC, as part of its investment banking business, is
regularly engaged in performing financial analyses of financial institutions and
their securities in connection with mergers and acquisitions, corporate
transactions, and for other purposes To date, we have acted as financial advisor
to UTBI in connection with the Reorganization We expect to receive compensation
for our services in connection with the Reorganization, including a fee that is
deemed earned upon the rendering of this opinion and UTBI has agreed to
reimburse our reasonable expenses and indemnify us against certain liabilities
arising out of our engagement including liabilities under federal securities
laws We have provided certain financial advisory services to UTBI from time to
time, and we may also provide financial advisory services to UTBI in the future.
B-1
In the course of our engagement we have reviewed and analyzed
i UTBI's annual reports to stockholders and its financial statements for each
of the three years ended December 31, 2002, December 31, 2003, and December
31, 2004,
ii UTBI's quarterly reports filed on from 10-QSB for the quarters ended March
31, 2004, June 30, 2004 and September 30, 2004,
iii Information regarding the historical record of reported prices, trading
activity and dividend payments of UTBI common stock,
iv Certain reported financial terms of selected recent transactions which we
deemed to be relevant,
v The consideration proposed to be paid under the terms of the
Reorganization,
vi Financial information and financial forecasts prepared by UTBI management
relating to the business, earnings, cash flows, assets and prospects of
UTBI furnished to us by UTBI, and
vii Other studies, analyses and investigations, particularly of the banking
industry, and such other information as we deemed appropriate
In addition we held discussions with members of senior management of UTBI
including without limitation its legal advisors, auditors and others about the
background of the Reorganization, reasons and basis for the Reorganization, the
past and current results of operations and the business of UTBI and UTBI
management s opinion of its future prospects
For purposes of this opinion we have assumed and relied on, without independent
verification, the accuracy and completeness of the financial, accounting,
business, legal, tax, and other information discussed with or furnished to us by
UTBI and materials otherwise made available to us, including information from
published sources, and we have not independently verified any such data With
respect to the financial information, including financial forecasts of UTBI
management and information relating to certain strategic, financial and
operational benefits anticipated by UTBI management from the Reorganization,
which we received from UTBI, we have assumed (with your consent) that they have
been reasonably prepared reflecting the best currently available estimates and
good faith judgment of the management of UTBI We express no view as to such
forecasts or projected information We have also assumed that all government,
regulatory, shareholder and other consents necessary for the consummation of the
Reorganization will be obtained without any adverse effect on UTBI or the
benefits of the Reorganization expected by UTBI management which is in any way
material to our analysis We express no opinion on matters of a legal,
regulatory, tax or accounting nature or the ability of the Reorganization to be
consummated
We have not made, obtained, or been provided with (i) any independent appraisals
or valuations of the assets or liabilities, and potential and/or contingent
liabilities of, UTBI or (ii) any independent analysis or valuation of the rights
of stockholders, creditors, or any other holders of claims or rights against
UTBI or any of its affiliates We have further relied on the assurances of the
management of UTBI that they are not aware of any facts that would make any
information reviewed by us inaccurate or misleading No opinion is expressed as
to whether any alternative transaction might be more favorable to UTBI We
express no opinion as to UTBI's future business, assets, liabilities, operations
or prospects We were not requested to, and we did not, solicit any expressions
of interest from any other parties with respect to the actions contemplated in
connection with the Reorganization.
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Our opinion is based on the market, economic and other relevant considerations
as they exist and have been evaluated by us on the date hereof We have assumed
that there has been no material change in UTBI's assets, financial condition,
results of operations, business or prospects since the date of the most recent
financial statements made available to us In rendering our opinion, we have
assumed that the Reorganization will be consummated according to the terms
described in this letter, and to the extent not specifically addressed in this
letter, our prior correspondence and communications with UTBI's management and
Board of Directors, and the Reorganization will not differ in any material
respect therefrom
This opinion does not address the underlying business decision of UTBI to engage
in the Reorganization It should be understood that subsequent developments may
affect this opinion, and we do not have any obligation to revise or reaffirm
this opinion In addition, we express no opinion or recommendation as to how the
stockholders or creditors of or any claimants against UTBI or any of its
affiliates should view or regard the Reorganization We render no opinion with
respect to the relative rights and benefits or detriments of stockholders,
creditors, or any other holders of claims or rights against UTBI or any of its
affiliates in connection with the Reorganization No opinion is rendered with
respect to UTBI or any of its affiliates Our opinion is rendered in regard to
the Conversion Price and does not take into account or give effect to any
adjustment or increase to the Conversion Price that may occur subsequent to the
date hereof This opinion does not specifically address the prices at which the
capital stock of UTBI or any of its respective affiliates has traded in the past
or at which such stock of UTBI or any of its affiliates may trade after the date
hereof or after the consummation of the Reorganization The opinion set forth in
this letter represents our professional judgment as to the matters described
herein and does not represent any guaranty of any particular result or
circumstances
This opinion may not be disclosed, communicated, reproduced, disseminated,
quoted or referred to at any time (in whole or part), to any third party or in
any manner or for any purpose whatsoever without our prior written consent,
which consent shall not be unreasonably withheld, based upon review by us of the
content of any such public reference, which shall be satisfactory to us in our
reasonable judgment, and which review shall be completed by us as soon as
practicable, although this opinion may be included in its entirety in the proxy
statement of UTBI used to solicit stockholder approval of the Reorganization so
long as any description of or reference to us or this opinion and the related
analysis in such filing is in a form acceptable to us and our counsel It is
understood that this letter is directed to the Board of Directors of UTBI in its
consideration of the Reorganization and is not intended to be and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote with respect to the Reorganization
The opinion is limited to the matters expressly stated herein, and no opinion
may be inferred or implied beyond matters expressly stated
Based upon and subject to the foregoing, including the various assumptions and
limitations set forth herein, and based on such other matters as we considered
relevant, it is our opinion that as of the date hereof the Conversion Price to
be paid in the Reorganization is fair, from a financial point of view, to the
holders of UTBI common stock
Very truly yours,
TRIANGLE CAPITAL PARTNERS, LLC
B-3
ANNEX C
DISSENTERS' RIGHTS STATUTE
WEST'S TENNESSEE CODE
TITLE 48. CORPORATIONS AND ASSOCIATIONS
CHAPTER 23. BUSINESS CORPORATIONS--DISSENTERS' RIGHTS
PART 1--RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
48-23-101. Definitions. -- As used in this chapter, unless the context otherwise
requires:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder;
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer;
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under ss. 48-23-102 and who exercises that right when and in
the manner required by part 2 of this chapter;
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action;
(5) "Interest" means interest from the effective date of the corporate
action that gave rise to the shareholder's right to dissent until the date of
payment, at the average auction rate paid on United States treasury bills with a
maturity of six (6) months (or the closest maturity thereto) as of the auction
date for such treasury bills closest to such effective date;
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation; and
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
48-23-102. Right to dissent. -- (a) A shareholder is entitled to dissent from,
and obtain payment of the fair value of the shareholder's shares in the event
of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party:
(A) If shareholder approval is required for the merger by ss.
48-21-104 or the charter and the shareholder is entitled to vote
on the merger; or
(B) If the corporation is a subsidiary that is merged with its parent
under ss. 48-21-105;
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale
or exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one (1) year after the date of
sale;
(4) An amendment of the charter that materially and adversely affects
rights in respect of a dissenter's shares because it:
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(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the
redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting
rights; or
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share, if the fractional share is to be acquired
for cash under ss. 48-16-104; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the charter, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(c) Notwithstanding the provisions of subsection (a), no shareholder may
dissent as to any shares of a security which, as of the date of the effectuation
of the transaction which would otherwise give rise to dissenters' rights, is
listed on an exchange registered under ss. 6 of the Securities Exchange Act of
1934, as amended, or is a "national market system security," as defined in rules
promulgated pursuant to the Securities Exchange Act of 1934, as amended.
48-23-103. Dissent by nominees and beneficial owners. -- (a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the record shareholder's name only if the record shareholder
dissents with respect to all shares beneficially owned by any one (1) person and
notifies the corporation in writing of the name and address of each person on
whose behalf the record shareholder asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares as to
which the partial dissenter dissents and the partial dissenter's other shares
were registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares of
any one (1) or more classes held on the beneficial shareholder's behalf only if
the beneficial shareholder:
(1) Submits to the corporation the record shareholder's written consent to
the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
(2) Does so with respect to all shares of the same class of which the
person is the beneficial shareholder or over which the person has power to
direct the vote.
PART 2--PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
48-23-201. Notice of dissenters' rights. -- (a) If proposed corporate action
creating dissenters' rights under ss. 48-23-102 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under ss. 48-23-102 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in ss. 48-23-203.
(c) A corporation's failure to give notice pursuant to this section will
not invalidate the corporate action.
C-2
48-23-202. Notice of intent to demand payment. -- (a) If proposed corporate
action creating dissenters' rights under ss. 48-23-102 is submitted to a vote at
a shareholders' meeting, a shareholder who wishes to assert dissenters' rights
must:
(1) Deliver to the corporation, before the vote is taken, written notice of
the shareholder's intent to demand payment for the shareholder's shares if the
proposed action is effectuated; and
(2) Not vote the shareholder's shares in favor of the proposed action. No
such written notice of intent to demand payment is required of any shareholder
to whom the corporation failed to provide the notice required by ss. 48-23-201.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for the shareholder's shares under this chapter.
48-23-203. Dissenters' notice. -- (a) If proposed corporate action creating
dissenters' rights under ss. 48-23-102 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to all shareholders
who satisfied the requirements of ss. 48-23-202.
(b) The dissenters' notice must be sent no later than ten (10) days after
the corporate action was authorized by the shareholders or effectuated,
whichever is the first to occur, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the principal terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not the person asserting dissenters' rights acquired
beneficial ownership of the shares before that date;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than one (1) nor more than two (2) months after the
date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter if the corporation has not
previously sent a copy of this chapter to the shareholder pursuant to ss.
48-23-201.
48-23-204. Duty to demand payment. -- (a) A shareholder sent a dissenters'
notice described in ss. 48-23-203 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date required
to be set forth in the dissenters' notice pursuant to ss. 48-23-203(b)(3), and
deposit the shareholder's certificates in accordance with the terms of the
notice.
(b) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (a) retains all other rights of a
shareholder until these rights are cancelled or modified by the effectuation of
the proposed corporate action.
(c) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
(d) A demand for payment filed by a shareholder may not be withdrawn unless
the corporation with which it was filed, or the surviving corporation, consents
thereto.
C-3
48-23-205. Share restrictions. -- (a) The corporation may restrict the transfer
of uncertificated shares from the date the demand for their payment is received
until the proposed corporate action is effectuated or the restrictions released
under ss. 48-23-207.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the effectuation of the proposed corporate
action.
48-23-206. Payment. -- (a) Except as provided in ss. 48-23-208, as soon as the
proposed corporate action is effectuated, or upon receipt of a payment demand,
whichever is later, the corporation shall pay each dissenter who complied with
ss. 48-23-204 the amount the corporation estimates to be the fair value of each
dissenter's shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under ss.
48-23-209; and
(5) A copy of this chapter if the corporation has not previously sent a
copy of this chapter to the shareholder pursuant to ss. 48-23-201 or ss.
48-23-203.
48-23-207. Failure to take action. -- (a) If the corporation does not effectuate
the proposed action that gave rise to the dissenters' rights within two (2)
months after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation effectuates the proposed action, it must send a
new dissenters' notice under ss. 48-23-203 and repeat the payment demand
procedure.
48-23-208. After-acquired shares. -- (a) A corporation may elect to withhold
payment required by ss. 48-23-206 from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the principal terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after effectuating the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of the
dissenter's demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under ss.
48-23-209.
48-23-209. Procedure if shareholder dissatisfied with payment or offer. -- (a) A
dissenter may notify the corporation in writing of the dissenter's own estimate
of the fair value of the dissenter's shares and amount of interest due, and
demand payment of the dissenter's estimate (less any payment under ss.
48-23-206), or reject the corporation's offer under ss. 48-23-208 and demand
payment of the fair value of the dissenter's shares and interest due, if:
(1) The dissenter believes that the amount paid under ss. 48-23-206 or
offered under ss. 48-23-208 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
C-4
(2) The corporation fails to make payment under ss. 48-23-206 within two
(2) months after the date set for demanding payment; or
(3) The corporation, having failed to effectuate the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within two (2) months after the date set for
demanding payment.
(b) A dissenter waives the dissenter's right to demand payment under this
section unless the dissenter notifies the corporation of the dissenter's demand
in writing under subsection (a) within one (1) month after the corporation made
or offered payment for the dissenter's shares.
PART 3--JUDICIAL APPRAISAL OF SHARES
48-23-301. Court action. -- (a) If a demand for payment under ss. 48-23-209
remains unsettled, the corporation shall commence a proceeding within two (2)
months after receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the two-month period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in a court of record
having equity jurisdiction in the county where the corporation's principal
office (or, if none in this state, its registered office) is located. If the
corporation is a foreign corporation without a registered office in this state,
it shall commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one (1) or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) For the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus accrued interest, exceeds the amount paid by the
corporation; or
(2) For the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under ss. 48-23-208.
48-23-302. Court costs and counsel fees. -- (a) The court in an appraisal
proceeding commenced under ss. 48-23-301 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under ss. 48-23-209.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable against:
(1) The corporation and in favor of any or all dissenters if the court
finds the corporation did not substantially comply with the requirements of part
2 of this chapter; or
C-5
(2) Either the corporation or a dissenter, in favor of any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously, or not in good faith with respect to the rights
provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited.
C-6
ANNEX D
UNITED TENNESSEE BANKSHARES, INC.
AUDIT COMMITTEE CHARTER
The Audit Committee is appointed by the Board to assist the Board in monitoring
(1) the integrity of the financial statements of the Company, (2) the compliance
by the Company with legal and regulatory requirements and (3) the independence
and performance of the Company's external auditors.
As long as the Company qualifies as a "Small Business Issuer" as such term is
defined in Regulation S-B, the Audit Committee shall consist of at least two
members, a majority of which shall meet the independence requirements of the
Nasdaq Stock Market, Inc. The members of the Audit Committee shall be appointed
by the Board.
The Audit Committee shall have the authority to retain special legal, accounting
or other consultants to advise the Committee. The Audit Committee may request
any officer or employee of the Company or the Company's outside counsel or
independent auditor to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Audit Committee shall make regular reports to the Board.
The Audit Committee shall:
1. Review and reassess the adequacy of this Charter annually and recommend any
proposed changes to the Board for approval.
2. Review the annual audited financial statements with management, including
major issues regarding accounting and auditing principles and practices as well
as the adequacy of internal controls that could significantly affect the
Company's financial statements.
3. Review an analysis prepared by management and the independent auditor of
significant financial reporting issues and judgments made in connection with the
preparation of the Company's financial statements.
4. Meet periodically with management as considered necessary to review the
Company's major financial risk exposures and the steps management has taken to
monitor and control such exposures.
5. Review as considered necessary major changes to the Company's auditing and
accounting principles and practices as suggested by the independent auditor,
internal auditors or management.
6. Recommend to the Board the appointment of the independent auditor, which firm
is ultimately accountable to the Audit Committee and the Board.
7. Approve the fees to be paid to the independent auditor.
8. Receive periodic reports from the independent auditor regarding the auditor's
independence consistent with Independence Standards Board Standard 1, discuss
such reports with the auditor, and if so determined by the Audit Committee, take
or recommend that the full Board take appropriate action to oversee the
independence of the auditor.
9. Evaluate together with the Board the performance of the independent auditor
and, if so determined by the Audit Committee, recommend that the Board replace
the independent auditor.
10. Meet with the independent auditor as considered necessary prior to the audit
to review the planning and staffing of the audit.
D-1
11. Obtain from the independent auditor assurance that Section 10A of the
Securities Exchange Act of 1934 has not been implicated.
12. Obtain reports from management and the independent auditor that the
Company's subsidiaries are in conformity with applicable legal requirements.
13. Discuss with the independent auditor the matters required to be discussed by
Statement on Auditing Standards No. 61 relating to the conduct of the audit.
14. Review with the independent auditor any problems or difficulties the auditor
may have encountered and any management letter provided by the auditor and the
Company's response to that letter. Such review should include any difficulties
encountered in the course of the audit work, including any restrictions on the
scope of activities or access to required information.
15. Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Company's annual proxy statement.
16. Advise the Board with respect to the Company's policies and procedures
regarding compliance with applicable laws and regulations.
17. Review with the Company's counsel legal matters that may have a material
impact on the financial statements, the Company's compliance policies and any
material reports or inquiries received from regulators or governmental agencies.
18. Meet at least annually with the chief financial officer and the independent
auditor in separate executive sessions.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditor. Nor is it the duty of
the Audit Committee to conduct investigations, to resolve disagreements, if any,
between management and the independent auditor or to assure compliance with laws
and regulations.
D-2
PROXY
United Tennessee Bankshares, Inc.
344 W. Broadway
Newport, Tennessee 37821
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
The undersigned appoints each of Peggy G. Holston and William B. Henry and
each of them, with full power of substitution and revocation as Proxy, to vote
all shares of stock standing in my name on the books of United Tennessee
Bankshares, Inc. (the "Company") at the close of business on ________ __, 2005,
which the undersigned would be entitled to vote if personally present at the
Annual Meeting of Shareholders of the Company to be held at our offices at 344
W. Broadway, Newport, Tennessee, on Tuesday, August 16, 2005, at 5:00 p.m.,
Eastern Time, and at any and all adjournments, upon the matters set forth in the
Notice of the meeting. The Proxy is further authorized to vote according to the
recommendation of management as to any other matters which may come before the
meeting. At the time of preparation of the Proxy Statement, the Board of
Directors knows of no business to come before the meeting other than that
referred to in the Proxy Statement.
THE SHARES COVERED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN BELOW AND WHEN NO INSTRUCTIONS ARE GIVEN WILL BE VOTED FOR
THE PROPOSALS DESCRIBED IN THE ACCOMPANYING NOTICE OF ANNUAL MEETING AND PROXY
STATEMENT AND ON THIS PROXY.
- --------------------------------------------------------------------------------
(1) Approval of Going Private Transaction.
[ ] For [ ] Against [ ] Abstain
(2) Election of two directors to serve until the 2008 annual meeting
of shareholders or until their successors have been duly elected and
qualified.
[ ] FOR all nominees listed below (except as indicated to the
contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
Richard G. Harwood Tom W. Inman
Instruction: To withhold authority to vote for any
----------- individual nominee, write such nominee's name
in the space provided below.
The undersigned hereby acknowledges receipt of the Notice of the
Annual Meeting of Shareholders of United Tennessee Bankshares Inc. and the
related Proxy Statement.
Dated: , 2005 Signed:
-------- -------------------------------------------
[Label to be placed here] Signed:
-------------------------------------------
Shareholder should sign here exactly as shown
on the label affixed hereto. Administrator,
Trustee, or Guardian, please give full title.
If more than one Trustee, all should sign.
All Joint Owners should sign.
Please indicate if you plan to attend the Annual Meeting of Shareholders.
[ ] Yes [ ] No
PLEASE COMPLETE, SIGN, DATE AND RETURN
THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE TO:
Registrar & Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016