[GRAPHIC OMITTED][GRAPHIC OMITTED] Tri-Cities Tennessee/Virginia
207 Mockingbird Lane
Suite 300
Johnson City, Tennessee 37604
phone: 423.928.0181
fax: 423.928.5694
mailing address:
P.O. Box 3038
Johnson City, Tennessee 37602
www.bakerdonelson.com
LINDA M. CROUCH-MCCREADIE
Direct Dial: (423) 975-7623
Direct Fax: (423) 979-7623
E-Mail Address: lcrouch@bakerdonelson.com
August 8, 2005
Ms. Jessica Livingston
Senior Attorney
Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 4561
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: United Tennessee Bankshares, Inc.
Schedule 13E-3
Filed June 24, 2005
File No. 05-53331
United Tennessee Bankshares, Inc.
Preliminary Schedule 14A
Filed June 24, 2005
File No. 05-23551
Dear Ms. Livingston:
This letter responds to the comments received from the Staff of the
Securities and Exchange Commission by letter dated August 1, 2005, to Mr.
Christopher Triplett, with respect to the above-referenced filings of United
Tennessee Bankshares, Inc. (the "Company" or "Registrant").
The following discussion summarizes the manner in which we have revised the
Preliminary Schedule 14A in response to Staff comments made in the August 1,
2005 letter (the "Letter"). The following paragraphs of this letter are numbered
to correspond to the numbers of the comments contained in the Letter and page
numbers refer to pages in the Amendment to the Preliminary Schedule 14A "marked
to show changes."
General
1. Registrant has revised the proxy statement and Schedule 13E-3 to remove
all references to "State of Franklin".
Schedule 13E-3
2. Registrant has revised the proxy statement to include all of the
disclosure required by Schedule 13E-3 as to each filing person. Please see the
revised section entitled "Determination of Fairness by Merger Corp. and the
Directors and Officers of United Tennessee and Merger Corp." on page 28 and the
new section entitled "Information about United Tennessee and Merger Corp." on
page 48. Additionally, Registrant has revised the proxy statement to disclose
that none of the directors or officers have engaged in any securities
transactions during the last 60 days. Please see the revised section entitled
"Per Share Market Price" on page 13.
Preliminary Schedule 14A
General
3. Registrant has revised the proxy statement cover sheet to include the
phrase "Preliminary Copy" and has revised the proxy card to the word
"Preliminary".
4. Registrant has added a new section under "The Merger Transaction"
entitled "Accounting Treatment" to address this comment. Please see page 38.
Summary Term Sheet Regarding the Going Private Merger
General
5. Registrant has relocated the Summary Term Sheet so that it precedes the
question and answer section related to the annual meeting.
6. Registrant has added a new subsection to the Summary Term Sheet to more
clearly disclose the parties involved in the transaction. Please see page 3.
Additionally, Registrant has revised the section entitled "Determination of
Fairness by Merger Corp. and the Directors and Officers of Merger Corp." Please
see page 28.
The Merger Agreement, page 3
7. Registrant has added clarifying language on page 3 under "The Merger
Agreement" subsection related to the fact that the Merger Corp. is a shell
corporation formed solely to facilitate this transaction.
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8. Registrant has omitted the parenthetical phrase "(including certain
family ownership)" throughout the proxy statement and instead explained that
beneficial ownership includes the shareholder and his or her spouse and minor
children.
Reasons for the Going Private Merger, page 4
9. Registrant has quantified the costs referenced in this subsection and
added the language related to administration of shareholder accounts. Please see
page 4.
10. Registrant has added three additional "disadvantages" to the subsection
entitled "Disadvantages of the Going Private Merger." Please see page 4.
Material U.S. Federal Income Tax Consequences, page 4
11. Registrant has added language to describe the tax effect on
shareholders who retain their shares. Please see page 5.
Source and Amount of Funds for the Going Private Merger, page 5
12. Registrant has revised this subsection to disclose that approval of the
Office of Thrift Supervision for the dividend from Newport Federal Bank to
United Tennessee has been received. Please see page 5.
Summary Financial Information, page 7
13. Registrant has added June 30, 2005 interim financial information.
Please see pages beginning on page 10.
Per Share Market Price, page 10
14. Registrant has added per share market price for the first two quarters
of 2005 to its chart on page 13.
Proposal 1 -- Approval of the Merger Agreement
Background of the Going Private Merger Proposal, page 14
15. See new language which cross references the discussion regarding
Triangle's qualifications and experience. Please see page 18.
16. Because the "qualifications and limitations" are stated with some
specificity (and at some length) in the section entitled "Opinion of Financial
Advisor", Registrant has cross referenced that discussion and specified that it
includes a discussion of these qualifications and limitations.
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17. Registrant deleted the phrase "several reasons" and believes the
disclosure now sets out three reasons for choosing the 2,500 share threshold.
Please see page 15.
18. Registrant has revised the disclosure regarding the various means of
going private as requested. Please see page 16. The Board did not consider that
any of the filing persons will be taxed in the transaction as a factor in its
analysis. Registrant discloses on page 7 and page 22, the fact that none of the
filing persons will be cashed out in the merger. Additionally, in the section
entitled "Material U.S. Federal Income Tax Consequences of the Going Private
Merger," Registrant discloses that since none of the directors will be cashed
out, none of the directors will be taxed. Please see page 37.
19. Please see the expanded discussion in "Background of the Going Private
Merger Proposal" regarding the November, 2004 Board meeting and information
regarding the Company's stock trading volume and shareholder base which was
discussed at the meeting. Please see page 17.
20. Registrant has revised the proxy statement on page 18 to further
explain the circumstances surrounding its approach to another financial
institution in another market. United Tennessee did not make a firm offer to
such financial institution.
21. Registrant has revised the proxy statement to explain why it selected
$22.00 within the acceptable range of $19.00 to $23.00. Please see page 19.
22. See additional discussion regarding Triangle's summary perspective
financial analysis at the April 12, 2005 meeting beginning on page 19.
23. Registrant has expanded the discussion on page 19 to address the
Board's consideration of funding the transaction by the dividend from Newport
Federal Bank to United Tennessee.
Reasons for the Going Private Merger, page 15
24. Registrant has further described the expenses related to its public
company status. Please see page 20.
Effects of the Going Private Merger, page 16
25. Registrant has revised the section to more particularly label the
benefits and detriments of the transaction. Registrant has quantified the
effects to the extent possible. Please see page 22.
Remaining Unaffiliated Shareholders, page 18
26. Registrant has revised the bullet point as requested to explain the
loss of liquidity for shareholders who wish to sell shares after the transaction
has been completed. Please see page 23.
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Effects of the Going Private Merger, page 19
27. Registrant has included the omitted language and clarified the
procedure for determining whether a shareholder has enough shares to remain a
shareholder. Please see page 24. United Tennessee will not presumptively proceed
to cash-out all accounts with fewer than 2,500 shares regardless of apparent
common ownership of multiple accounts which together hold 2,500 or more shares.
Registrant has disclosed that shareholders in the letter of transmittal will be
able to certify as to the aggregate number of shares owned and how such shares
are owned (certificate or street).
Recommendation of the Board of Directors; Fairness of the Going Private Merger
proposal, page 20
28. After consideration of the Staff's comment, Registrant has elected to
remove the language "administrative and regulatory burden of being a public
company" as it does not believe that is distinguished from the financial cost
already discussed.
29. While Registrant cannot quantify the decrease in expenses associated
with fewer shareholder accounts, it has expanded the discussion to list some of
the types of costs associated with maintaining shareholder accounts. Please see
page 25.
30. Registrant has revised the language to clarify that the inability of
shareholders to buy and sell shares in a public market is the effect of the
transaction described. Please see page 25.
31. After consideration of the Staff's comment, Registrant has deleted the
phrase "derive little benefit from United Tennessee's status as a publicly-held
corporation" as it believes the reasons are adequately described otherwise.
32. Registrant has added a discussion on the "going concern value." Please
see page 26.
33. Registrant has clarified that the board believes that, in light of the
Tennessee corporate authority for dissenters rights, the procedural rights of
unaffiliated shareholders are, in fact, safeguarded. Please see page 27.
34. Registrant has cross-referenced the reader to the dissenters rights
discussion in this section to highlight why the board believes unaffiliated
shareholders have a procedural safeguard. Please see page 27.
35. Registrant is required by its banking regulatory agencies to obtain an
audit and will continue to mail its annual audited financial statements to the
remaining shareholders.
36. Registrant has disclosed on page 28 the negative factors it considered
in making its fairness determination.
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37. The Board did not consider the other financial institution offer in
making its fairness determination. Registrant has deleted the last sentence of
the paragraph on page 27 regarding a fairness determination. Registrant believes
the sentence was misplaced as that paragraph responds to the issue of whether
there have been other potential transactions in the last two years.
Opinion of Financial Advisor, page 26
38. Registrant has revised this section to remove references that the
summary of Triangle's opinion is qualified in its entirety by the full text of
the opinion. In addition, Registrant has filed as exhibits to the Schedule 13E-3
the confidential materials presented to the Company's Board of Directors by
Triangle Capital Partners at the November 4, 2004, January 15, 2005 and April
12, 2005 Board meetings. The discussion set forth in the section entitled
"Opinion of Financial Advisor" describes the oral presentations made to the
members of the Board of Directors by Triangle Capital Partners during those
Board meetings.
39. There has been no material relationship within the last two years
between Triangle and United Tennessee. As disclosed in the Summary Term Sheet
and on page 29, United Tennessee has agreed to pay Triangle a fee of $35,000 as
compensation for its financial advisory services rendered in connection with the
Going Private Merger.
40. The only assumptions management provided to Triangle were dividend
payment amounts and total asset growth. We have disclosed those instances where
relevant. In the section entitled "Discount Analysis", we outlined the estimated
dividends per share for the fiscal years ending December 31, 2005 through 2009.
Please note that there are no earnings per share projections included in the
table on page 27. Rather, these earnings are for the last twelve months, and
this information reflects publicly available information for the twelve month
period ending December 31, 2004. Accordingly, the reference to "earnings per
share" has been deleted.
41. Registrant has considered adding the United Tennessee information to
the peer group tables on page 32, but Registrant has elected not to include it
in that table. This information was not presented in this fashion to the Board.
Also, Registrant feels that it could be confusing to include it in the actual
tables themselves. However, Registrant has included the same information for the
Company in a similar tabular format so that shareholders would have the
information as a comparison. For the same reasons, Registrant has not included
the information in the premium analysis table; however, Registrant has provided
the same information regarding United Tennessee below the table for shareholder
reference.
42. Please see page 34 for the additional discussion regarding how Triangle
determined the discount rate.
43. Due to the fairly limited amount of data required to be discussed in
connection with the "Discount Analysis" discussion, Registrant does not feel
that presenting it on tabular format assists in clarifying this analysis to
shareholders. So, Registrant has elected to keep this in text form.
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44. Triangle was not asked to opine on the fairness of the going private
transaction to unaffiliated shareholders as a separate group because the
relative equity rights of the affiliated shareholders with respect to the going
private merger do not differ from nonaffiliated shareholders who are not cashed
out in connection with this transaction. Triangle's opinion is addressed to all
shareholders. Registrant was unable to find Staff's reference to a fairness
determination regarding only unaffiliated shareholders.
45. Registrant has attempted to discuss the price range in its connection
to the separate financial analyses conducted by Triangle. This is included in
the discussions set forth under "Background of the Going Private Merger
Proposal."
Federal Income Tax Consequences to Shareholders Who Are Not Cashed-Out in the
Going Private Merger, page 30
46. Please see page 36 for a cross reference to the tax opinion that has
been filed as an exhibit to the Schedule 13E-3.
Conduct of United Tennessee's Business after the Going Private Merger, page 32
47. and 48. Please see page 39 for clarification that certain of the
company's reporting obligation will continue until 90 days after the filing of
the Form 15.
49. After consideration of the Staff's comment, Registrant has deleted the
language cited as inapplicable to the Registrant as Registrant believes it will
continue to meet its capital needs from internal growth.
50. After consideration of the Staff's comment, Registrant has deleted the
language cited as inapplicable to the Registrant as Registrant believes it will
continue to meet its capital needs from internal growth, thus no private or
public equity offering is contemplated.
Proposal 2 -- Election of Directors
General
51. We have reviewed Item 7 of Schedule 14A and have made revisions to the
disclosure we believe appropriate. Specifically, we have added descriptive
language regarding the audit committee and the procedures by which shareholders
can make nominations to the board of directors. We believe the disclosure
otherwise complies with the other elements of Item 7. Please see pages 51 and
52.
General
52. Registrant has disclosed that the bylaw provision prohibiting Mr. Self
from being nominated is a mandatory retirement age provision for directors.
Please see page 50.
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53. The table has been corrected to reflect that Mr. Inman is not currently
a board member and has been nominated to be first elected to the board at the
2005 annual meeting.
Director Compensation, page 44
54. Registrant has revised disclosure to reflect that the directors receive
no "fees."
55. Registrant has revised to reflect the relationship of the boards of
Newport Federal Bank and United Tennessee.
Executive Compensation
Option Year-End Value Table, page 46
56. Registrant has revised the footnote to reflect that the shares were
sold in the open market. Please see page 54.
Fairness Opinion of Triangle Capital Partners
57. Registrant has made the appropriate corrections. For some reason, the
periods at various portions of this letter were eliminated during the
Edgarization process.
58. Triangle has agreed to provide us with written confirmation of its
approval of the description regarding Triangle's opinion in the proxy statement
once the format is finalized. Triangle has consented to the description in this
proxy statement as presented in this filing and the original filing, and the
Company has received written confirmation regarding the same.
We have provided staff with marked copies of the amendment to the Schedule
14A and Schedule 13E-3 to expedite its review. Also attached is the
acknowledgement requested by the staff and signed by United Tennessee and each
filing person.
If you have any questions or require additional information, please feel
free to contact me.
Very truly yours,
/s/ Linda M. Crouch-McCreadie
Enclosure
cc: Richard G. Harwood
ACKNOWLEDGMENT
Pursuant to the request of the Staff of the Securities and Exchange
Commission in its letter dated August 1, 2005, regarding United Tennessee
Bankshares, Inc., the undersigned acknowledge that:
* the undersigned are responsible for the adequacy and accuracy of the
disclosures in the filings;
* staff comments or changes to disclosures in response to staff comments
in the filings reviewed by the staff do not foreclose the Commission
from taking any action with respect to the filings; and
* the undersigned may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
DATED: August 4, 2005
UNITED TENNESSEE BANKSHARES, INC.
By:
/s/Richard G. Harwood
----------------------------------------
Richard G. Harwood
President and Chief Executive Officer
UNITED TENNESSEE MERGER CORP.
By: /s/Richard G. Harwood
-----------------------------------------
Richard G. Harwood
President and Chief Executive Officer
/s/Richard G. Harwood
-----------------------------------------
Richard G. Harwood
/s/J. William Myers
-----------------------------------------
J. William Myers
/s/ Tommy C. Bible
------------------------------------------
Tommy C. Bible
/s/ William B. Henry
-----------------------------------------
William B. Henry
/s/Ben W. Hooper, III
-------------------------------------------
Ben W. Hooper, III
/s/ Robert L. Overholt
-------------------------------------------
Robert L. Overholt
/s/ Robert D. Self
---------------------------------------------
Robert D. Self