PRE 14A 1 tvfhsc14a062308.htm TVFH SCH 14A 06-23-08 tvfhsc14a062308.htm



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  o
 
Check the appropriate box:

x          Preliminary Proxy Statement
o           Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o           Definitive Proxy Statement
o           Definitive Additional Materials
o           Soliciting Material Pursuant to Rule 14a-12

TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.
(Name of Registrant as Specified in Its Charter)
 

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):
 
x         No fee required.
 
o          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:
 
o           Fee paid previously with preliminary materials:
 
o           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:
 
 


 
 
 

 

Tennessee Valley Financial Holdings, Inc.
401 S. Illinois Ave.
Oak Ridge, Tennessee 37830



Dear Shareholder:

You are cordially invited to attend a special meeting of shareholders of Tennessee Valley Financial Holdings, Inc. to be held at 5:30 p.m. Eastern Time, on August __, 2008, at  at 401 S. Illinois Avenue, Oak Ridge, Tennessee 37830.
 
At this important meeting, you will be asked to vote on the following matters:
 
1. Amendments to our Charter.  To amend our charter to provide for the authorization of two new classes of common stock -- Class A common stock and Class B common stock.
 
2. Reclassification of Common Stock.  To reclassify certain of our shares of existing common stock into the Class A common stock or the Class B common stock for the purpose of discontinuing the registration of our common stock under the Securities Exchange Act of 1934.
 
In connection with the proposals to amend our charter and to reclassify our common stock, shares of our existing common stock held by shareholders who own between 302 and 1,089 shares will be reclassified into shares of Class A common stock.  Shares of our existing common stock held by shareholders who own fewer than 302 shares will be reclassified into shares of Class B common stock.  The reclassification will be made on the basis of one share of Class A common stock or Class B common stock for each share of common stock held.  The purpose of amending our charter and reclassifying our common stock is to discontinue the registration of our common stock under the Exchange Act and to no longer be a “public” company.
 
If approved at the special meeting, the transaction will affect you as follows:
 
 
 
Effect:
1,090 or more shares of common stock:
 
you will continue to hold the same number of shares of common stock that you held before the reclassification transaction.
between 302 and 1,089 shares  of common stock:
 
you will no longer hold shares of common stock, but rather, will hold a number of shares of Class A common stock equal to the same number of shares of common stock that you held before the reclassification transaction.
 
 
fewer than 302 shares of common stock:
 
you will no longer hold shares of common stock, but rather, will hold a number of shares of Class B common stock equal to the same number of shares of common stock that you held before the reclassification transaction.

 
The primary effect of this transaction will be to reduce our total number of record holders of common stock to below 300.  As a result, we will terminate the registration of our common stock under federal securities laws and will no longer be considered a “public” company.  This transaction is known as a Rule 13e-3 going private transaction under the Exchange Act.
 
We are proposing the amendments to our charter because our board of directors has concluded, after careful consideration, that the costs and other disadvantages associated with being a reporting company with the Securities and Exchange Commission, which we refer to in this letter and the accompanying proxy statement as the "SEC," outweigh any of the advantages.  Our reasons for reaching this conclusion are based on:

 
·  
the administrative burden and expense of making our periodic filings with the SEC;
 
·  
the fact that operating as a non-SEC reporting company will reduce the burden on our management and employees which arises from increasingly stringent SEC reporting requirements, thus allowing management to focus more of its attention on our customers and the community in which we operate;
 
·  
the fact that management will have increased flexibility to consider and initiate actions that may produce long-term benefits and growth;
 
·  
the low trading volume of our common stock and the resulting lack of an active market for our shareholders;
 
·  
the fact that a going private transaction could be structured in a manner that all shareholders would still retain an equity interest in Tennessee Valley, and would not be forced out by means of a cash reverse stock split or other transaction;
 
·  
the estimated expense of a going private transaction; and
 
·  
the fact that the reclassification transaction allows us to discontinue our reporting obligations with the SEC, while still allowing those shareholders receiving shares of Class A common stock or Class B common stock to retain an equity interest in Tennessee Valley at the same value per share as holders of common stock in the event of any sale of Tennessee Valley.
 
Except for the effects described in the accompanying proxy statement, we do not expect the reclassification transaction to adversely affect our operations.
 
In the event the proposals to amend our charter and to reclassify our common stock are adopted and your shares are exchanged for Class A common stock or Class B common:
 
·  
you will receive no consideration for your shares of common stock when they are reclassified into shares of Class A common stock or Class B common stock;
 
·  
you will hold shares even less liquid than the shares you currently hold since there is no existing market for the Class A common stock or Class B common stock;
 
·  
you will receive a security with limited or no voting rights; and
 
·  
all of our shareholders will lose the benefits of holding securities registered under Section 12 of the Exchange Act.
 
Dissenters’ rights are available to you under Tennessee law if you will be receiving shares of Class A common stock or Class B common stock in the reclassification transaction.  In order to exercise your dissenter’s rights and receive the fair value of your shares of common stock in cash:
 
·  
You must not vote in favor of the proposals to amend our charter or to reclassify our common stock;
 
·  
Before the vote is taken, you must deliver a written notice to us of your intent to demand payment for your shares if proposals to amend our charter and to reclassify our common stock are approved; your written notice must be delivered either in person or by mail (certified mail, return receipt requested, is the recommended form of transmittal) to Ken Scarbro, our chief financial officer, at 401 S. Illinois Avenue, Oak Ridge, Tennessee 37830;
 
·  
If you satisfy the requirements listed above, within 10 days after the approval by our shareholders of the charter amendments and the reclassification transaction, we will send you a dissenter's notice, which will include directions about where to send a payment demand, where and when the certificates for your shares must be deposited, and will include a form for demanding payment; the dissenter's notice we send to you will also set a date by which we must receive your payment demand, which date may not be fewer than one nor more than two months after the date we deliver the dissenter's notice to you;
 

·  
You must execute and return the payment demand form to us, and deposit your share certificates in accordance with the terms of the dissenter's notice before the date specified in the dissenter's notice;
 
·  
As soon as the charter amendments and reclassification transaction are effectuated, or upon receipt of your payment demand, whichever is later, we will pay you, if you have complied with the above requirements, the amount we estimate to be the fair value of your shares, plus accrued interest;
 
·  
You may notify us in writing of your own estimate of the fair value of your shares and amount of interest due and either
 
(1) demand payment of your estimate (less any payment previously made by us) or
 
 (2) reject our offer under Section 48-23-208 of the Tennessee Business Corporations Act and demand payment of the fair value of your shares and interest due, so long as the following conditions are met:
 
(i) you believe that the amount we paid or offered is less than the fair value of your shares or that the interest due is incorrectly calculated;
 
(ii) we fail to make payment for the shares within two (2) months after the date set for demanding payment; or
 
(iii) we, having failed to effectuate the charter amendments and reclassification transaction, do not return the deposited share certificates within two months after the date set for demanding payment.  In order to demand payment, you must notify us of your demand in writing within one  month after we made or offered payment for your shares;
 
·  
If you make a demand for payment which remains unsettled, we will commence a proceeding within two  months after receiving such payment demand and petition a court of competent jurisdiction to determine the fair value of your shares and accrued interest.  If we do not commence the proceeding within the two-month period, we must pay you the amount you demanded.  We will make all dissenters whose demands remain unsettled parties to the proceeding as in an action against their shares.  Each dissenter made a party to the proceeding is entitled to judgment for either 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 us.
 
You must strictly comply with the above requirements in order to exercise your dissenter’s rights.  Please read “- Dissenters' Rights” beginning on page 30 of the proxy statement in its entirety for complete disclosure on your dissenters’ rights.  A copy of the Tennessee dissenters' rights laws are attached to the proxy statement as Appendix B.  We have not yet determined the amount of cash we will offer our shareholders who exercise their dissenters’ rights.  
 
We plan to determine “fair value” by using an average of the range of the known trade prices for our common stock over a one-year period.  We believe that an average of the known trade prices for our common stock will result in a higher value to our shareholders because this value has historically been higher than both our book value and the value of our stock using a multiple of earnings.  Our board may also choose to rely on independent third parties to determine the “fair value” of our shares.
 
Our board of directors believes the terms of the reclassification transaction are fair and are in the best interest of our shareholders, and recommends that you vote FORthe proposals to amend our charter.  We encourage you to read carefully the proxy statement and attached appendices.
 
Your vote is very important.  Whether or not you plan to attend the special meeting, please complete, date, sign and return your proxy promptly in the enclosed envelope, which requires no postage if mailed in the United States.  If you attend the special meeting, you may vote in person if you wish, even if you have previously returned your proxy.
 

On behalf of our board of directors, I would like to express our appreciation for your continued interest in the affairs of Tennessee Valley.
 
                    Sincerely,
 
                                                            /s/Thomas E. Tuck
                           Thomas E. Tuck
                                                                                                                                                                           President and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the amendments to our charter or the reclassification transaction, passed upon the merits or fairness of the amendments to our charter or the reclassification transaction or passed upon the adequacy or accuracy of the disclosure in this document.  Any representation to the contrary is a criminal offense.
 
This proxy statement is dated July __, 2008, and is being mailed to shareholders on or about July __, 2008.
 

 
 

 

Tennessee Valley Financial Holdings, Inc.
401 S. Illinois Avenue
Oak Ridge, Tennessee 37830

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST __, 2008

Notice is hereby given that a special meeting of shareholders of Tennessee Valley Financial Holdings, Inc. will be held at 5:30 p.m. Eastern Time on August __, 2008, at 401 S. Illinois Avenue, Oak Ridge, Tennessee 37830, for the following purposes:
 
1. Amendments to our Charter.  To amend our charter to provide for the authorization of two new classes of common stock -- Class A common stock and Class B common stock.
 
2. Reclassification of Common Stock.  To reclassify certain of our shares of existing common stock into Class A common stock and Class B common stock for the purpose of discontinuing the registration of our common stock under the Securities Exchange Act of 1934.
 
Shareholders of record at the close of business on July __, 2008 are entitled to notice of and to vote at the special meeting of shareholders and any adjournment of the special meeting.  We will not use discretionary authority granted by proxies voting against matters #1 or #2 to adjourn the meeting in order to solicit additional votes and only those proxies (i) voting in favor of matters #1 and #2, (ii) abstaining from the vote, and (iii) which are unmarked will be voted for adjournment.
 
Dissenters' rights are available to you under Tennessee law if you will be receiving shares of Class A common stock or Class B common stock in the reclassification transaction.  Please see the section entitled “- Dissenters' Rights” beginning on page 30 of the accompanying proxy statement for a discussion of the availability of dissenters' rights and the procedures required to be followed to assert dissenters' rights in connection with the reclassification.
 
 
                                              By order of the board of directors
 
 
                                              /s/Mark B. Holder                                          
                                              Mark B. Holder, Secretary
July __, 2008
                                   
 
 
 
YOUR VOTE IS IMPORTANT
 
WHETHER YOU EXPECT TO ATTEND THE SPECIAL MEETING OR NOT, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE.



 
 

 
 
TABLE OF CONTENTS

 
Page
   
SUMMARY TERMS OF THE RECLASSIFICATION TRANSACTION
1
    PROPOSALS 1 AND 2. AMENDMENTS TO OUR CHARTER AND RECLASSIFICATION TRANSACTION
4
SPECIAL FACTORS
4
    Overview of the Reclassification Transaction
4
    Background of the Reclassification Transaction
5
        Reasons for the Reclassification Transaction; Fairness of the Reclassification Transaction; Board Recommendation
9
    Our Position as to the Fairness of the Reclassification Transaction
12
    Purpose and Structure of the Reclassification Transaction
20
    Effects of the Reclassification Transaction on Tennessee Valley
21
    Effects of the Reclassification Transaction on Shareholders of Tennessee Valley
24
    Plans or Proposals
25
    Record and Beneficial Ownership of Common Stock
26
    Interests of Certain Persons in the Reclassification Transaction
26
    Financing of the Reclassification Transaction
27
    Material Federal Income Tax Consequences of the Reclassification Transaction
27
    Dissenters' Rights
30
    Regulatory Requirements
32
    Accounting Treatment
32
    Fees and Expenses
32
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
33
DESCRIPTION OF CAPITAL STOCK
35
    Common Stock
35
    Class A Common Stock or Class B Common Stock
36
        Class A Common Stock or Class B Common Stock to be Issued in Reclassification Transaction
36
    Transactions Involving Our Securities
38
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
38
    SELECTED HISTORICAL FINANCIAL INFORMATION (UNAUDITED)
39
    UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
41
    MARKET PRICE OF TENNESSEE VALLEY FINANCIAL HOLDINGS, INC. COMMON STOCK AND DIVIDEND INFORMATION
44
    Market for Common Stock
44
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
45
OTHER MATTERS
46
    Reports, Opinions, Appraisals and Negotiations
46
    Forward Looking Statements
46
    Where You Can Find More Information
46
    Householding
46
    Information Accompanying Proxy Statement
46
      
    APPENDIX A ARTICLES OF AMENDMENT TO THE CHARTER OF TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.
A-1
    APPENDIX B TENNESSEE DISSENTERS' RIGHTS STATUTES
B-1
   
APPENDIX C - Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 C1 
APPENDIX D - Annual Report on Form 10-KSB for the year ended December 31, 2007  D1 

i
 

 
 

 
 

 

TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.
401 S. Illinois Avenue
Oak Ridge, Tennessee 37320

PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
 
Your vote is very important.  For this reason, the board of directors is requesting that if you are not able to attend the special 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 will be mailed to all of our shareholders on or about July __, 2008.
 
Tennessee Valley Financial Holdings, Inc., which we refer to a “Tennessee Valley,” is a bank holding company headquartered in Oak Ridge, Tennessee.  The Securities and Exchange Commission, which we refer to as the “SEC,” encourages companies to use “plain English” and we will always try to communicate with you clearly and effectively.  We will refer to Tennessee Valley throughout as “we,” “us,” the “company” or “Tennessee Valley.”
 
SUMMARY TERMS OF
 
THE RECLASSIFICATION TRANSACTION
 
QUESTIONS AND ANSWERS
 
Q:
What is the proposed reclassification transaction?
 
A:
We are proposing that our shareholders approve amendments to our charter which provide for the creation of Class A common stock and Class B common stock and the reclassification of shares of common stock held by holders of between 302 and 1,089 shares of common stock into shares of Class A common stock, holders of fewer than 302 shares will be reclassified into shares of Class B common stock.  The reclassification will be made on the basis of one share of Class A common stock or Class B common stock for each share of common stock held.
 
Q:
What is the purpose of the proposed reclassification transaction?
 
A:
The purpose of the reclassification transaction is to allow us to terminate our SEC-reporting obligations (referred to as “going private”) by reducing the number of our record shareholders of common stock to fewer than 300, and by having under 500 record shareholders of each of our Class A common stock and Class B common stock.  This will allow us to terminate our registration under the Securities Exchange Act of 1934, as amended, and relieve us of the costs typically associated with the preparation and filing of public reports and other documents.
 
Q:
What is the recommendation of our board of directors regarding the proposal?
 
A:
Based on a careful review of the facts and circumstances relating to the reclassification transaction, our board of directors believes that the reclassification transaction and the terms and provisions of the reclassification transaction are substantively and procedurally fair to, and in the best interests of, our shareholders.  Our board of  directors approved the reclassification transaction, and recommends that you vote “FOR” approval of this matter at the special meeting.  See “Reasons for the Reclassification Transaction; Fairness of the Reclassification Transaction; Board Recommendation” beginning on page 9.
 
 
 
1

 
Q.        What will I receive in the reclassification transaction?
 
A.
 
Effect:
   
1,090 or more shares of common stock:
you will continue to hold the same number of shares of common stock that you held before the reclassification transaction
 
between 302 and 1,089 shares  of common stock:
you will no longer hold shares of common stock, but rather, will hold a number of shares of Class A common stock equal to the same number of shares of common stock that you held before the reclassification transaction
 
fewer than 302 shares of common stock: you will no longer hold shares of common stock, but rather, will hold a number of shares of Class B common stock equal to the same number of shares of common stock that you held before the reclassification transaction

 
 
Q:
What are the terms of the Class A common stock and Class B common stock?
 
A:
The following table describes the principal differences between our common stock and the Class A common stock and Class B common stock:
 
 
 
Common Stock
Class A Common Stock
Class B Common Stock
       
Voting Rights
Entitled to vote on all matters for which
shareholder approval is required pursuant to
our governing documents and under
Tennessee law.
Entitled to vote only on any merger, share
exchange, sale of substantially all the assets, voluntary dissolution or as required by law.
 
Only entitled to vote as may be required by law.
       
Dividends
If and when declared by our board of directors.
3% premium on any dividends paid on our
common stock.
6% premium on any dividends paid on our common stock.
 
       
Liquidation Rights
Entitled to distribution of assets on same basis as holders of Class A common stock and Class B common stock.
 
Entitled to distribution of assets on same
basis as holders of common stock.
Entitled to distribution of assets on same basis as holders of common stock.
       
Conversion Rights
None.
None.
None.
 
       
Preemptive Rights Holders of common stock have a right to buy up to their pro rata percentage of any additional common stock offered.
Holders of Class A common stock have a
right to buy up to 1.03 times their pro rata
percentage of any additional Class A common
stock offered.
Holders of Class B common stock have a right to buy up to 1.06 times their pro rata percentage of any additional Class B common stock offered.
 
 
 
For a complete description of the terms of the Class A common stock and Class B common stock, including specific voting rights of the Class B common stock “as required by law,” please refer to “Class A Common Stock and Class B Common Stock to be Issued in Reclassification Transaction” beginning on page 36.
 
Q:
What is the effective date of the reclassification transaction?
 
A:
If the proposed reclassification transaction is approved at the special meeting, we expect to complete the reclassification transaction as soon as practicable following the special meeting.  The effective date will be the date on which the amendment to the charter is filed with the Tennessee Secretary of State. 
 
 
2

 
Q:
What if the proposed reclassification transaction is not completed?
 
A:
It is possible that the proposed reclassification transaction will not be completed.  The proposed reclassification transaction will not be completed if, for example, the holders of a majority of our outstanding common stock do not vote to adopt the reclassification transaction.  Although Tennessee law allows our board to abandon the proposed reclassification transaction after shareholder approval but prior to filing the amendment to our charter with the Tennessee Secretary, we have no plans to do so.  Only in the event a significant number of shareholders dissent would the board abandon the reclassification transaction after it has been approved by our shareholders.  If the reclassification transaction is not completed, we will continue our current operations and we will continue to be subject to the reporting requirements of the SEC.
 
Q:
What will happen if, through negotiated trades, Tennessee Valley gains additional security holders requiring SEC registration?
 
A:
If the holders of record for any class of our securities ever exceeds 500, we will again be subject to the disclosure provisions of the Exchange Act as we are now.
 
Q:
Should I send in my stock certificates now?
 
A:
No.  After the reclassification transaction is completed, we will send you written instructions for exchanging your stock certificates for shares of Class A common stock and Class B common stock.  If you now own 1,090 or more shares, you will not need to exchange your certificates.
 
Q:
Do directors and officers have different interests in the reclassification transaction?
 
A:
Possibly. You should be aware that our directors and executive officers have interests in the reclassification transaction that may present actual or potential, or the appearance of actual or potential, conflicts of interest in connection with the reclassification transaction.
 
Q:
Where can I find more information about Tennessee Valley?
 
A:
We file annual and quarterly reports and other information with the SEC.  You may read and copy this information at the SEC’s public reference facilities.  Please call the SEC at 1-800-SEC-0330 for information about these facilities.  This information is also available at the Internet site maintained by the SEC at http://www.sec.gov.  For a more detailed description of the information available, please see “- Where You Can Find More Information” on page 46.
 
Q:
Who can help answer my questions?
 
A:
If you have questions about the reclassification transaction, or any other matter to be voted upon at the special meeting, after reading this proxy statement or need assistance in voting your shares, you should contact Ken Scarbro, our chief financial officer, at (423) 483-9444.
 

 
3

 

 
 
AND RECLASSIFICATION TRANSACTION
 

SPECIAL FACTORS
 
Overview of the Reclassification Transaction
 
This proxy statement is being furnished in connection with the solicitation of proxies by our board of directors at a special meeting at which our shareholders will be asked to consider and vote on a proposal to amend our charter.  If approved, the amendments will provide for (a) the authorization of two new classes of stock entitled Class A common stock and Class B common stock, and (b) the reclassification of shares of our common stock held by shareholders who own between 302 and 1,089 shares into shares of Class A common stock and and shares of our common stock held by shareholders who own fewer than 302 shares into shares of Class B common stock.  The reclassification transaction will be made on the basis of one share of Class A common stock or Class B common stock as described above for each share of common stock held.
 
Record shareholders holding 1,090 or more shares of common stock before the reclassification transaction will hold the same number of shares of common stock following the reclassification transaction, and record holders of fewer than 1,090 shares of common stock will no longer hold common stock in the company.  We intend, immediately following the reclassification transaction, to terminate the registration of our shares of common stock under the Exchange Act.
 
If approved by our shareholders at the special meeting and implemented by our board of directors, the reclassification transaction will generally affect our shareholders as follows:
 
IF, PRIOR TO THE TRANSACTION, YOU ARE A RECORD
SHAREHOLDER WITH:
 
AFTER THE TRANSACTION:
   
1,090 or more shares:
 
although our shares are not actively traded currently, brokers will continue to make a market in our common stock.  Sales may continue to be made in privately negotiated transactions or traded through the “pink sheets.”
 
Between 302 and 1,089 shares:
you will no longer hold shares of our common stock but, rather, will hold a number of shares of Class A common stock equal to the same number of shares of common stock that you held before the reclassification transaction.  While it is not anticipated that an active trading market for Class A common stock will develop, brokers will make a market in these shares.  Sales may also be made in privately negotiated transactions or may be traded on the “pink sheets.” 
 
Fewer than 302 shares
you will no longer hold shares of our common stock but, rather, will hold a number of shares of Class B common stock equal to the same number of shares of common stock that you held before the reclassification transaction.  While it is    not anticipated that an active trading market for Class B common stock will develop, brokers will make a market in these shares.  Sales may also be made in privately negotiated transactions or may be traded on the “pink sheets.” 
 
Common stock held in “street name” through
a nominee (such as a bank or broker):
the reclassification transaction will be effected at the record shareholder level.  Therefore, regardless of the number of beneficial holders or the number of shares held by each beneficial holder, shares held in “street name” will be subject to the reclassification transaction, and the beneficial holders who hold their shares in “street name” will be continuing shareholders with the same number of shares as before the reclassification transaction.

4

The effects of the reclassification transaction on each group of shareholders are described more fully below under “- Effects of the Reclassification Transaction on Shareholders of Tennessee Valley” beginning on page 24 and the effects on the company are described more fully below under “- Effects of the Reclassification Transaction on Tennessee Valley” beginning on page 21.
 
 
The company’s wholly-owned subsidiary, TNBank, was formed as a state chartered bank in 1995.  Because TNBank’s initial offering shareholder base was over 500, TNBank was subject to the information requirements of the Exchange Act and was required to file reports and other financial information with the Federal Deposit Insurance Commission, which we refer to as the “FDIC.”  On April 30, 2002, the shareholders of TNBank approved a plan of share exchange between Tennessee Valley and TNBank whereby the shares of common stock of the TNBank were exchanged, on a one for one basis, for shares of common stock in Tennessee Valley.  The exchange became effective on May 9, 2002, and, as a result, TNBank became a wholly-owned subsidiary of Tennessee Valley.  The company undertook the share exchange in order to take advantage of the benefits of being a bank holding company, which allow for more options in accessing capital.
 
After consummation of the share exchange between TNBank and Tennessee Valley, TNBank was no longer required to file reports with the FDIC; instead, Tennessee Valley was required to become a publicly reporting company because it continued to have more than 500 shareholders of record.  The company filed a Form 10 to register its common stock under Section 12(g) of the Exchange Act.  
 
The company qualifies as a "smaller reporting company" under SEC regulations. As a “smaller reporting company,” Tennessee Valley is required to prepare and file with the SEC, among other items, the following filings:
 
·  
Annual Reports on Form 10-K;
 
·  
Quarterly Reports on Form 10-Q;
 
·  
Proxy Statements and related materials as required by Regulation 14A under the Securities Exchange Act; and
 
·  
Current Reports on Form 8-K.
 
During the third quarter of 2004, the company, along with internal and external audit firms, began discussions in anticipation of the implementation of Section 404 of the Sarbanes-Oxley Act, which would require that the company prepare an annual report to assess the effectiveness of its internal control structure and procedures for financial reporting.  In November 2004, designated members of the company’s staff were sent to intensive training sessions to discuss the framework behind Section 404 of Sarbanes-Oxley and the methodology and documentation necessary to be in compliance.  In December 2004, the company formed the Sarbanes-Oxley Steering and Implementation Committee.  This committee was charged with the oversight of the development of an action plan, the effective implementation of all guidelines and procedures for compliance with Section 404, and the
 
5

 
 
evaluation and significance of all deficiencies identified during risk assessment and testing.  After numerous discussions centering around the sizeable costs related to compliance with Section 404 of  Sarbanes-Oxley, the company decided to designate one of its employees to full-time Sarbanes-Oxley compliance.  During early 2005, significant areas of concentration were identified and methods of testing were identified, however, the SEC then delayed the implementation of Section 404 of Sarbanes-Oxley until December 31, 2006.  After discussing the high costs of compliance, the current delay, and likelihood of future delays, the Sarbanes-Oxley Steering Committee, the Audit Committee, and the company’s management decided  to delay all use of the company’s financial and staffing resources for the purposes of Section 404.  As expected, implementation of Section 404 of the Sarbanes-Oxley Act was again delayed until December 31, 2007.  A further extension delayed small company (“non-accelerated filer”) compliance with Section 404 to reports for the year ended December 31, 2008 and a further extension of reporting compliance is now in effect until the year ended December 31, 2009. 
 
        In July 2007 management  reinitiated discussions concerning Sarbanes-Oxley, Section 404 compliance as a non-accelerated filer and the requirement for the chief executive officer and the chief financial officer to report on the controls over financial reporting for the year ending December 31, 2008. Dixon Hughes, our independent registered public accountants,  provided management a copy of SEC Release 33-8810,Commission Guidance Regarding Management’s Report on Internal Control Over Financial Reporting Under Section 13(a) or 15(d) of the Securities Exchange Act of 1934” as well as an example of a risk assessment  for section 404 of  Sarbanes-Oxley.

               A review by management of the published guidance and the company’s compliance documentation previously prepared, revealed a need for a method to organize and cross-reference procedures. Through consultation with Dixon Hughes and Pershing Yoakley & Associates, P.C. (“Pershing Yoakley”), the firm to whom the company outsources its internal audit function, management became aware of several software tools available for the purpose of documenting, organizing, cross-referencing, and testing compliance with the provisions of Section 404. Management began researching the availability and cost of these tools.

In the board of directors meeting on September 18, 2007, management discussed the expense associated with the company’s continuing to be an SEC-reporting company, especially the cost of fully complying with Section 404 of Sarbanes-Oxley. The subject of going private was also discussed, including a description of recent transactions to which bank holding companies in the eastern Tennessee area had successfully become private companies. The question was raised concerning the ability of the company’s shares to continue to be traded on “pink sheets.” Management was asked to consult Howe Barnes Hoefer, & Arnett, Inc. ("Howe Barnes") concerning the question. Howe Barnes serves as a “market maker” for the company common stock.  The board asked management to consider continuing the discussion of going private at a separate board meeting or during the annual board planning retreat scheduled in January 2008.

On October 3, 2007, Pershing Yoakley arranged for the company’s management and staff to visit the offices of a Pershing Yoakley internal audit client which had begun full compliance with Section 404 in 2004. Members of the client’s management and staff reviewed with our management and staff the procedures and testing involved in their compliance efforts, including the software tool they used.  They further discussed their acquisition and implementation of the compliance software, including an annual review by an independent registered public accounting firm. Subsequent to the visit, our management contacted two large firms that offer software tools. Both firms priced the initial cost of the software, including implementation assistance, in excess of $30,000.

On October 15, 2007, in a conference call with management and Pershing Yoakley, Dixon Hughes helped provide clarification as to the approach management should take in performing its risk assessment of the company’s internal control framework over financial reporting, including the documentation and evaluation of control procedures as addressed in SEC Release 33-8810. Subsequently management discussed with Pershing Yoakley its ability to provide assistance in documenting and testing the company’s internal controls, exclusive of information systems. The initial approach was to update the documentation prepared by the company in 2004.

In November 2007, management engaged KraftCPAs PLLC to assist with documenting and testing internal controls for the company’s information systems. Pershing Yoakley was engaged to begin their work in December. On December 12, 2007, the SEC announced the postponement of the reporting deadline for Sarbanes-Oxley Section 404 internal control audits for small SEC filers.  Management then requested Pershing Yoakley to postpone the completion of their engagement to 2008. KraftCPAs completed their work in December.

6

In December 2007, management discussed with Howe Barnes the feasibility of going private through a transaction involving the creation of additional classes of non-voting common shares and the ability of the company’s shares to be traded on “pink sheets” subsequent to going private. Representatives from Howe Barnes mentioned that they were aware of several transactions of a similar nature, some of which involved their assistance with their own clients. One variation they suggested involved providing a “put” option to one or more classes of newly created classes of non-voting shares, which would allow shareholders at the initiation of the transaction to offer their shares to the company in lieu of receiving non-voting shares. It was noted that such an option would require determination of “fair value” price per share. Howe Barnes confirmed that all classes of shares, including any newly created classes resulting from a going private transaction, could continue to be traded on pink sheets.

At the annual planning retreat held on January 26, 2008, the board and senior management discussed the feasibility of going private and the related cost savings from being relieved of quarterly and annual reporting requirements and the expense associated with compliance with Section 404 of  Sarbanes-Oxley. The chairman requested that management continue to research the procedural and legal aspects of a going private transaction.

At the March 25, 2008 board meeting, management presented its findings from consultation with Baker, Donelson, Bearman, Caldwell & Berkowitz, the company’s counsel, Howe Barnes, and management of another eastern Tennessee bank holding company in the midst of a going private transaction. Management described to the board of directors a going private transaction whereby additional classes of non-voting common stock would be created reducing the number of voting common stock to fewer than 300 holders. The additional classes of stock could have no more than 500 shareholders.  Management pointed out to the board that in the future any class of common stock whose holders exceed 500 would result in the company’s being required to once again register with the SEC.

Further management reported to the board that after the going private transaction, all classes of shares could be traded on pink sheets in the “over-the-counter” market and the company’s existing symbol could continue to be used for the company’s common stock with voting  rights. Management also reported to the board that the proposed transaction would involve a filing with the SEC and a special shareholders’ meeting at which shareholders would be asked to vote on the proposal.

Management noted to the board that based on the experience of other bank holding companies with similar transactions, the process could take from 6 to 8 months. Management affirmed that going private would enable Tennessee Valley to avoid the costs of additional audit fees, legal fees and the expenses associated with compliance with Section 404 of Sarbanes-Oxley. Management estimated savings resulting from going private could be $150,000 per year. Also, management noted that the one-time cost for professional fees and printing and mailing costs for the going private transaction could be as high as $100,000.

Management outlined a structure for the board which called for the non-voting classes to receive a higher dividend and to be eligible to vote on any transaction in the future where the company would be involved in a merger or sale with another entity. The board through motion requested that management prepare a plan for going private.

At the board meeting, April 15, 2008, management presented a proposal for taking the company private. The proposal contemplated the reclassification of common shares into two classes of non-voting shares, Class A and Class B common stock. Class A common stock would be entitled to receive a dividend premium of 3% and Class B common stock would be entitled to receive a dividend premium of 6%. Further the proposal provided for the right for each holder of Class A common stock or Class B common stock to vote on any future merger or sale involving the company.
 
Management presented a stratification of the ownerhsip of the company’s existing shareholders that indicated that through the proposed reclassification approximately 300 holders could be reclassified to each of the proposed new classes of non-voting shares leaving approximately 250 continuing to hold the company’s common stock.
 
7

Management reported on the costs and administrative burdens associated with being a public company and that the company receives little benefit in being a public company.  In particular, earnings are sufficient to support the company's growth without accessing the public market and there is little trading volume in noted common stock.  Our board of directors discussed these burdens and costs and lack of benefits, and it became clear that the recurring expense and burden of our SEC-reporting requirements are not cost efficient and that becoming a non-SEC reporting company would allow us to avoid these costs and expenses.  Our board concluded that the benefits of being an SEC-reporting company are substantially outweighed by the burden on management and the expense related to the SEC reporting obligations.  As a result of the board's conclusions, our board directed that management explore ways for the company to cease being an SEC reporting company.  
 
The board had substantial discussions regarding the costs associated with going private and the ongoing costs of remaining an SEC-reporting company.  The board also discussed alternatives to a stock reclassification, including a tender offer, a stock repurchase on the open market or a reverse stock split whereby shareholder owning fewer than a certain number of shares would be “cashed out.”  The approximate cost to cash-out enough holders of our common stock to bring the number of our record holders to below 300 would be approximately $3.93 million (the purchase of about 275,000 shares of common stock at $14.28 per share, which is the average of a range of known trade prices for our common stock for the twelve months ended December 31, 2007).  The board, however, preferred a reclassification because a “cash out” was cost prohibitive by consuming a large portion of the company’s capital and a reclassification allowed our existing shareholders to maintain an equity position in the company.  An equity position in the company would allow the shareholders to participate and share in any profits should a sale of the company occur.  Being a locally-owned community bank, the primary focus of our shareholder base is the eventual return on investment by means of a sale or merger rather than a liquid market for the purchase and sale of individual shares of our common stock.  At this meeting, the board also considered the potential negative consequences of this transaction to our shareholders, and in particular, the shareholders who would be reclassified into Class A common stock and Class B common stock (which were the only classes of stock into which the common stock was to be reclassified at the time).  However, the board felt that although our shareholders will lose the benefits of holding publicly registered stock and the Class A common stock and Class B common stock will additionally lose their voting rights (except under certain circumstances), the board concluded that benefit of the reclassification transaction would still allow the Class A common stock and Class B common stock to maintain an equity position in the company.  Even with the reduced liquidity and no trading market for our common stock, our board believes maintaining an equity ownership in the company will be beneficial because of the value a stockholder may receive for its stock in any future merger or sale of the company.  After this discussion, the board instructed management to proceed with reclassifying our shares of common stock in order to no longer be a publicly reporting company.  The board’s decision was based on:
 
·  
operating as a non-SEC reporting company will reduce the burden on our management that arises from the increasingly stringent SEC reporting requirements, which include, in part, compliance with (i) Section 302 of  Sarbanes-Oxley, which requires (a) both the chief executive officer and the chief financial officer to certify that each has reviewed the filed report, that the report contains no untrue statement of material fact or an omission to state a material fact, and that the financial statements and other financial information in the report fairly present the financial condition of the issuer and (b) both the chief executive officer and the chief financial officer to also be responsible for establishing and maintaining internal controls, and in the certification, these officers must certify that each has evaluated the effectiveness of the issuer's internal controls, that they have designed the internal controls in such a way as to ensure that material information relating to the issuer will be brought to the attention of these officers during the period for which the report is being issued, and that they have included their conclusions about the effectiveness of the internal controls in their report; and (ii) Section 407 of the Sarbanes-Oxley Act, which requires the issuer's audit committee must contain at least one member who is a financial expert as defined by the SEC, and if it does not, it must disclose why not.  Thus, as a non-SEC reporting company that will not have to expend time and money on compliance matters, our management will be able to focus more of its attention on our customers and the community in which we operate;
 
 
8

·  
management will have increased flexibility to consider and initiate actions such as a merger or sale of the company without having to file a preliminary proxy statement with the SEC and otherwise comply with Regulation 14A of the Securities Exchange Act, which actions may produce long-term benefits and growth for our shareholders;
 
·  
the low trading volume of our common stock and the resulting lack of an active market for our shareholders;
 
·  
the fact that a going-private transaction could be structured in a manner that all shareholders would still retain an equity interest in the company, and would not be forced out by means of a cash reverse stock split or other transaction;
 
·  
the estimated expense of a going private transaction; and
 
·  
the reclassification transaction proposal allows us to discontinue our reporting obligations with the SEC, while still allowing those shareholders receiving shares of Class A common stock or Class B common stock to retain an equity interest in Tennessee Valley at the same value per share as holders of common stock in the event of any sale of Tennessee Valley.
 
    The board of directors held a special meeting on June 10, 2008, at which the company’s legal counsel was present.  The board discussed the fact that shareholders of the company have preemptive rights to purchase additional shares of the company’s common stock and whether preemptive rights should be provided to holders of Class A common stock and Class B common stock.  The board determined that holders of Class A common stock and Class B common stock should continue to have preemptive rights in the new classes of common stock but should have greater preemptive rights based on the same percentages of greater dividends that the board had already discussed.  Accordingly, the board recommended that holders of Class A common stock should have a right to buy up to 1.03 times their pro rata percentage of any additional Class A common stock offered and, similarly, holders of Class B common stock should have a right to buy up to 1.06 times their pro rata percentage of any additionial Class B common stock offered.

The board discussed the ability of shareholders who dissented to obtain the fair market value of their shares by perfecting their dissenters’ rights provided by Tennessee law.  The board considered the likelihood that a large number of shareholders would dissent and the potential cost to the company in such event.  The board discussed the possibility that the reclassification transaction would not be completed if the capital required to purchase shares from the dissenters’ would have a material adverse effect on the capital ratios of the company.

After further discussion of the timetable for the reclassification, the cost of the transaction, the perception of the community and shareholders once the reclassification is announced, the ability of the company to raise capital in the future and to take advantage of corporate opportunities as presented, the board tabled its discussion of the reclassification transaction until its next regular meeting on June 17, 2008.
 
At a meeting on June 17, 2008, all of the members of our board of directors, except Anthony Cappiello who voted "No," voted to approve the amendment to our charter to authorize shares of Class A common stock and Class B common stock and to reclassify our outstanding shares of common stock as follows:  (i) shareholders holding 1,090 or more shares of common stock will continue to be classified as holders of common stock; (ii) shareholders of common stock holding between 302 and 1,089 shares will be classified as holders of Class A common stock; and (iii) shareholders of common stock holding fewer than 302 shares will be classified as holders of Class B common stock.  The approval of the amendments to our charter and the reclassification transaction was based upon the factors discussed above.
 
 Reasons for the Reclassification Transaction; Fairness of the Reclassification Transaction; Board Recommendation
 
Reasons for the Reclassification Transaction
 
We were required to register with the SEC in 2002 because we completed a share exchange with TNBank.  As a locally owned community bank whose shares are not listed on any exchange or traded on any quotation system, we have struggled to maintain the costs associated with being a public company, while not enjoying many of the benefits associated with being a public company.  In addition, in 2003, the SEC proposed rules to implement Section 404 of the amendments to the Exchange Act made by the Sarbanes-Oxley Act of 2002.  The initial reaction to the proposal by the banking industry was that compliance with Section 404 would greatly increase out-of-pocket compliance costs, as well as the time of management, for community banks.  The banking industry became concerned about these rules, and began to look for ways to reduce the burdens imposed, while still providing the necessary disclosures that the public and the bank regulators demanded from the industry.  In 2005, the bank regulators began highlighting these burdens, especially as they would apply to community banks.
 
In August 2007, management became aware that another community bank in Tennessee had reclassified its common stock as a means to deregister its securities.  Management then began to discuss the possibility of the company likewise reclassifying its common stock to deregister its securities.  Management considered the time and resources necessary to comply with the new Section 404 requirements far outweigh the benefits the company receives from being a public company.  In December 2007, based upon (i) the new requirements that management believed would be applicable the following year under Section 404 of Sarbanes-Oxley; and (ii) management's review of transactions by other community banks, which have since been approved by the shareholders of public companies after their proxy statements received SEC review, we began to pursue the currently proposed reclassification transaction.  We are undertaking the reclassification transaction at this time to end our SEC reporting obligations in order to save the company and our shareholders the substantial costs associated with being a reporting company.  We expect these costs to increase over time.
 
 
9

 
The specific factors the board considered in electing at this time to undertake the reclassification transaction and become a non-SEC reporting company are as follows:
 
 
 Beginning in 2009 we estimate that we will eliminate costs and avoid anticipated future costs of approximately $139,000 annually by eliminating the requirement to make periodic reports, reducing the expenses of shareholder communications and costs associated with complying with Section 404 of Sarbanes-Oxley.  These expenses include:
 legal expenses ($36,000),
accounting expenses related to filing our periodic reports ($22,000),
printing and postage ($4,000),
additional audit fees ($23,000), and 
 professional fees ($34,000).
We will also realize cost savings by avoiding the need to add additional staff and by reducing staff and management time spent on reporting and securities law compliance matters ($20,000).  Although, as required by the federal and state banking regulations, we will continue to have our financial statements audited and will prepare an annual report for our shareholders, we expect these costs to be approximately $65,000 per year, which is substantially lower than our current costs of approximately $86,000 per year.  These savings relate to the elimination of the review by our auditors of our quarterly and annual reports filed with the SEC. We expect these costs to increase over time.
   
We believe that, as a result of the recent disclosure and procedural requirements resulting from Sarbanes-Oxley, the legal, accounting and administrative expense, and diversion of our board of directors, management and staff effort necessary to continue as an SEC-reporting company will continue to increase, without a commensurate benefit to our shareholders.  We expect to continue to provide our shareholders with company financial information by disseminating our annual reports, but, as noted above, the costs associated with these reports will be substantially less than those we incur currently.
   
We believe little or no justification exists for the continuing direct and indirect costs of registration with the SEC.  These costs have recently increased as a result of heightened government oversight under Sarbanes-Oxley.  We have low trading volume in our common stock and our earnings are sufficient to support growth. Therefore, we do not need to raise capital in the public market currently and do not expect to do so in the near future.  If it becomes necessary to raise additional capital, we believe that there are adequate sources of additional capital available, whether through borrowing at the holding company level or through private or institutional sales of equity or debt securities, although we recognize that there can be no assurance that we will be able to raise additional capital when required, or that the cost of additional capital will be attractive.
   
Operating as a non-SEC reporting company will reduce the burden on our management that arises from the increasingly stringent SEC reporting requirements, which include, in part, compliance with (i) Section 302 of Sarbanes-Oxley, which requires (a) both the chief executive officer and the chief financial officer to certify that each has reviewed the filed report, that the report contains no untrue statement of material fact or an omission to state a material fact, and that the financial statements and other financial information in the report fairly present the financial condition of the issuer and (b) the chief executive officer and the chief financial officer to also be responsible for establishing and maintaining internal controls, and in the certification, these officers must certify that each has evaluated the effectiveness of the issuer's internal controls, that they have designed the internal controls in such a way as to ensure that material information relating to the issuer will be brought to the attention of these officers during the period for which the report is being issued, and that they have included their conclusions about the effectiveness of the internal controls in their report; and (ii) Section 407 of Sarbanes Oxley, which requires the issuer's audit committee must contain at least one member who is a financial expert as defined by the SEC, and if it does not, it must disclose why not.  Thus, as a non-SEC reporting company that will not have to expend time and money on compliance matters, our management will be able to focus more of its attention on our customers and the community in which we operate.
 
 
 
10

 
 
 
Operating as a non-SEC reporting company will increase management’s flexibility to consider and initiate beneficial actions such as a merger or sale of the company without having to file a preliminary proxy statement with the SEC and otherwise comply with Regulation 14A of the Exchange Act.
   
 The reclassification transaction proposal allows us to discontinue our reporting obligations with the SEC, and allows those shareholders receiving shares of Class A common stock or Class B common stock to still retain an equity interest in the company and therefore participate at the same value per share as holders of common stock in the event of any sale of the company.
   
 Completing the reclassification transaction at this time will allow us to begin to realize the cost savings, and will allow our management to redirect its focus to our customers and communities.
 
    We considered that some shareholders may prefer that we continue as an SEC-reporting company, which is a factor weighing against the reclassification transaction.  However, we believe that the disadvantages of remaining a public company subject to the registration and reporting requirements of the SEC outweigh any advantages.  Historically, our shares of common stock have been inactively traded.  For example, for the twelve months ended December 31, 2007, only 31,886 or approximately 2%, of our outstanding shares of common stock were traded.  Trading occurred on only 19 days during 2007.  Also, we have 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 such acquisition. Accordingly, we are not likely to make use of any advantage that our status as an SEC-reporting company may offer.
 
Other than the cost savings and other benefits associated with becoming a non-SEC reporting company, as outlined above, we do not have any other purpose for engaging in the reclassification transaction at this particular time.
 
In view of the wide variety of factors considered in connection with its evaluation of the reclassification transaction, our board of directors did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors it considered in reaching its determinations.  As a general matter, however, the board of directors weighed the tangible economic value of the percentage increase in dividend rights associated with the Class A common stock and Class B common stock against the corresponding decreases in voting rights with respect to the Class A common stock and Class B common stock, and determined that a 3% increase in economic benefits for the Class A common stock and a 6% increase in economic benefits for the Class B common stock was a fair exchange for the corresponding decreases in voting rights associated with the Class A common stock and Class B common stock, and, therefore, that the transaction was fair to all unaffiliated holders.
 
The reclassification transaction, if completed, will have different effects on the holders of common stock and those receiving shares of Class A common stock or Class B common stock.  You should read “- Our Position as to the Fairness of the Reclassification Transaction” beginning on page 12 and “- Effects of the Reclassification Transaction on Shareholders of Tennessee Valley” beginning on page 24 for more information regarding these effects of the reclassification transaction.
 
We considered the following alternative transactions in order to accomplish the proposed transaction:  a tender offer, a stock repurchase on the open market or a reverse stock split whereby shareholders owning fewer than a certain number of shares would be “cashed out.”  Ultimately, however, we elected to proceed with the reclassification transaction because the alternatives would be more costly, might not have reduced the number of shareholders below 300 and would not allow all shareholders to retain an equity interest in Tennessee Valley.  We have not sought, and have not received, any proposals from third parties for any business combination transactions, such as a merger, consolidation or sale of all or substantially all of our assets. Our board did not seek any such proposals because these types of transactions are inconsistent with the narrower purpose of the proposed transaction, which is to discontinue our SEC reporting obligations.  Our board believes that by implementing a deregistration transaction, our management will be better positioned to focus its attention on our customers and the communities in which we operate, and expenses will be reduced.  See “- Purpose and Structure of the Reclassification Transaction” beginning on page 20 for further information as to why this reclassification transaction structure was chosen.
 
The board is currently not contemplating engaging in any merger or sale of the company.
 
11

 Our Position as to the Fairness of the Reclassification Transaction
 
Based on a careful review of the facts and circumstances relating to the reclassification transaction, our board of directors believes that the “going private” transaction (namely, the Rule 13e-3 transaction), including all the terms and provisions of the reclassification transaction, are substantively and procedurally fair to our unaffiliated shareholders.  Our board of directors approved the reclassification transaction and has recommended that our shareholders vote “For” the reclassification transaction.
 
Substantive Fairness
 
In concluding that the terms and conditions of the Rule 13e-3 transaction and the reclassification transaction are substantively fair to unaffiliated shareholders, our board of directors considered a number of factors, all of which are described below. In its consideration of both the procedural and substantive fairness of the transaction, our board considered the potential effect of the transaction as it relates to all shareholders generally, to shareholders receiving Class A common stock or Class B common stock and to shareholders continuing to own shares of common stock.  See “- Effects of the Reclassification Transaction on Shareholders of Tennessee Valley” beginning on page 24.
 
The factors that our board of directors considered positive for all shareholders, including both those that will continue to hold common stock as well as those will have their shares converted into Class A common stock or Class B common stock, included the following:
 
 
 our common stock trades infrequently, with reported trades occurring within the twelve month period ended December 31, 2007, involving only 31,886 shares, or approximately 2%, of our outstanding common stock, a volume that our board felt did not provide our shareholders with sufficient opportunity to easily obtain cash for their shares.  Thus, the board believed that the reclassification would not materially affect the liquidity of the shares to be exchanged by those existing common stockholders who will receive Class A or Class B Common Stock because there is not a market for the common stock in the first place.  In the event you elect to dissent from the reclassification, as fully described beginning on page 30, this event will allow you to obtain the “fair value” of your shares in cash;
 
our shareholders who hold fewer than 1,090 shares, who prefer to remain as holders of common stock of the company, despite the board’s recommendation, may elect to do so by acquiring sufficient shares so that they hold at least 1,090 shares of common stock in their own names immediately prior to the reclassification transaction.  The price to purchase 1,090 shares (using a price of $14.28 per share, which is the average of the range of the last known trades for our common stock for the twelve months ended December 31, 2007) is about $15,565; provided, however, that the actual cost to acquire a total of 1,090 shares would be less due to the fact that a shareholder would already own some shares.  However, it may be difficult to acquire a sufficient number of shares of our common stock due to its illiquidity.  While the board considered the difficulty in acquiring a sufficient number of shares of common stock to obtain the necessary threshold to be a negative factor due to the illiquidity of such stock, management plans to assist any stockholders wishing to buy or sell common stock by putting together any buyers or sellers of which management may be aware.  In particular, you may contact Travis McGhee with Howe Barnes at (800) 800-4693 if you want to buy or sell common stock in order to meet any requisite threshold for owning a particular class or series of stock.  If the company is aware or becomes aware of a buyer or seller, that information will be forwarded to Howe Barnes.  Further, while the Board considered the common stock’s illiquidity to be a factor that could hamper a buyer or seller, the company’s offer to assist buyers and sellers, combined with a holder’s right to dissent from the reclassification and receive cash in exchange for his common stock, afforded sufficient liquidity for the Board to consider the reclassification fair to all of our unaffiliated holders;
 
beneficial owners who hold their shares in “street name,” who would receive shares of Class A common stock or Class B common stock if they were record owners instead of beneficial owners, and who wish to receive shares of Class A common stock or Class B common stock as if they were record owners instead of beneficial owners, can work with their broker or nominee to transfer their shares into a record account in their own name so that they receive shares of Class A common stock or Class B common stock;
 
 
 
12

 
·  
shareholders receive limited benefit from our being an SEC-reporting company because of our small size, the lack of analyst coverage and the very limited trading of our common stock compared to the costs associated with the disclosure and procedural requirements of  Sarbanes-Oxley, in addition to the legal, accounting and administrative costs of being a public company; accordingly we believe that the costs to our shareholders of being a public company are not commensurate with the benefits to our shareholders; and
 
·  
all shareholders will realize the potential benefits of termination of registration of our common stock, including reduced expenses as a result of the termination of  SEC reporting requirements.
 
In addition to the positive factors applicable to all of our shareholders set forth above, the factors that our board of directors considered positive for those shareholders receiving Class A common stock or Class B common stock included:
 
·  
they would continue to have an equity interest in Tennessee Valley and therefore participate at the same value per share as holders of common stock in any future value from potential growth of the company received as a result of any sale of the company;
 
·  
the holders would receive a premium in the payment of any dividends by the company. Over the past four  years the board has declared $525,679 in cash dividends: $149,853  in December 2005, $224,892 in January 2007, and $150,994 in January 2008.  There can be no guarantee, however, that the company will declare any dividends, either in the form of stock or cash; and
 
·  
no brokerage or other transaction costs are to be incurred by them in connection with the reclassification of their shares of common stock into Class A common stock or Class B common stock.
 
Our board considered each of the foregoing factors to weigh in favor of the substantive fairness of the reclassification transaction to all of our shareholders, whether they are shareholders continuing to hold common stock or shareholders having their shares of common stock converted into Class A common stock or Class B common stock.
 
In concluding that the terms and conditions of the going private transaction and the reclassification transaction are substantively fair to unaffiliated holders of each class, our board of directors further considered the fact that the holders of the common stock are being offered multiple forms of consideration in connection with the reclassification transaction, and our board believes that the transaction is fair to all holders, regardless of which class of stock the holders will receive in connection with the reclassification transaction.  Specifically, the board considered the following factors when making its determination that the reclassification transaction is substantively fair to the unaffiliated holders of each class:
 
Holders of Common Stock:
The board believes the reclassification transaction is fair to those holders who will continue to hold shares of common stock following the reclassification transaction, because, while the holders of the common stock will not be entitled to any dividend premium, the holders of the common stock will be entitled to voting rights which exceed the voting rights of the holders of the Class A common stock and Class B common stock.
 
Holders of Class A Common Stock:
The board believes the reclassification transaction is fair to those holders who will receive shares of Class A common stock following the reclassification transaction because, while the holders of Class A common stock will have fewer voting rights than the holders of the common stock, the holders of the Class A common stock will be entitled to a dividend premium over the holders of the common stock.
 
 
13

 
 
Holders of Class B Common Stock:
The board believes the reclassification transaction is fair to those holders who will receive shares of Class B common stock following the reclassification transaction because, while the holders of the Class B common stock will have fewer voting rights than the holders of the common stock, the holders of the Class B common stock will be entitled to a  dividend premium over the holders of the common stock and the Class A common stock.
 
Our board is aware of, and has considered, the impact of certain potentially countervailing factors on the substantive fairness of the reclassification transaction to our shareholders receiving Class A common or Class B common stock. In particular, the factors that our board of directors considered as potentially negative for those shareholders receiving Class A common stock or Class B common stock included:
 
·  
they will be required to surrender their shares involuntarily in exchange for the Class A common stock or Class B common stock, although they will still have the opportunity to participate in any future growth and earnings of the company in the event the board declares dividends on the company’s stock or in the event of a sale of the company. In addition, such shareholders have the opportunity to liquidate their shares of common stock through the exercise of dissenters’ rights; and
 
·  
they will lose voting rights except in certain limited situations, which loss may result in making these shares of Class A common stock or Class B common stock; although the board considered the potential loss in value, the board took into account the fact that the premium on the dividends for the Class A common stock and Class B common stock may have the countervailing effect of making this stock more valuable.
 
The factors that our board of directors considered as potentially negative for all shareholders included:
 
·  
following the reclassification transaction, you will have limited ability to transfer your shares of our common stock and Class A common stock or Class B common stock because we do not expect to be an active public market for our common stock or Class A common stock or Class B common stock, although, based on the historically low trading volume for the common stock, this factor is expected to have a limited impact;
 
·  
because of the illiquidity of your stock, you will not be able to easily liquidate your investment in the company and will have to share in any potential future losses in the company’s value;
 
·  
you will have reduced access to our financial information once we are no longer an SEC-reporting company, although we do intend to continue to provide all shareholders with our annual reports and other information (for example, shareholder letters with information updating our financial performance and any other news affecting Tennessee Valley, such as new branches, acquisitions, economic updates or new product offerings);
 
·  
you will lose certain statutory safeguards since we will no longer be subject to the requirements of Sarbanes-Oxley, which require our chief executive officer and our chief financial officer to certify as to our financial statements and internal controls over financial reporting and as to the accuracy of our reports filed with the SEC; and
 
 
14

·  
you will lose certain protections currently provided under the Exchange Act, such as limitations on short-swing transactions by executive officers and directors under Section 16 of the Exchange Act.
 
Our board of directors believes that these potentially negative factors did not, individually or in the aggregate, outweigh the overall substantive fairness of the reclassification transaction to our shareholders and that the foregoing factors are outweighed by the positive factors previously described.
 
Our board of directors believes that the exchange of one share of common stock for one share of Class A common stock or one share of Class B common stock, depending on the number of shares of common stock held prior to the reclassification transaction, is fair to our unaffiliated shareholders.  In concluding that the one-for-one exchange ratio is fair to our unaffiliated shareholders, our board of directors considered the following factors:
 
·  
With respect to the value placed on voting rights, the board believes that the difference in value created from the reclassification transaction between the common stock with voting rights and the Class A common stock and Class B common stock without voting rights or with limited voting rights is not significantly material because the holders of common stock whose shares would be converted into Class A common stock or Class B common stock in the reclassification transaction currently own only about 17.29% of the outstanding shares of common stock and voting rights.  Because most actions requiring stockholder consent provide that a majority of common stock must approve the matter, those holders of 17.29% of the common stock would not be able to control the outcome of a vote by themselves (without at least 34% of the holders of the common stock joining the vote).  Because these stockholders do not hold a majority of the company’s outstanding stock, their ability to control any vote on matters brought before the stockholders is limited.  Conversely, the holders of our common stock whose shares will remain shares of common stock following the reclassification currently own shares representing approximately 82.71% of the outstanding voting rights, so after the reclassification transaction, those holders of common stock will continue to own a sufficient number of shares to control any vote, although there is no evidence that these stockholders have historically voted as one group.  The board determined that the loss of certain voting rights in connection with the reclassification of common stock to Class A common stock and Class B common stock would be offset by the economic gains those holders will receive from the dividend preference associated with the reclassification, making the transaction, as a whole, fair to the unaffiliated holders.  
 
·  
The board believes that any potential decrease in value from the exchange of common stock for Class A common stock or Class B common stock associated with the loss of voting rights (except in certain limited situations) is offset by the premium on dividends given to holders of Class A common stock and Class B common stock, and that the dividend premiums being offered to holders of Class A common stock and Class B common stock will be more valuable to holders than the voting rights being taken away from them.  This is in part because these holders represent only approximately 17.29% of the outstanding shares of common stock and voting rights, and thus, are not able to control any votes on matters brought before the shareholders.  In addition, historically, the holders of common stock whose shares will be reclassified into shares of Class A common stock and Class B common stock have voted with the holders of the 82.71% of the common stock, or not at all, and therefore the loss of voting rights (except in certain limited circumstances) is unlikely to have any practical effect on the holders of Class A common stock and Class B common stock.  The board has declared and paid dividends three times over the past three years, and while it is the board’s and management’s intention to continue paying dividends, either in the form of cash or stock, there can be no assurance this will, in fact, occur.  The board determined that the loss of certain voting rights in connection with the reclassification of common stock to Class A common stock and Class B common stock would be offset by the economic gains those holders will receive from the dividend preference associated with the reclassification, making the transaction, as a whole, fair to the unaffiliated holders.
 
 
15

 
·  
Our shareholders have the opportunity to exercise dissenters’ rights under Tennessee law in the event that they do not believe that the one-for-one exchange ratio of their shares of common stock into Class A common stock or Class B common stock is acceptable or fair to them.  It should be noted, however, that there may be a significant delay in payment for those shareholders exercising these rights and payment that the dissenting shareholder believes is less than fair vale.  For example, there are several procedural requirements involved in exercising dissenters’ rights under Tennessee law.  If you satisfy all these requirements, within 10 days after the approval by the shareholders of the charter amendments and reclassification transaction, we will send you a dissenters’ notice.  This notice will include the date by which we must receive payment demand, which will be not fewer than onenor more than two months after the delivery of such notice.  After such time, if you have complied with all the necessary requirements under Tennessee law, we will pay you the amount we estimate to be the fair value of your shares.  If you disagree with this amount you may dispute it.  If within two months after receiving your payment demand the amount remains unsettled, we will commence court proceedings to determine the fair value of your shares.  Because of these procedural hurdles, there may be a significant time delay in your receiving cash for your shares and ultimately the issue may have to be resolved by a court.
 
·  
Our shareholders who hold fewer than 1,090 shares, who do not believe the one-for-one exchange ratio of their shares of common stock into Class A common stock or Class B common stock is acceptable or fair to them, or otherwise prefer to remain holders of common stock after the reclassification transaction, may elect to do so by acquiring a sufficient number of shares so that they hold at least 1,090 shares of common stock immediately prior to the reclassification transaction, although the board did consider the fact that it may be difficult for some smaller shareholders to purchase a sufficient number of shares, but in that situation, they may exercise their dissenters’ rights as noted above.
 
·  
Our shareholders who prefer to receive a premium on dividends in lieu of voting rights, may elect to do so by selling a sufficient number of shares so that they hold fewer than 1,090 shares of common stock or fewer than 302 shares of common stock, immediately prior to the reclassification transaction.  It may be difficult to sell a sufficient number of our shares of common stock due to its illiquidity however.  While the board considered the difficulty in selling a sufficient number of shares to obtain the necessary amounts to be a negative factor, management plans to assist any shareholders wishing to buy or sell common stock by putting together any buyers or sellers of which management may be aware.  In particular, you may contact Travis McGhee at Howe Barnes at (800) 800-4693 if you want to buy or sell common stock in order to meet any requisite threshold for owning a particular class of stock.  If the company is aware or becomes aware of a buyer or seller, as the case may be, you will be given contact information for that buyer or seller, as the case may be.
 
In reaching a determination as to the substantive fairness of the reclassification transaction, we did not consider the liquidation value of our assets, the current or historical market price of our shares, our net book value, or our going concern value to be material for the reasons described in further detail below, because shareholders are not being “cashed out” in connection with the reclassification transaction and because the shares of Class A common stock and Class B common stock afford those holders the right to participate equally with the holders of common stock in any sale of the company.
 
In determining that the historical and current market prices for the common stock were not material to the overall substantive fairness of the transaction, our board of directors considered that all of the purchases and sales of our common stock, of which management is aware within the last two fiscal years, have occurred in a price range of $12.75 -$15.00 per share.  The board determined that even though the current market price for the company’s common stock is not anticipated to change materially as a result of the reclassification transaction, there can be no assurance that the price of our common stock will not fall, and, in fact, the board has no way to know the effect on the market price of stock post-reclassification.  Moreover, because there is very little market for our shares, there is very little way to predict at what prices the Class A common stock and Class B common stock will trade following the reclassification transaction.  Accordingly, historical and current market prices of our stock were not a consideration in the board’s determination of substantive fairness.
 
 
16

 
The book value per share of our common stock was $11.10 as of March 31, 2008.  The book value would not change for any class or series of stock immediately following the reclassification transaction because the exchange ratio is one-for-one.  Moreover, the book value would change in the future as a direct result of the reclassification transaction only in the event that the company was to declare a stock dividend certain holders of reclassified stock will be entitled to a dividend preference.  In particular, in the event of a stock dividend, the net book value of the common stock would decrease because the holders of Class A common stock and Class B common stock would receive more shares than the holders of common stock in connection with any dividend declaration, and, therefore, the aggregate net book value for a holder of Class A common stock and Class B common stock would increase.  The board of directors determined, however, that any potential change in net book value as a result of a future dividend is not material to the substantive fairness of the reclassification transaction as a whole because there can be no assurance of any future dividends, whether in the form of stock or cash.
 
Our board of directors also did not view the liquidation value of the company as a representative value to determine the fairness of the transaction since the majority of our assets are financial assets, and their book values roughly approximate their liquidation value.  In the event the company’s assets were sold in an orderly liquidation, some portion of the company’s loans and deposits may be sold at a slight premium or discount to book value depending on applicable interest rates. However, any premium which might be paid over book value, if any, would not be material, particularly when considering the discount for which certain other assets may be sold and the expense of the liquidation process.  As a result, our board estimates that the liquidation value would not be materially different than the book value and, for the reasons described above, is not material to the substantive fairness of the reclassification.
 
Our board did not consider the “going concern value” of the company to be material to the substantive fairness of the transaction since the shareholders are not being “cashed out,” and all shareholders will continue to participate in any sale of the company.  Further, based on the knowledge and judgment of the board with regard to trading prices in the banking industry, and the company’s operations and business plans, the board is of the opinion that the historical and current trading price better reflects the value of our common stock, as compared to any discounted dividend model, on a going concern basis.
 
Because of the foregoing, we also did not consider any repurchases by the company of its stock over the past two years or any report, opinion or appraisal or firm offers by unaffiliated parties within the past two years.
 
Neither we nor any of the members of our board received any reports, opinions or appraisals from any outside party relating to the reclassification transaction or the fairness of the consideration to be received by our shareholders.
 
Procedural Fairness
 
We believe that the reclassification transaction is procedurally fair to all of our unaffiliated shareholders.  In concluding that the reclassification transaction, including the Class A common stock or Class B common stock to be received by holders of common stock, is procedurally fair to our unaffiliated shareholders, our board of directors considered a number of factors. The factors that our board considered positive for all shareholders, included the following:
 
·  
Tennessee law allows for dissenters’ rights in the event that a shareholder no longer wants to retain an equity interest in the company or does not believe the exchange ratio to be fair;
 
·  
our board discussed the possibility of forming an independent special committee to evaluate the reclassification transaction because all of our board members will continue to own common stock after the reclassification transaction since they all currently own more than 1,090 shares of common stock.  However, the board gave no consideration to the share cutoff number relative to the share ownership of the board members.  Accordingly, the board members believed a special committee for the reclassification transaction to represent those holders who will receive a different security was not needed because the board members will not be afforded any special consideration in the reclassification transaction;
 
 
17

 
·  
management and our board considered alternative methods of effecting a transaction that would result in our becoming a non-SEC reporting company, each of which was determined to be impractical, more expensive than the reclassification transaction, involving a cash-out of certain of our shareholders, or potentially ineffective in achieving the goals of allowing shareholders to retain an equity ownership in the company while at the same time, eliminating the costs and burdens of public company status; and
 
·  
shareholders will have the opportunity to determine whether or not they will remain shareholders owning solely common stock or shares of Class A common stock or Class B common stock after the reclassification transaction by acquiring sufficient shares so that they hold at least 1,090 shares of common stock immediately prior to the reclassification transaction or selling sufficient shares so that they hold fewer than 1,090 shares of common stock immediately prior to the reclassification transaction, so long as they act sufficiently in advance of the reclassification transaction so that the sale or purchase is reflected in our shareholder records by the close of business (local time) on _______ __, 2008, the expected effective date of the reclassification transaction.  It may be difficult to acquire or sell a sufficient number of shares of our common stock due to its illiquidity; however, management plans to assist any shareholders wishing to buy or sell common stock by putting together any buyers or sellers of which management may be aware.  In particular, you may contact Travis McGhee at Howe Barnes at (800) 800-4693 if you want to buy or sell common stock in order to meet any requisite threshold for owning a particular class of stock.  If the company is aware or becomes aware of a buyer or seller, as the case may be, you will be given contact information for that buyer or seller.  Further, while the board considered the common stock’s illiquidity to be a factor that could hamper a buyer or seller, the company’s offer to assist buyers and sellers, combined with a holder’s right to dissent from the reclassification and receive cash for their common stock, afforded sufficient liquidity for the board to consider the reclassification procedurally fair to all of our unaffiliated holders.
 
Our board of directors considered each of the foregoing factors to weigh in favor of the procedural fairness of the reclassification transaction to all of our shareholders, whether they are receiving shares of Class A common stock or Class B common stock or will continue to hold shares of common stock.
 
The board is aware of, and has considered, the impact of the following potentially countervailing factors, which affect both shareholders receiving Class A common stock or Class B common stock, as well as those continuing to own common stock to the same degree, on the procedural fairness of the reclassification transaction:
 
·  
both executive management and the board own more than 1,090 shares of common stock, so they will be able to effectuate whether to cause their existing shares of common stock to be reclassified by changing how those shares are held  of record better than, for example, a shareholder who owns only 100 shares of common who may have a more difficult time acquiring a sufficient number of shares of common stock to hold the same security after the reclassification transaction;
 
·  
although the interests of the shareholders receiving shares of Class A common stock or Class B common stock are different from the interests of the shareholders continuing to own common stock and may create actual or potential conflicts of interest in connection with the reclassification transaction, neither the full board nor any of the independent directors retained an independent, unaffiliated representative to act solely on behalf of the shareholders receiving shares of Class A common stock or Class B common stock for the purpose of negotiating the terms of the reclassification transaction or preparing a report concerning the fairness of the reclassification transaction;
 
·  
we did not solicit any outside expressions of interest in acquiring the company; and
 
·  
we did not receive a report, opinion, or appraisal from an outside party as to the value of our common stock or Class A common stock or Class B common stock, the fairness of the transaction to those shareholders receiving shares of Class A common stock or Class B common stock, or the fairness of the transaction to Tennessee Valley.
 
 
18

 
Our board of directors believes that the foregoing potentially countervailing factors did not, individually or in the aggregate, outweigh the overall procedural fairness of the reclassification transaction to our shareholders, whether they will be receiving shares of Class A common stock or Class B common stock or will continue to own shares of common stock, and the foregoing factors are outweighed by the procedural safeguards previously described. With reference to the lack of a special committee, the board felt that because its sole conflict of interest is a relatively insignificant increase in its aggregate share ownership following the reclassification transaction (equaling an increase of  4.2 % from  20.4% to 24.6% in total share ownership for all directors and executive officers) and because members of the board were not afforded any special consideration with respect to the share cut-off number in the reclassification transaction, it was unnecessary to form a special committee or retain an independent fairness advisor and that the procedural safeguards described above were sufficient to protect the unaffiliated holders.
 
In addition, with respect to the determination not to seek a valuation, our board felt that the fact that shareholders receiving Class A common stock or Class B common stock would continue to retain an equity interest in the company and also would receive premiums to holders of common stock in any payment of dividends by the company, presented sufficient protection in value to such shareholders.  Dividends may be paid annually, unless capital levels should fall below acceptable levels.  From December 2005 through January 2008, we paid cumulative  dividends equal to $.33 for every share beneficially owned, adjusted for the 2 for 1 stock split in May 2006.  There can be no guarantee, however, that the company will declare any future dividends, either in the form of stock or cash.
 
The board also considered the difference in value between the common stock with voting rights and Class A common stock or Class B common stock without such voting rights or with limited voting rights not to be significantly material since the holders of common stock whose shares would be converted into Class A common stock or Class B common stock in the transaction currently own only about 17.29% of the outstanding shares of common stock and voting rights.  Because most actions requiring shareholder consent provide that a majority of common stock must approve the matter, those holders of 17.29% of the common stock would not be able to control the outcome of a vote by themselves (without at least 34% of the holders of the common stock joining the vote).  Because these shareholders do not hold a majority of the company’s outstanding stock, their ability to control any vote on matters brought before the shareholders is limited.  Conversely, the holders of our common stock whose shares will remain shares of common stock following the reclassification currently own shares representing approximately 82.71% of the outstanding voting rights, so after the reclassification transaction, those holders of common stock will continue to own a sufficient number of shares to control any vote, although there is no evidence that these shareholders have historically voted as one group.  The board determined that the loss of certain voting rights in connection with the reclassification of common stock to Class A common stock and Class B common stock would be offset by the economic gains those holders will receive from the dividend preference associated with the reclassification, making the transaction, as a whole, fair to the unaffiliated holders.
 
Shareholders also have the opportunity to exercise dissenters' rights under Tennessee law to the extent that they do not believe that the conversion of their shares of common stock into Class A common stock or Class B common stock is acceptable or fair to them.
 
We therefore believe that the reclassification transaction is substantively and procedurally fair to all shareholders, for the reasons and factors described above.  In reaching this determination, we have not assigned specific weights to particular factors, and we considered all factors as a whole.  None of the factors that we considered led us to believe that the reclassification transaction is unfair to any of our shareholders.
 
We have not made any provision in connection with the reclassification transaction to grant you access to our corporate files or to obtain counsel or appraisal services at our expense.  With respect to access to our corporate files, under Section 48-26-102 of the TBCA, shareholders of a corporation are entitled to inspect and copy, during regular business hours, records of the corporation that are required to be kept at the corporation’s principal office which include:
 
 1) current charter;
 
19

2) current bylaws;
 
3) resolutions relating to the rights and preferences of the outstanding stock of the corporation;
 
4) minutes of shareholder meetings and records of all actions taken without a meeting for the past three years;
 
5) all written communications to shareholders over the last three years;
 
6) names and business addresses of the corporation’s officers and directors; and
 
7) the most recent annual report delivered to the Secretary of State.  
 
The shareholder must give the corporation written notice at least five business days in advance of any inspection.  In addition, a shareholder may inspect the following records only if the shareholder’s demand to see such records is made in good faith and for a proper purpose, that purpose is described with reasonable specificity, the records inspected are directly connected to that purpose and the shareholder gives the corporation written notice at least five business days beforehand are excerpts of any meeting of the board of directors, records of any action of a board committee, records of any action taken without a meeting, accounting records and the record of shareholders.  In light of the extensive access Tennessee shareholders are given to our records, the board believed these statutory safeguards adequately protect shareholders ability to access information on Tennessee Valley.  Furthermore, our board determined that this proxy statement, together with our other filings with the SEC, and stockholders’ ability to access our corporate records under Tennessee law, as described above, provide you with adequate information.  With respect to obtaining counsel or appraisal services at our expense, the board did not consider these actions necessary or customary.
 
Board Recommendation
 
Our board of directors believes the terms of the reclassification transaction are fair and in the best interests of our shareholders and  recommends that you vote “FOR” the proposals to adopt the amendments to our charter that will allow us to effect the reclassification transaction.
 
 Purpose and Structure of the Reclassification Transaction
 
The purposes of the reclassification transaction are to:
 
·  
consolidate ownership of our common stock in under 300 record shareholders of common stock, which will discontinue our SEC reporting requirements and thereby achieve significant cost savings;
 
·  
allow all of our shareholders to retain an equity interest in the company; and
 
·  
allow our management to refocus time spent on SEC-reporting obligations and shareholder administrative duties to our business.
 
For further background on the reasons for undertaking the reclassification transaction at this time, see “- Background of the Reclassification Transaction” beginning on page 5 and “- Reasons for the Reclassification Transaction; Fairness of the Reclassification Transaction; Board Recommendation” beginning on page 9.
 
The proposed transaction has been structured as a stock reclassification transaction to allow shareholders who own a small number of shares the opportunity to retain an equity interest in the future value of the company by receiving the shares of Class A common stock or Class B common stock, to avoid disruption to shareholders of 1,090 or more shares of common stock who would remain unaffected in the transaction, and to limit the costs of the reclassification transaction by avoiding costs associated with cashing out the shares of the holders of 1,090 or fewer shares of common stock.
 
20

Our board elected to structure the transaction to take effect at the record shareholder level, meaning that we will look at the number of shares registered in the name of a single holder to determine if that holder’s shares will be reclassified into shares of Class A common stock or Class B common stock.  The board chose to structure the transaction this way in part because it determined that this method would provide us with the best understanding at the effective time of how many shareholders would receive shares of Class A common stock or Class B common stock, because we will be able to have a complete and final list of all record shareholders at the effective time. In addition, the board considered that effecting the transaction at the record shareholder level would allow shareholders some flexibility with respect to whether they will be receiving shares of Class A common stock or Class B common stock or will continue to hold shares of common stock. See “- Effects of the Reclassification Transaction on Shareholders of Tennessee Valley” beginning on page 24.  Our board felt that this flexibility would help to enhance the substantive fairness of the transaction to all shareholders.  Overall, the board determined that structuring the reclassification transaction as one that would affect shareholders at the record holder level would be the most efficient and cost-effective way to achieve its goals of deregistration, notwithstanding any uncertainty that may be created by giving shareholders the flexibility to transfer their holdings.  For further background on the alternative structures considered by our board of directors please see “- Background of the Reclassification Transaction” beginning on page 5 and “- Reasons for the Reclassification Transaction; Fairness of the Reclassification Transaction; Board Recommendation” beginning on page 9.
 
 
The reclassification transaction will have various positive and negative effects on Tennessee Valley, which are described below.
 
 Effect of the Proposed Transaction on Our Outstanding Common Stock
 
Our charter currently authorizes the issuance of 5,000,000 shares of common stock.  The number of authorized shares of common stock will remain unchanged after completion of the reclassification transaction.  As of the record date, the number of outstanding shares of common stock was 1,516,013.  Based upon our best estimates, if the reclassification transaction had been consummated as of the record date, and assuming no shareholders exercise dissenters’ rights, the number of outstanding shares of common stock will be reduced from 1,516,013 to approximately 1,253,878.
 
We have no current plans, arrangements or understandings to issue any common stock except as options may be exercised pursuant to our stock option plans.
 
 Effect of the Proposed Transaction on Our Class A common stock or Class B common stock
 
Our charter does not currently authorize us to issue any shares of Class A common stock or Class B common stock.  The amendments to our charter will authorize the issuance of up to 1,000,000 shares of Class A common stock and up to 1,000,000 shares of Class B common stock.  The shares of Class A common stock or Class B common stock that will be issued in the reclassification transaction constitute two new and separate classes of stock having those rights described in “- Class A Common Stock and Class B Common Stock to be Issued in Reclassification Transaction” beginning on page 36 as well as in the attached Appendix A.  After completion of the reclassification transaction, and assuming no shareholders exercise dissenters’ rights, we will have approximately 206,314 shares of Class A common stock outstanding and 55,820 shares of Class B common stock outstanding.  We are currently authorized to issue 1,000,000 shares of preferred stock, none of which are outstanding.  For additional information regarding our capital structure after the reclassification transaction, see “Description of Capital Stock” beginning on page 35.
 
 Effect of the Proposed Transaction on Differently Situated Unaffiliated Holders
 
The rights and preferences associated with the common stock, Class A common stock and Class B common stock are as follows:
 

 
21

 


 
Common Stock
Class A Common Stock
Class B Common Stock
       
Voting Rights
Entitled to vote on all matters for which
shareholder approval is required pursuant
to our governing documents, and under
Tennessee law
Entitled to vote only on any merger, share
exchange, sale of substantially all the assets, voluntary dissolution or as required by law
Entitled to vote only on any merger, share exchange, sale of substantially all the assets, voluntary dissolution or as required by law
 
       
Dividends
If and when declared by our board of
directors
3% premium on any dividends paid on our
common stock
6% premium on any dividends paid on our common stock
 
       
Liquidation Rights
Entitled to distribution of assets on same
basis as holders of Class A common stock
and Class B common stock
 
Entitled to distribution of assets on same
basis as holders of common stock
Entitled to distribution of assets on same basis as holders of common stock
       
Conversion Rights
None
None
None
 
       
 Preemptive Rights
Holders of common stock have a right to
buy up to their pro rata percentage of any
additional common stock offered.
Holders of Class A common stock have a
right to buy up to 1.03 times their pro rata
percentage of any additional Class A
common stock offered.
Holders of Class A common stock have a right to buy up to 1.06 times their pro rata percentage of any additional Class B common stock offered.

 Termination of Securities Exchange Act Registration and Reporting Requirements
 
Upon the completion of the reclassification transaction, we expect that our common stock will be held by fewer than 300 record shareholders and each of the Class A common stock and Class B common stock will be held by fewer than 500 record shareholders. Accordingly, our obligation to continue to file periodic reports with the SEC will terminate pursuant to Rule 12h-3 of the Exchange Act.
 
The termination of the filing requirement will substantially reduce the information required to be furnished by us to our shareholders and to the SEC. Therefore, we estimate that beginning  in 2009 ,we will eliminate costs and avoid immediately anticipated future costs associated with these filing requirements, including the cost associated with complying with Section 404 of Sarbanes-Oxley, which we estimate to be approximately $139, 000 on an annual basis. These annual costs are broken down as follows:
 
  $ 45,000  
SEC counsel
    36,000  
Professional fees for consulting services
    34,000  
Current and additional staff  time
    20,000  
Printing and mailing costs
    4,000  
Total
  $ 139,000  

Although , as erquired by banking regulations, we will continue to have audited financial statements and prepare an annual report for our shareholders, we expect these costs to be approximately $55,000 per year, which is substantially less than our current costs of approximately $86,000 per year.  These savings relate to the elimination of review by our auditors of our quarterly and annual reports to the SEC.
 
We will apply for termination of our reporting obligations as soon as practicable following completion of the reclassification transaction.  Following completion of the reclassification transaction, we intend to continue to provide our shareholders with financial information by continuing to disseminate our annual reports on a regular basis.
 
22

 Effect on Trading of Common Stock
 
         Our common stock is not actively traded.  Once we stop filing reports with the SEC, our common stock will continue to be traded via privately negotiated transactions or traded through the “pink sheets” in the over-the counter market.

 Effect on Statutory Anti-Takeover Protections
 
The reclassification transaction will affect the applicability of certain statutory protections under Tennessee law afforded to corporations which have shares registered with the SEC.  In particular, the provisions of the Tennessee Business Combination Act and the Greenmail Act, both summarized below, will no longer apply since we will not have any class of securities registered with the SEC following the reclassification transaction.
 
The Tennessee Business Combination Act prohibits the company from entering into any business combination involving an interested shareholder for a period of five years from the date such interested shareholder acquired its shares, unless such business combination or the transaction in which such shareholder became an interested shareholder is approved by the board of directors prior to the share acquisition date.  In addition, if such prior approval has not been obtained, the business combination is prohibited unless it is approved by the affirmative vote of 2/3 of the voting stock not beneficially owned by the interested shareholder.  This requirement does not apply if the business combination is consummated no less than five years from such shareholder's share acquisition date and the shareholders of the corporation receive a fair price for their shares, as described in the statute.  The Tennessee Business Combination Act also places requirements on the type of consideration which must be paid to shareholders in connection with any such business combination and further limits business combinations if an interested shareholder acquired its shares under certain circumstances.  For purposes of the statute, an “interested shareholder” is one who beneficially owns, or an affiliate of one who beneficially owns, at least 10% of the voting power of any class or series of shares.  None of the protections afforded under the Tennessee Business Combination Act will apply after the reclassification transaction is completed and we cease to be an SEC reporting company.
 
The Greenmail Act provides that it is unlawful for a corporation to purchase any of its shares at a price above the market value of such shares from any person who holds more than three percent (3%) of the class of the securities to be purchased if such person has held the shares for less than two years, unless approved by the affirmative vote of a majority of the outstanding shares of each class of voting stock or the corporation makes an offer, of at least equal value per share, to all holders of shares of such class.  The protections afforded by the Greenmail Act will no longer apply after the reclassification transaction is completed and the company ceases to be an SEC reporting company.
 
All other anti-takeover protections afforded under Tennessee law will remain applicable after the reclassification transaction to the same extent as before the transaction.
 
Other Financial Effects of the Reclassification Transaction
 
We expect that the professional fees and other expenses related to the reclassification transaction of approximately $95,000 will not have any material adverse effect on our capital adequacy, liquidity, results of operations or cash flow.  Each shareholder’s interest in the net book value of the company will not be affected because the reclassification is a one-for-one stock exchange (assuming no holders exercise dissenters’ rights, in which case the stockholders’ interests in net book value will proportionately increase).  Additionally, earnings per share will be affected only if the company declares cash dividends as it has done for the three previous years because, in that case, the beneficial owners of Class A common stock and B common stock will receive a disproportionate amount of cash in relation to the holders of common stock due to the dividend preference.  There can be no assurance, however, that the company will, in fact, continue to declare dividends, either in the form of stock or cash.
 
23

 Effect on Outstanding Options
 
Our option plan, under which our officers, directors and employees may purchase shares of our common stock, was approved by our shareholders in 2002.  The reclassification will not affect any outstanding options and each option, after the reclassification transaction, will continue to be exercisable for one share of common stock.  As of July __, 2008 there are outstanding options to purchase 94,000 shares of common stock.
 
 Effect on Conduct of Business after the Transaction
 
We expect our business and operations to continue as they are currently being conducted and, except as disclosed below, the transaction is not anticipated to have any effect upon the conduct of our business.
 
 Effect on Our Directors and Executive Officers
 
It is not anticipated that the reclassification transaction will have any effect on our directors and executive officers, other than with respect to their relative share ownership, and related changes in the book value and earnings per share associated with those shares.  We expect that our directors and executive officers will hold more than 1,090 shares of common stock at the effective time of the reclassification transaction.  As a result, they will, for the most part, continue to hold the same number of shares after the reclassification transaction as they did before.  Because total outstanding shares of common stock will be reduced, however, the board, as a group, will hold a larger relative percentage of the voting common stock of the company.  As of the record date, these directors and executive officers collectively beneficially held 308,913 shares, or 20.4% of our common stock, which includes their exercisable options to purchase shares of common stock, and had voting power over 244,713  shares, or 16.1% of our common stock.  Based upon our estimates, taking into account the effect of the reclassification transaction on our outstanding shares as described above, the directors and executive officers will beneficially hold 24.6% of our common stock (including exercisable stock options) and will have voting power with respect to 19.5% of our common stock.
 
 
The general effects of the reclassification transaction on the shareholders owning common stock and the shareholders who will own Class A common stock or Class B common stock are described below.
 
 Effects of the Reclassification Transaction on Shareholders Receiving Class A common stock or Class B common stock
 
The reclassification transaction will have both positive and negative effects on the shareholders receiving Class A common stock or Class B common stock.  Our board of directors considered each of the following effects in determining to approve the reclassification transaction.
 
Positive Effects:
 
As a result of the reclassification transaction, the shareholders receiving Class A common stock or Class B common stock will:
 
·  
be entitled to receive a dividend premium; and
 
·  
the shareholders receiving Class A common stock or Class B common stock will have dissenters’ rights in connection with the reclassification transaction.  See “- Dissenters' Rights” beginning on page 30
 
·  
can continue to trade shares by means currently available for trading of common stock.
 
24

Negative Effects:
 
As a result of the reclassification transaction, the shareholders receiving Class A common stock or Class B common stock will:
 
·  
no longer have any voting control over the general affairs of the company and will be entitled to vote only in limited circumstances; and
 
·  
continue to hold shares that, like our shares of common stock, will have even a more limited public trading market.
 
 Effects of the Reclassification Transaction on the Shareholders Continuing to Hold Common Stock
 
The reclassification transaction will have both positive and negative effects on the shareholders continuing to own common stock. Our board of directors considered each of the following effects in determining to approve the reclassification transaction.
 
Positive Effect:
 
As a result of the reclassification transaction:
 
·  
such shareholders will continue to exercise the sole voting control over the company; and
 
·  
because the number of outstanding shares of common stock will be reduced, such shareholders will own a relative increased voting control over the company.
 
Negative Effects:
 
As a result of the reclassification transaction:
 
·  
the liquidity of our common stock will likely be reduced following the reclassification transaction because of the reduction in the number of our record shareholders of common stock and the continued lack of an active public trading market; and
 
·  
holders of our Class A common stock and Class B common stock will have the right to receive certain premiums with respect to any dividends declared by the company.
 
 
Other than as described in this proxy statement, neither we nor our management have 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 our assets, to change our board of directors or management, to change materially our indebtedness or capitalization, or otherwise to effect any material change in our corporate structure or business.  As stated throughout this proxy statement, we believe there are significant advantages in effecting the reclassification transaction and becoming a non-SEC reporting company.  Although our management does not presently have any intent to enter into any transaction described above, nor is our management in negotiations with respect to any such transaction, there is always a possibility that we may enter into such an arrangement or transaction in the future, including, but not limited to, entering into a merger or acquisition transaction, making a public or private offering of our shares of our capital stock or entering into any other arrangement or transaction we may deem appropriate.  In this event, our shareholders may receive payment for their shares of our common stock, Class A common stock or Class B common stock in any such transaction lower than, equal to or in excess of the amount paid to those shareholders who exercise their dissenters' rights and receive the fair value of their shares in connection with the reclassification transaction.
 
25

 Record and Beneficial Ownership of Common Stock
 
It is important that our shareholders understand how shares that are held by them in “street name” will be treated for purposes of the reclassification transaction described in this proxy statement. Shareholders who have transferred their shares of our common stock into a brokerage or custodial account are no longer shown on our shareholder records as the record holder of these shares.  Instead, the brokerage firms or custodians typically hold all shares of our common stock that its clients have deposited with it through a single nominee; this is what is meant by “street name.”  If that single nominee is the record shareholder for 1,090 or more shares, then the stock registered in that nominee’s name will be completely unaffected by the reclassification transaction.  Because the reclassification transaction only affects record shareholders, it does not matter whether any of the underlying beneficial owners for whom that nominee acts own fewer than 1,090 shares.  Upon completion of the reclassification transaction, these beneficial owners will continue to beneficially own the same number of shares of our common stock as they did prior to the reclassification transaction, even if the number of shares they own is fewer than 1,090.  If you hold your shares in “street name,” you should talk to your broker, nominee or agent to determine how they expect the reclassification transaction to affect you.  Because other “street name” holders who hold through your broker, agent or nominee may adjust their holdings prior to the reclassification transaction, you may have no way of knowing whether you will receive shares of Class A common stock or Class B common stock in the reclassification transaction until it is consummated.  However, because we think it is likely that any brokerage firm or other nominee will hold more than 1,090 shares in any one account, we think it is likely that all “street name” holders will remain shareholders of common stock. Currently there are 12 “street name” holders of common stock representing a total of 82 client accounts.
 
Our board of directors elected to structure the reclassification transaction so that it would take effect at the record shareholder level in part to allow shareholders some flexibility with respect to whether they will continue to own shares of common stock or receive Class A common stock or Class B common stock in the reclassification transaction.  See “- Purpose and Structure of the Reclassification Transaction” beginning on page 20.  Shareholders who would still prefer to remain as holders of common stock of Tennessee Valley, may elect to do so by acquiring sufficient shares so that they hold at least 1,090 shares in their own name immediately prior to the reclassification transaction.  In addition, beneficial owners who would receive shares of Class A common stock or Class B common stock if they were record owners instead of beneficial owners, and who wish to receive such shares of Class A common stock or Class B common stock from Tennessee Valley as a part of the reclassification transaction, should inquire of their broker or nominee as to the procedure and cost, if any, to transfer their shares into a record account into their own name.  In either case, these shareholders will have to act far enough in advance of the reclassification transaction so that any consolidation, purchase or transfer is completed by the close of business (local time) on the effective date.
 
 
Our executive officers and directors who are also shareholders will participate in the reclassification transaction in the same manner and to the same extent as all of the other shareholders.  Our directors and officers own more than 1,090 shares of common stock, and therefore will continue as shareholders of common stock if the reclassification transaction is approved.  In addition, because there will be fewer outstanding shares of common stock, our directors will own a larger relative percentage of the company on a post-reclassification basis.  This represents a potential conflict of interest because our directors unanimously approved the reclassification transaction and are recommending that you approve it.  Despite this potential conflict of interest, the board believes the proposed reclassification transaction is fair to all of our shareholders for the reasons discussed in this proxy statement.
 
The fact that each director’s percentage voting ownership of our common stock will increase as a result of the reclassification transaction was not a consideration in the board’s decision to approve the reclassification transaction or in deciding its terms, including the 1,090 share cutoff.  In this regard, the directors as a group will be treated the same as other shareholders.  In addition, the board determined that any potential conflict of interest created by the ownership of our stock by its members is relatively insignificant.  The board did not set the 1,090 share cutoff in order to avoid any director receiving shares of Class A common stock or Class B common stock in the reclassification.  In addition, the increase in each director’s percentage voting ownership of our stock resulting from the reclassification transaction is expected to be insignificant.  The director owning the most shares of our stock beneficially owns approximately 4.9% of our common stock now, and would beneficially own approximately 5.9% following the reclassification transaction, which does not have any appreciable effect on his ability to control the company.  As a group, the percentage beneficial ownership of all directors and executive officers would increase 4.2% from approximately 20.4% to approximately24.6% after the reclassification transaction.
 
26

Our board of directors was aware of the actual or potential conflicts of interest discussed above and considered it along with the other matters that have been described in this proxy statement under the captions “- Background of the Reclassification Transaction” beginning on page 5, “- Reasons for the Reclassification Transaction; Fairness of the Reclassification Transaction; Board Recommendation” beginning on page 9 and “- Effects of the Reclassification Transaction on Shareholders of Tennessee Valley” beginning on page 24.
 
In addition, our board, throughout its consideration of the reclassification transaction, recognized that holders of common stock who will receive Class A common stock or Class B common stock in the transaction may wish to remain voting shareholders of the company. However, the board believes that such relative voting control is not material as compared to the potential value available to such shareholders by retaining an equity interest in the company through their ownership of Class A common stock or Class B common stock.  See “Description of Capital Stock” beginning on page 35.  See “- Background of the Reclassification Transaction” beginning on page 5 and “- Reasons for the Reclassification Transaction; Fairness of the Reclassification Transaction; Board Recommendation” beginning on page 9.
 
None of our executive officers or directors, who beneficially own in excess of an aggregate of 1,090 shares of common stock, has indicated to us that he intends to sell some or all of his shares of our common stock during the period between the public announcement of the transaction and the effective date. In addition, none of these individuals has indicated his intention to divide shares among different record holders so that fewer than 1,090 shares are held in each account, so that the holders would receive shares of Class A common stock or Class B common stock in connection with the conversion of their common stock.
 
 
We expect that the reclassification transaction will require approximately $95,000 consisting of professional fees and other expenses payable by us related to the reclassification transaction. See “- Fees and Expenses” beginning on page 32 for a breakdown of the expenses associated with the reclassification transaction. We intend to pay for the expenses of the reclassification transaction through dividends paid to us by our subsidiary TNBank.
 
 
The following discusses the material federal income tax consequences to us and our shareholders that would result from the reclassification transaction. No opinion of counsel or ruling from the Internal Revenue Service has been sought or obtained with respect to the tax consequences of the reclassification transaction, and the conclusions contained in this summary are not binding on the Internal Revenue Service. This discussion is based on existing U.S. federal income tax law, which may change, even retroactively. This discussion does not discuss all aspects of federal income taxation that may be important to you in light of your individual circumstances. In particular, it does not address the federal income tax considerations applicable to certain types of shareholders, such as: financial institutions; insurance companies; tax-exempt organizations; dealers in securities or currency; traders in securities that elect mark-to-market; persons who hold our common stock as part of a hedge, straddle or conversion transaction; or persons who are considered foreign persons for U.S. federal income tax purposes. In addition, this discussion does not discuss any state, local, foreign or other tax considerations. This discussion also assumes that you have held and, in the case of continuing shareholders will continue to hold, your shares as capital assets within the meaning of the Internal Revenue Code of 1986, as amended, which we refer to as the Code. Shareholders are encouraged to consult their own tax advisor as to the particular federal, state, local, foreign and other tax consequences of the reclassification transaction, in light of their individual circumstances.
 
27

 Federal Income Tax Consequences to Tennessee Valley
 
We believe that the reclassification transaction would be treated as a tax-free “recapitalization” for federal income tax purposes. This should result in no material federal income tax consequences to us.
 
 Federal Income Tax Consequences to Shareholders Who Continue to Own Common Stock
 
If you continue to hold our common stock immediately after the reclassification transaction, you will not recognize any gain or loss or dividend income in the transaction and you will have the same adjusted tax basis and holding period in your common stock as you had in such stock immediately prior to the reclassification transaction.
 
 Federal Income Tax Consequences to Shareholders Who Receive Shares of Class A common stock, Class B common stock
 
Shareholders receiving Class A common stock or Class B common stock in exchange for their common stock will not recognize any gain or loss or dividend income in the reclassification. The holding period and adjusted tax basis of the common stock converted will carry over to the Class A common stock or Class B common stock.
 
 Sale of Stock
 
Where the Class A common stock or Class B common stock is received for common stock in a tax-free recapitalization, the company expects the proceeds from a subsequent sale of this Class A common stock or Class B common stock will be treated as capital gain or loss to most shareholders.  However, when a company recapitalizes its common stock in exchange for stock which is limited in liquidation and/or dividend rights, the stock received in the liquidation will be considered “Section 306 stock” under the Code if the transaction is substantially the equivalent of a stock dividend.  Generally, a transaction will be treated as equivalent to a stock dividend if, had cash instead of stock been delivered to the shareholder, such cash distribution would have been treated as a dividend.  A cash distribution in exchange for stock is normally not a dividend if all of the shareholder's stock is redeemed in the transaction (see discussion below for other instances when a cash distribution will not be considered a dividend).  Applying these rules, if cash instead of Class A common stock or Class B common stock was issued in the recapitalization, most shareholders would have all of their stock redeemed in the transaction, and therefore would not be treated as receiving dividend income.  However, certain attribution rules can result in a shareholder being deemed to hold stock indirectly through a related party, and in such cases the recapitalization could be treated as equivalent to a stock dividend.  In that case, the Class A common stock or Class B common stock received would be classified as Section 306 stock.
 
If the Class A common stock or Class B common stock is classified as Section 306 stock, the proceeds from a subsequent sale of the Class A common stock or Class B common stock would be treated as ordinary income (dividend income) to the extent that the fair market value of the stock sold, on the date distributed to the shareholder, would have been a dividend to such shareholder had the company distributed cash in lieu of stock.  Any excess of the amount received over the amount treated as ordinary income plus the cost basis of the stock will be treated as a capital gain and no loss, if any would be recognized.  Under current tax law, such dividend income will be taxed at the same rates that apply to net capital gains (i.e., 15%, or 5% to the extent the taxpayer’s taxable income is taxed at a rate below 25%).  The current tax law provision in which dividends are taxed at net capital gain rates will not apply for tax years beginning after December 31, 2010. Unless any intervening tax legislation is enacted, ordinary income tax rates will be applicable for dividend income beginning January 1, 2009.
 
 Federal Income Tax Consequences to Shareholders Who Exercise Dissenters' Rights
 
If you receive cash as a result of exercising dissenters' rights in the reclassification transaction and do not continue to hold shares of our common stock immediately after the reclassification transaction, you will be treated as having had your shares redeemed by us which will be a taxable transaction for federal income tax purposes. The tax treatment of a redemption of stock is governed by Section 302 of the Code and, depending on your situation, will be taxed as either:  (1) a sale or exchange of the redeemed shares, in which case you will recognize gain or loss equal to the difference between the cash payment and your tax basis in the redeemed shares; or (2) a cash
28

 
 
distribution which is treated: (a) first, as a taxable dividend to the extent of our accumulated earnings and profits; (b) then, if the total amount of cash paid in the reclassification transaction exceeds our accumulated earnings and profits, as a tax-free return of capital to the extent of your tax basis in the redeemed shares; and (c) finally, as gain from the sale or exchange of the redeemed shares.
 
       Under Section 302 of the Code, a redemption of your shares of our common stock as part of the reclassification transaction will be treated as a sale or exchange of the redeemed shares if any of the following are true:
 
·  
the reclassification transaction results in a “complete termination” of your interest in Tennessee Valley;
 
·  
your receipt of cash is “substantially disproportionate” with respect to other shareholders; or
 
·  
your receipt of cash is “not essentially equivalent to a dividend.”
 
These three tests are applied by taking into account not only shares that you actually own, but also shares that you constructively own pursuant to Section 318 of the Code. Under the constructive ownership rules of Section 318 of the Code, you are deemed to constructively own shares owned by certain individuals and entities that are related to you in addition to shares you own directly. For example, you are considered to own shares owned by or for your spouse, children, grandchildren, and parents, which is referred to as “family attribution.” In addition, you are considered to own a proportionate number of shares owned by estates or certain trusts in which you have a beneficial interest, by partnerships in which you are a partner, and by corporations in which you own, directly or indirectly, 50% or more (in value) of the stock. Similarly, shares owned directly or indirectly by beneficiaries of estates or certain trusts, by partners of partnerships and, under certain circumstances, by shareholders of corporations may be treated as owned by these entities.  This is referred to as “entity attribution.” You are also deemed to own shares which you have the right to acquire by exercise of an option. Furthermore, shares constructively owned by someone may be reattributed to you. For example, shares attributed to one taxpayer as a result of entity attribution may be attributed from that taxpayer to you through family attribution.
 
Complete Termination.  If you receive cash as a result of exercising dissenters' rights in the reclassification transaction and do not constructively own any of our common stock after the reclassification transaction, your interest in Tennessee Valley will be completely terminated by the reclassification transaction, and you will, therefore, receive sale or exchange treatment with respect to your common stock. Consequently, you will recognize gain or loss equal to the difference between the cash payment and your tax basis in the redeemed shares.
 
If you receive cash in the reclassification transaction and would only constructively own shares of our common stock after the reclassification transaction as a result of family attribution, you may be able to avoid constructive ownership of the shares of our common stock by waiving family attribution and, thus, be treated as having had your interest in Tennessee Valley completely terminated by the reclassification transaction. Among other things, waiving family attribution requires (a) that you have no interest in Tennessee Valley (including as an officer, director, employee, or shareholder) other than an interest as a creditor during the 10-year period immediately following the reclassification transaction and (b) that you include an election to waive family attribution in your tax return for the year in which the reclassification transaction occurs.
 
Substantially Disproportionate. If you receive cash in the reclassification transaction and immediately after the reclassification transaction you constructively own shares of our common stock, you must compare (a) your percentage ownership immediately before the reclassification transaction (i.e., the number of shares of common stock actually or constructively owned by you immediately before the reclassification transaction divided by 1,516,013,  which is our current number of outstanding shares of common stock) with (b) your percentage ownership immediately after the reclassification transaction (i.e., the number of shares of common stock constructively owned by you immediately after the reclassification transaction divided by 1,253,878, which is our current estimate of the number of shares of common stock outstanding immediately after the reclassification transaction).
 
29

If your post-reclassification transaction ownership percentage is less than 80% of your pre-reclassification transaction ownership percentage, the receipt of cash is “substantially disproportionate” with respect to you, and you will, therefore, receive sale or exchange treatment with respect to your common stock. Consequently, you will recognize gain or loss equal to the difference between the cash payment and your tax basis in the redeemed shares.
 
Not Essentially Equivalent to a Dividend. If (a) you exercise no control over the affairs of Tennessee Valley (e.g., you are not an officer, director, or high ranking employee), (b) your relative stock interest in Tennessee Valley is minimal, and (c) your post-reclassification transaction ownership percentage is less than your pre-reclassification transaction ownership percentage, then your receipt of cash is “not essentially equivalent to a dividend,” and you will, therefore, receive sale or exchange treatment on your shares of our common stock exchanged for cash. For these purposes, constructive ownership of less than 1% of the outstanding shares is clearly a relatively minimal ownership interest, and constructive ownership of less than 5% of the outstanding shares is probably a relatively minimal ownership interest.
 
 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 be subject to tax at ordinary income tax rates of up to 35%. In addition, capital gain recognized by a corporate taxpayer will be subject to tax at the ordinary income tax rates applicable to corporations. There are limitations on the deductibility of capital losses.
 
 Backup Withholding
 
Shareholders who exercise dissenters' rights and receive cash in the reclassification transaction would be required to provide their social security or other taxpayer identification numbers (or, in some instances, additional information) in connection with the reclassification transaction to avoid backup withholding requirements that might otherwise apply. The letter of transmittal would require each such shareholder to deliver such information when the common stock certificates are surrendered following the effective time of the reclassification transaction. Failure to provide such information may result in backup withholding at a rate of 28%.
 
As explained above, the amounts paid to you as a result of exercising dissenters' rights in the reclassification transaction may result in dividend income, capital gain income, or some combination of dividend and capital gain income to you depending on your individual circumstances. The discussion of material U.S. federal income tax consequences of the reclassification transaction 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, foreign and other tax consequences of the reclassification transaction, in light of your specific circumstances.
 
 
Under Tennessee law, shareholders who comply with the procedures set forth in Sections 48-23-102 through 48-23-302 of the Tennessee Business Corporation Act (the “TBCA”) relating to dissenter's appraisal rights are entitled to receive in cash the fair value of his or her shares of common stock.  A shareholder must comply strictly with the procedures set forth in Tennessee law relating to dissenter's rights, which are set forth in Appendix B to this proxy statement.  Failure to follow such procedures will result in a termination or waiver of his or her dissenter's rights.  A vote in favor of the reclassification transaction will constitute a waiver of your dissenter's rights.  Additionally, voting against the reclassification transaction, without compliance with the other requirements, including sending us notice of your intent to dissent prior to the special meeting, does not perfect your dissenter's rights.
 
To perfect dissenter's appraisal rights, a holder of stock must not vote in favor of those corporate actions listed in Section 48-23-102 of the TBCA, and must deliver to us, before the vote is taken, written notice of the shareholder's intent to demand payment for his or her shares if the proposed action is effectuated.  Such written notification should be delivered either in person or by mail (certified mail, return receipt requested, is the recommended form of transmittal) to Mark B. Holder, our Secretary.  A shareholder who does not properly deliver this written notice is not entitled to payment for the shareholder's shares.
 
30

Within ten (10) days after the corporate action is authorized by the shareholders or effectuated (whichever occurs first), we will send each shareholder who satisfied the requirements above a dissenter's notice.  The dissenter's notice will include direction as to where the shareholder must send a payment demand, where and when the certificates for the shares must be deposited, and will include 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 dissenter's rights acquired beneficial ownership of the shares before that date.  The dissenter's notice from us will also set a date by which we must receive the payment demand, which date may not be fewer than one (1) nor more than two (2) months after the date such dissenter's notice is delivered.  The dissenter's notice will also be accompanied by a copy of Sections 48-23-101 through 48-23-302 of the TBCA.
 
A shareholder asserting his or her appraisal rights must execute and return the payment demand form to us, and deposit his or her certificates in accordance with the terms of the dissenter's notice before the date specified in the dissenter's notice.
 
A shareholder who does not execute and return the payment demand form and deposit his or her certificates by the date set forth in the dissenter's notice will no longer be entitled to appraisal rights.  A shareholder who does demand payment for his or her shares may not withdraw such demand without our consent.
 
A shareholder may assert dissenter's rights as to fewer than all the shares registered in his or her 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 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.
 
As soon as the proposed corporate action is effectuated, or upon receipt of a payment demand, whichever is later, we will pay each dissenter who complied with the above requirements the amount we estimate to be the fair value of each dissenter's shares, plus accrued interest.  The payment will be accompanied by (i) our most recent balance sheet, income statement, statement of changes in shareholders' equity, and financial statements; (ii) a statement of our estimate of the fair value of the shares; (iii) an explanation of how the interest was calculated; (iv) a statement of the dissenter's right to demand payment if the shareholder is dissatisfied with our payment or offer; and (v) a copy of Sections 48-23-101 through 48-23-302 of the TBCA.
 
A dissenting shareholder may notify us in writing of his or her own estimate of the fair value of his or her shares and amount of interest due, and demand payment of the dissenter's estimate (less any payment previously made by us), or reject our offer under Section 48-23-208 of the TBCA and demand payment of the fair value of the dissenter's shares and interest due, if the following conditions are met: (i) the dissenter believes that the amount paid or offered by us is less than the fair value of the dissenter's shares or that the interest due is incorrectly calculated; (ii) we fail to make payment for the shares within two (2) months after the date set for demanding payment; or (iii) we, having failed to effectuate the proposed action, do not return the deposited certificates within two (2) months after the date set for demanding payment.
 
In order to demand payment under the above paragraph, the dissenter must notify us of the dissenter's demand in writing within one (1) month after we made or offered payment for the dissenter's shares.
 
If a shareholder makes a demand for payment which remains unsettled, we will commence a proceeding within two (2) months after receiving such payment demand and petition the court to determine the fair value of the shares and accrued interest. If we do not commence the proceeding within the two-month period, we shall pay each dissenter whose demand remains unsettled the amount demanded.  We will make all dissenters whose demands remain unsettled parties to the proceeding as in an action against their shares.  In such proceeding, the court may appoint one (1) or more persons as appraisers to receive evidence and recommend decision on the question of fair value. Each dissenter made a party to the proceeding is entitled to judgment for either 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 for the fair value, plus accrued interest, of the dissenter's after-acquired shares for which the corporation elected to withhold payment.
 
31

The court in an appraisal proceeding will determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court will assess the costs against us, 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 with respect to their appraisal rights.  The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable against us and in favor of any or all dissenters if the court finds we did not substantially comply with the requirements of the TBCA with respect to appraisal rights, or against either us 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 Section 48-23-209 of the TBCA.  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 us, the court may award to these counsel reasonable fees to be paid out of the amounts awarded to the dissenters who were benefited.
 
The foregoing does not purport to be a complete statement of the provisions of the TBCA relating to the statutory dissenter's appraisal rights and is qualified in its entirety by reference to the dissenter's appraisal rights provisions, which are reproduced in full in Appendix B to this proxy statement and which are incorporated herein by reference.
 
We plan to estimate the “fair value” of our shares of common stock by using an average of the range of the last known trade prices for our common stock over a one-year period.  We believe that an average of the last known trade prices for our common stock will result in a higher value to our shareholders because this value has historically been higher than both our book value and the value of our stock using a multiple of earnings.  Our board may also choose to rely on independent third parties to determine the “fair value” of our shares.
 
 Regulatory Requirements
 
In connection with the reclassification transaction, we will be required to make a number of filings with, and obtain a number of approvals from, various federal and state governmental agencies, including:
 
·  
filing of the amendments to our charter with the Tennessee Secretary of State, in accordance with Tennessee law; and
 
·  
complying with federal and state securities laws, including filing of this proxy statement on Schedule 14A and a transaction statement on Schedule 13E-3 with the SEC.
 
 
The accounting treatment of the reclassification transaction will be in accordance with U.S. generally accepted accounting principles. Shares of common stock reclassified to Class A common stock or Class B common stock will result in a reduction of the total par value of common stock outstanding and an equal increase in Class A common stock or Class B common stock outstanding.  For shares of common stock purchased from dissenters, common stock will be reduced by the par value and additional paid-in capital will be reduced by the excess of the redemption price over the par value.
 
 
We will be responsible for paying the reclassification transaction related fees and expenses, consisting primarily of fees and expenses of our attorneys and accountants and other related charges. We estimate that our expenses will total approximately $95,000, assuming the reclassification transaction is completed. This amount consists of the following estimated fees:
 
 
32

 
Description
 
Amount
 
Legal fees and expenses
  $ 90,000  
Accounting fees and expenses
    2,000  
Printing and mailing costs
    3,000  
Total
  $ 95,000  

We anticipate that these fees will be paid through dividends from our subsidiary TNBank.
 
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
 
Q:
When is the special meeting?
 
A:           August __, 2008, 6:30 p.m. Eastern Time.
 
Q:
Where will the special meeting be held?
 
A:
At TNBank, located at 401 S. Illinois Avenue, Oak Ridge, Tennessee 37830.
 
Q:
What items will be voted upon at the special meeting?
 
A:
You will be voting upon the following matters:
 
1. Amendments to our Charter.  To amend our charter to provide for the authorization of three new classes of Class A common stock and Class B common stock.
 
2. Reclassification of Common Stock.  To reclassify certain of our shares of existing common stock into Class A common stock and Class B common stock for the purpose of discontinuing the registration of our common stock under the Exchange Act.
 
Q:
Who can vote?
 
A:
You are entitled to vote your common stock if our records show that you held your shares as of the close of business on July __, 2008, the record date.
 
Each shareholder is entitled to one vote for each share of common stock held on July __, 2008.  On that date, there were 1,516,013 shares of our common stock outstanding and entitled to vote.  The common stock is our only class of outstanding voting securities.  Our shareholders are not entitled to cumulative voting rights.
 
Q:
How do I vote by proxy?
 
A:
If you sign, date and return your proxy card before the special meeting, we will vote your shares as you direct.  For the amendments to our charter and the reclassification of our common stock, you may vote “for,” “against” or you may “abstain” from voting.
 
If you return your signed proxy card but do not specify how you want to vote your shares, we will vote them “for” the charter amendments and the reclassification of common stock.
 
You may also vote using the internet voting site listed on the proxy card, and we will vote your shares as you direct.  Specific instructions for using the internet voting system are on the proxy card.
 
We will not use discretionary authority granted by proxies voting against the proposals to amend our charter or to reclassify our common stock in order to adjourn the meeting to solicit additional votes and only those proxies (i) voting in favor of the proposals to amend our charter and to reclassify our common stock, (ii) abstaining from the vote and (iii) which are unmarked will be voted for adjournment or postponement.
 
 
33

 
Q:
How do I change or revoke my proxy?
 
A:
You can change or revoke your proxy at any time before it is voted at the special meeting by:
 
1. submitting another proxy with a more recent date than that of the proxy first given; or
 
2. attending the special meeting and voting in person, although attendance by itself will not revoke a previously granted proxy; or
 
3. sending written notice of revocation to our corporate secretary, Mark B. Holder., at Tennessee Valley, 401 S. Illinois Avenue, Oak Ridge, Tennessee 37830.
 
We recommend that you revoke or amend your prior instructions in the same way you initially gave them, either through the internet voting site, or in writing.  This will help ensure that your shares are voted the way you wish for them to be voted.
 
Q:
If I return my proxy can I still attend the special meeting?
 
A:
Yes.  You are encouraged to mark, sign and date the enclosed form of proxy and return it promptly in the enclosed postage-paid envelope, so that your shares will be represented at the special meeting.  However, returning a proxy does not affect your right to attend the special meeting and vote your shares in person.
 
Q:
How many votes are required?
 
A:
If a quorum is present at the special meeting, the amendments to our charter and the reclassification transaction will require the affirmative vote of a majority of our shares of outstanding common stock.
 
Q:
What constitutes a “quorum” for the special meeting?
 
A:
A majority of the outstanding shares of our common stock, present or represented by proxy, constitutes a quorum.  We need 758,007 shares of our common stock, present or represented by proxy, to have a quorum.  A quorum is necessary to conduct business at the special meeting.  You are part of the quorum if you have voted by proxy.  Abstentions will be treated as present for purposes of determining a quorum, but as unvoted shares for purposes of determining the approval of any matter submitted to the shareholders for a vote.  Because approval of the charter amendments and the reclassification transaction require a majority of shares of outstanding common stock, abstentions will have the same effect as a “NO” vote.  If a broker indicates that it does not have discretionary authority as to certain shares to vote on a particular matter, such shares will not be considered as present and entitled to vote with respect to such matter.  Broker non-votes will also have the same effect as a “NO” vote for the charter amendments and the reclassification transaction proposal.
 
Q:
Who pays for the solicitation of proxies?
 
A:
This proxy statement is being furnished in connection with the solicitation of proxies by our board of directors.  We will pay the cost of preparing, printing and mailing material in connection with this solicitation of proxies.  In addition to being solicited through the mails, proxies may be solicited personally or by telephone, facsimile, electronic mail, or telegraph by officers, directors, and employees of Tennessee Valley who will receive no additional compensation for such activities.  Arrangements will also be made with brokerage houses and other custodians, nominees, and fiduciaries to forward solicitation materials to the beneficial owners of shares held of record by such persons.  Such brokerage houses and other custodians, nominees, and fiduciaries will be reimbursed for their reasonable expenses incurred in such connection.  We have not retained any outside party to assist in the solicitation of proxies.
 
 
34

 
Q:
When are shareholder proposals for next year's annual meeting due?
 
 
If you want to present a proposal to be considered for inclusion in next year's proxy statement for our annual meeting, it must have been delivered in writing to the Secretary of the company at 401 S. Illinois Avenue, Oak Ridge, Tennessee 37830 no later than December 31, 2008.
 
 
If you want to present a proposal for consideration at next year's annual meeting, without including the proposal in the proxy statement, you must provide written notice to the Secretary at the above address no later than March 4, 2009.
 
 
In either case, you must present the proposal in person at next year’s annual meeting.
 
 
 
We currently have 5,000,000 shares of authorized common stock, par value $1.00 per share.  As of the record date, we had 902 registered shareholders of record and 1,516,013 shares of common stock outstanding.  The outstanding shares of common stock are fully paid and nonassessable. The holders of our common stock have one vote per share in all proceedings in which action shall be taken by our shareholders.  We also currently have 1,000,000 shares of preferred stock authorized, none of which is outstanding.
 
Rights to Dividends
 
The holders of our common stock are entitled to dividends when, as, and if declared by our board of directors out of funds legally available for dividends.  The payment of any such dividends is subject to the rights granted to holders of the shares of Class A common stock or Class B common stock issued in the reclassification transaction, discussed below.  Under Tennessee law, dividends may be legally declared or paid only if, after their payment, we can pay our debts as they come due in the usual course of business, and then only if our total assets equal or exceed the sum of our liabilities.
 
The payment of dividends by Tennessee Valley depends to a great extent on the ability of TNBank to pay dividends to Tennessee Valley.  TNBank is subject to the Tennessee Banking Act, which provides that TNBank may not declare dividends in any calendar year that exceeds the total of its net income of that year combined with its retained net income of the preceding two years without the approval of the Tennessee Department of Financial Institutions. Thereafter, 10% of net profits must be transferred to capital surplus prior to payment of dividends until capital surplus equals capital stock. TNBank is also subject to the minimum capital requirements of the FDIC which impact its ability to pay dividends. If TNBank fails to meet these standards, it may not be able to pay dividends or to accept additional deposits because of regulatory requirements.
 
If, in the opinion of the applicable federal bank regulatory authority, a depository institution is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the depository institution, could include the payment of dividends), such authority may require that such institution cease and desist from such practice. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be such an unsafe and unsound banking practice. Moreover, the Federal Reserve Board, the Comptroller of the Currency and the FDIC have issued policy statements which provide that bank holding companies and insured depository institutions generally should only pay dividends out of current earnings.
 
General Voting Requirements
 
The holders of our common stock have sole voting control over the company.  Except for such greater voting requirements as may be required by law, the affirmative vote of the holders of a majority of the shares of common stock voting on a matter is required to approve any action for which shareholder approval is required.  In the event the Class A common stock or Class B common stock is entitled to vote, the common stock votes together with the Class A common stock and Class B common stock.
 
35

Rights Upon Liquidation
 
In the event of our voluntary or involuntary liquidation or dissolution, or the winding-up of our affairs, our assets will be applied first to the payment, satisfaction and discharge of our existing debts and obligations, including the necessary expenses of dissolution or liquidation, and then, the holders of any then outstanding preferred stock will be entitled to a distribution of assets (i) on a pro rata basis with the holders of our common stock, Class A common stock and Class B common stock, or (ii) in an amount equal to the book value of the common stock, whichever is greater, and then, to the holders of the common stock, Class A common stock and Class B common stock on a pro rata basis.  It is improbable, however, that TNBank, and thus the company, will liquidate its assets.
 
 
Our charter does not currently authorize us to issue any shares of Class A common stock or Class B common stock.  The amendments to our charter that you will consider at the special meeting will provide for (a) the authorization of 1,000,000 shares of Class A common stock; (b) the authorization of 1,000,000 shares of Class B common stock; and (c)  the reclassification of shares of common stock held by shareholders who own between 302 and 1,089 shares of common stock into shares of Class A common stock and the reclassification of shares of common stock held by shareholders who own fewer than 302 shares of common stock into shares of Class B common stock.  The reclassification transaction will be made on the basis of one share of Class A common stock or Class B common stock for each share of common stock held.
 
As to the remaining authorized shares of Class A common stock and Class B common stock which will not be issued in the reclassification transaction, our board of directors has the authority, without approval of our shareholders, from time to time to authorize the issuance of such stock in one or more series for such consideration and, within certain limits, with such relative rights, preferences and limitations as our board of directors may determine. The relative rights, preferences and limitations that our board of directors has the authority to determine as to any such series of such stock include, among other things, dividend rights, voting rights, conversion rights, redemption rights, and liquidation preferences. Because our board of directors has the power to establish the relative rights, distributions and limitations of each series of such stock, it may afford to the holders of any such series, preferences and rights senior to the rights of the holders of the shares of common stock, as well as the shares of Class A common stock or Class B common stock to be issued in the reclassification transaction. Although our board of directors has no intention at the present time of doing so, it could cause the issuance of any additional shares of Class A common stock or Class B common stock that could discourage an acquisition attempt or other transactions that some, or a majority of, the shareholders might believe to be in their best interests or in which the shareholders might receive a premium for their shares of common stock over the market price of such shares.
 
 
General
 
The shares of Class A common stock and Class B common stock to be issued in the reclassification transaction will be fully paid and nonassessable shares of Class A common stock and Class B common stock.
 
Rank
 
The Class A common stock and the Class B common stock, with respect to dividend rights, ranks senior to the common stock and to all other classes and series of equity securities of the company, other than any classes or series of equity securities that we subsequently issue ranking on a parity with, or senior to the Class A common stock or Class B common stock, as to dividend rights.  The relative rights and preferences of the Class A common stock and Class B common stock may be subordinated to the relative rights and preferences of holders of subsequent issues of other series or classes of capital stock and equity securities designated by our board of directors, provided, however, that the holders shall be entitled to vote in connection with the issuance of any stock having such superior rights.  The Class A common stock and Class B common stock are junior to indebtedness issued from time to time by the company, including notes and debentures.
 
36

Dividend Rights
 
In the event that dividends are paid on our common stock, holders of Class A common stock shall be entitled to receive dividends which are 3% more than dividends paid on our common stock.  We are not required to pay any dividends on the Class A common stock, and no cumulative dividends will be paid on Class A common stock.
 
In the event that dividends are paid on our common stock, holders of Class B common stock shall be entitled to receive dividends which are 6% more than dividends paid on our common stock.  We are not required to pay any dividends on the Class B common stock, and no cumulative dividends will be paid on Class B common stock.
 
Voting Rights
 
Holders of Class A common stock shall have no general voting control over the company and shall be entitled to vote only upon any merger, share exchange, sale of substantially all of the assets, voluntary dissolution of the company and except as otherwise required by law.  On those matters on which the holders of the Class A common stock are entitled to vote, the holders have the right to one vote for each such share, and are entitled to receive notice of any shareholders’ meeting held to act upon such matters in accordance with our bylaws.  Except as may otherwise be provided for by law, the holders of Class A common stock vote together with the holders of common stock on matters to which they are entitled to vote.
 
Holders of Class B common stock shall have no general voting control over the company and shall have no voting rights except as may be required by law.  Specifically, Section 48-20-104 of the TBCA requires that a class or series of shares with no voting rights be nonetheless entitled to vote on any proposed amendment to the charter of the company that would result in any of the following actions: 1) increase or decrease the aggregate number of authorized shares of that class;  2) effect an exchange or reclassification of all or part of the shares of that class into shares of another class; 3) effect an exchange or reclassification, or create the right of exchange, of all or part of the shares of another class into shares of that class; 4) change the designation, rights, preferences, or limitations of all or part of the shares of that class; 5) change the shares of all or part of that class into a different number of shares of the same class; 6) create a new class or change a class with subordinate and inferior rights into a class of shares, having rights or preferences with respect to distributions or dissolution that are prior, superior, or substantially equal to the shares of that class, or increase the rights, preferences or number of authorized shares of any class having rights or preferences with respect to distributions or to dissolution that are prior, superior, or substantially equal to the shares of that class; 7) limit or deny an existing preemptive right of all or part of the shares of that class; 8) authorize the issuance as a share dividend of shares of such class in respect of shares of another class; or 9) cancel or otherwise affect rights to distributions or dividends that have accumulated but not yet been declared on all or part of the shares of that class.  On those matters on which the holders of the Class B common stock are entitled to vote, the holders have the right to one vote for each such share, and are entitled to receive notice of any shareholders’ meeting held to act upon such matters in accordance with our bylaws.  Except as may otherwise be provided for by law, the holders of Class B common stock vote together with the holders of common stock and Class A common stock on matters to which they are entitled to vote.
 
Conversion Rights
 
Neither the shares of Class A nor Class B common stock shall be convertible to shares of common stock except in the event of a change in control.  A “change in control” shall mean (i) a merger, consolidation or reorganization of the company (except in the event of a recapitalization or similar financial restructuring which does not involve a material change in ownership of equity of the company), or (ii) a sale of substantially all of the assets of the company.
 
37

Liquidation Rights
 
Holders of Class A common stock and Class B common stock are entitled to a distribution of assets of Tennessee Valley in the event of any voluntary or involuntary liquidation, dissolution or winding-up of Tennessee Valley, on a basis with the holders of common stock.
 
Preemptive Rights
 
Holders of Class A common stock and Class B common stock have preemptive rights to purchase any additional shares of Class A common stock or Class B common stock  that may be issued in the future.  Holders of common stock have a right to buy up to their pro rata percentage of any additional common stock offered.  Holders of Class A common stock have a right to buy up to 1.03 times their pro rata percentage of any additional Class A common stock offered.  Holders of Class B common stock have a right to buy up to 1.06 times their pro rata percentage of any additional Class B common stock offered.
 
Redemption Rights
 
Holders of Class A common stock and Class B common stock have no right to require that we redeem their shares nor do we have the right to require the holders of Class A common stock or Class B common stock to sell their shares to us.
 
 Transactions Involving Our Securities
 
We are aware of one trade in our common stock during the past 60 days.  On May 8, 2008, 3,032 shares traded at $8.90 per share.
 
Exercise of Options
 
There has been no exercise of options for our common stock during the past 60 days.
 
Stock Trades
 
There have been no trades in our common stock by any of our directors, officers, employees or affiliates during the past 60 days.
 
Certain Relationships And Related Transactions
 
Some directors and officers of Tennessee Valley and TNBank and members of their immediate family are customers of TNBank and have had and expect to have loan transactions with TNBank in the ordinary course of business.  In addition, some of the directors and officers of TNBank are, at present, as in the past, affiliated with businesses which are customers of TNBank and which have had and expect to have loan transactions with TNBank in the ordinary course of business.  These loans were made in the ordinary course of business and were made on substantially the same terms including interest rates and collateral, as those prevailing at the time for comparable transactions with other parties.  In the opinion of our board of directors, these loans do not involve more than a normal risk of collectibility or present other unfavorable features.  In the normal course of business, TNBank has made loans at prevailing interest rates and terms to its executive officers, directors and their affiliates aggregating $18,243 as of March 31, 2008, or 0.1% of shareholders' equity.  As of December 31, 2007, the outstanding balance of loans made by TNBank to these directors and executive officers was $316,393, or 1.9% of our shareholder equity.  In addition, no loan to any officer or director exceeds 10% of our equity capital.
 

 
38

 

 
Set forth below is our selected historical consolidated financial information, which was derived from the audited consolidated financial statements included in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007 (the “Annual Report”) and from our unaudited financial statements included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (the “Quarterly Report”) and from other information and data contained in the Annual Report and the Quarterly Report.  More comprehensive financial information is included in the Annual Report and the Quarterly Report.  The financial information that follows is qualified in its entirety by reference to, and should be read in conjunction with, the Annual Report, the Quarterly Report and all of the financial statements and related notes contained in the Annual Report and the Quarterly Report and in all other information filed with the SEC, copies of which may be obtained as set forth below under the caption “Other Matters - Where You Can Find More Information” on page 46.  A copy of our Annual Report on Form 10KSB for the year ended December 31, 2007 and our Quarterly Report for the quarter ended March 31, 2008 accompany this proxy statement.
 
The following schedule presents the results of operations, cash dividends declared, total assets, stockholder's equity and per share information for the quarter ended March 31, 2008 and 2007 and for each of the five years ended December 31, 2007:
 

 
39

 


TENNESSEE VALLEY FINANCIAL HOLDINGS, INC. FINANCIAL HIGHLIGHTS (UNAUDITED)
 
   
In Thousands, Except Per Share Information
 
   
For the
Period Ended
March 31,2008
   
For the
Period Ended
March 31, 2007
   
Year Ended
December 31,
2007
   
Year Ended
December 31,
2006
   
Year Ended
December, 31
2005
   
Year Ended
December 31,
2004
   
Year Ended
December 31,
2003
 
CONSOLIDATED BALANCE  SHEETS:
                                         
   Total assets
  $ 206,565     $ 202,500     $ 202,804     $ 186,512     $ 146,961     $ 125,337     $ 107,083  
   Loans, net
    140,920       143,735       145,951       141,263       108,346       101,227       85,498  
   Securities, at market
    39,144       21,954       32,890       20,156       18,721       14,753       14,502  
   Deposits
    158,942       169,218       163,185       153,352       124,833       104,799       88,118  
   Stockholders' equity
    16,832       16,629       16,737       16,500       10,007       9,255       8,497  
                                                         
CONSOLIDATED STATEMENTS OF
   EARNINGS:
                                                       
      Interest income
  $ 3,133     $ 3,387     $ 13,487     $ 11,490     $ 8,778     $ 6,914     $ 6,410  
      Interest expense
    1,681       1,676       6,740       5,093       3,189       1,984       2,086  
Net interest income
    1,452       1,711       6,747       6,397       5,588       4,930       4,324  
                                                         
   Provision for possible loan losses
    230       96       1,439       471       551       229       290  
   Net interest income after provision for
    1,222       1,615       5,308       5,926       5,038       4,702       4,034  
      possible loan losses
                                                       
   Non-interest income
    306       235       1,070       998       903       826       1,372  
   Non-interest expense
    1,575       1,534       6,131       5,784       4,518       4,069       3,744  
                                                         
Earnings before income taxes
    (47 )     316       247       1,140       1,422       1,458       1,662  
                                                         
Income tax (benefit) expense
    (24 )     99       4       358       487       500       584  
                                                         
Net earnings
  $ (23 )   $ 217     $ 243     $ 782     $ 935     $ 958     $ 1,078  
                                                         
Comprehensive earnings
  $ 168     $ 225     $ 291     $ 823     $ 777     $ 892     $ 957  
                                                         
PER SHARE DATA (1):
                                                       
Basic earnings per common share
  $ (0.02 )   $ 0.14     $ 0.16     $ 0.63     $ 1.75     $ 1.80     $ 2.02  
                                                         
Diluted earnings per common share
  $ (0.02 )   $ 0.14     $ 0.16     $ 0.57     $ 1.74     $ 1.79     $ 2.01  
                                                         
Cash dividends per share
  $ 0.11     $ 0.15     $ 0.15     $ 0.00     $ 0.28     $ 0.26     $ 0.35  
                                                         
Book value per share, end of year
  $ 11.10     $ 11.02     $ 11.08     $ 10.99     $ 18.56     $ 17.34     $ 15.91  
                                                         
RATIOS:
                                                       
Return on average stockholders' equity
    (0.56 %)     5.33 %     1.46 %     6.74 %     8.36 %     10.85 %     13.15 %
                                                         
Return on average assets
    (0.04 %)     0.45 %     0.13 %     0.48 %     0.67 %     0.82 %     1.00 %
                                                         
 
                                                       
Average stockholders' equity to average
assets
    8.05 %     8.40 %     8.63 %     7.10 %     8.06 %     7.54 %     7.60 %
 
 
40

 
Unaudited Pro Forma Consolidated Financial Information
 
The summary pro forma balance sheet data is based on historical data as of March 31, 2008, adjusted to give effect to the conversion of 206,314 shares of common stock (which constitute the shares held by those holders of shares of common stock between 302 and 1,089) into shares of Class A common stock and the conversion of  55,820  shares of common stock (which constitute the shares held by those holders of shares of common stock fewer than 302) into shares of Class B common stock in the reclassification transaction.  The pro forma balance sheet data is based on the assumption that an aggregate of 206,314 shares of common stock will be converted into an equal number of shares of Class A common stock and an aggregate of 55,820 shares of common stock will be converted into an equal number of shares of Class B common stock and that expenses of $95,000 will be incurred in the reclassification transaction.  We have assumed that all of the cash required for the expenses of the transaction was paid from available cash.  The pro forma income statement for the year ended December 31, 2007 has been adjusted for the annual expense of the current filings of Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Proxy Statements required by Regulation 14A and current reports on Form 8-K, estimated at $61,500.  We have not adjusted the pro forma income statement data for the effects of the estimated annual cost savings, beginning in 2009, estimated at $77,500 that represents the expenses related to the compliance with Section 404 of  Sarbanes-Oxley, since those savings are expected to a occur on a prospective basis.
 
The pro forma summary consolidated financial statements have been prepared based on the assumption that the reclassification transaction was completed effective: (1) the date of the balance sheet; and (2) the first day of income statement.  The pro forma information set forth below is not necessarily indicative of what our actual financial position would have been had the transaction been consummated as of the above referenced dates or of the financial position that may be reported by us in the future.
 

 
41

 


TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.
Consolidated Pro Forma Balance Sheets
March 31, 2008
(In Thousands, Except Per Share Data)
 
                         
         
Pro Forma Adjustments
       
         
Debit
   
Credit
   
Pro Forma
 
Assets
                       
Cash and due from banks
  $ 10,669             58 (2)   $ 10,611  
Federal funds sold
    3,660                     3,660  
Cash and cash equivalents
    14,329                     14,271  
                               
Investment securities available-for-sale, at fair value
    39,144                     39,144  
Loans, net
    140,920                     140,920  
Loans held for sale, at fair value
    689                     689  
Federal Home Loan Bank stock, at cost
    834                     834  
Banking premises and equipment, net
    7,061                     7,061  
Accrued interest receivable
    1,045                     1,045  
Deferred income tax benefit
    357                     357  
Other real estate
    1,852                     1,852  
Prepaid expenses and other assets
    334                     334  
Total Assets
  $ 206,565                   $ 206,507  
                               
Liabilities and Stockholders’ Equity
                             
Deposits
  $ 158,942                   $ 158,942  
Borrowings
    29,365                     29,365  
Accrued interest payable
    1,155                     1,155  
Other liabilities
    271                     271  
Total liabilities
    189,733                     189,733  
                               
Stockholders' equity:
                             
   Common stock, $1.00 par value, 2,000,000 shares authorized and 1,516,053 shares
     prior to reclassification
    1,516       262 (1)             1,254  
   Class A stock, par value $1.00 per share, 1,000,000 shares
                               
      authorized, 198,014 shares issued
                    206 (1)     206  
   Class B stock, par value $1.00 per share, 1,000,000 shares
                               
      authorized, 50, 716 shares issued
                    56 (1)     56  
   Treasury stock, 40 shares
    (2 )                     (2 )
   Capital in excess of par value
    11,555                       11,555  
   Retained earnings
    3,594       58 (2)             3,536  
   Accumulated and other comprehensive income (loss)
    169                       169  
                                 
Total Stockholders’ Equity
    16,832                       16,774  
                                 
Total Liabilities and Stockholders’ Equity
  $ 206,565                     $ 206,507  
                                 
Book value per Common, Class A and Class B Share
  $ 11.10                     $ 11.06  
 
Capital Ratios:
                               
   Total Risk-Based Capital
    13.5 %                     13.5 %
   Tier 1 Risk-Based Capital
    12.2 %                     12.2 %
   Leverage Ratio
    9.1 %                     9.1 %
                                 
(1)   To record the reclassification of Class A and B
                               
(2)   To record expenses of reclassification of $95,000, net of taxes of $37,000.
                               

 
42

 



TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.
Consolidated Pro Forma Statement of Earnings
For The Year Ended December 31, 2007
(In Thousands – Except Per Share Data)
 
   
Year
Ended
December 31,
   
Pro Forma Adjustments
       
   
2007
   
Debit
   
Credit
   
Pro Forma (1)
 
Interest income:
                       
Loan, including fees
  $ 11,824                 $ 11,824  
Investment securities
    1,038                   1,038  
Federal funds sold
    583                   583  
Other interest income
    42                   42  
Total interest income
    13,487                   13,487  
                             
Interest expense:
                           
Deposits
    5,977                   5,977  
Advances from the Federal Home Loan Bank and other borrowings
    763                   763  
Total interest expense
    6,740                   6,740  
                             
Net interest income
    6,747                   6,747  
                             
Provision for loan losses
    1,439                   1,439  
                             
Net interest income after provision for loan losses
    5,308                   5,308  
                             
Noninterest income
                           
Service charges on deposit accounts
    573                   573  
Fees on sale of mortgage loans
    395                   395  
Net gains on sales of investment securities available for sale
    6                   6  
Other income
    96                   96  
Total noninterest income
    1,070                   1,070  
                             
Noninterest expense:
                           
Salaries and employee benefits
    2,867                   2,867  
Net occupancy expense
    1,035                   1,035  
Data processing fees
    644                   644  
Advertising and promotion
    203                   203  
Office supplies and postage
    159                   159  
Legal and professional fees
    308             62 (2)     246  
Directors’ fees
    127                     127  
Loan expense
    245                     245  
Other
    543                     543  
Total noninterest expense
    6,131                     6,069  
                               
Income (loss) before income tax expense
    247                     309  
Income tax expense (benefit)
    4       24 (2)             28  
                                 
Net income (loss)
  $ 243                     $ 281  
                                 
Earnings per share, common, Class A and Class B
                               
Basic
  $ 0.16                     $ 0.19  
Diluted
  $ 0.16                     $ 0.19  
                                 
Dividends per share:
                               
   Common shares
  $ 0.15                     $ 0.15  
   Class A shares
    -                     $ 0.15  
   Class B shares
    -                     $ 0.16  
   
(1) Reflects estimation of costs incurred as a public company for the year ending 12/31/2007.
(2) Based on a 39% tax rate.
 


 
43

 


 
 
The following table shows a range of high and low sales prices, based on the best of management’s knowledge for transactions completed prior to Company shares being listed on the OTC Bulletin Board.

   
High
   
Low
 
2007:
           
First Quarter
  $ 15.00     $ 14.38  
Second Quarter (1)
    14.67       14.38  
Third Quarter (1)
    14.67       14.00  
Fourth Quarter (1)
    14.25       12.75  
                 
2006:
               
First Quarter
  $ 28.00     $ 28.00  
Second Quarter
    14.00       14.00  
Third Quarter
    14.00       14.00  
Fourth Quarter
    14.50       14.00  
                 
(1) Stock price reflects effect of two for one stock split effective May 22, 2006.
 

Our common stock is not traded through an organized exchange nor is there a known active trading market.  At March 31, 2008, the number of shareholders of record of our common stock was 902.
 
 Dividends
 
    The payment of dividends is subject to the discretion of our board of directors.  Our ability to pay dividends is dependent on cash dividends paid to us by TNBank.  The ability of TNBank to pay dividends to us is restricted by applicable regulatory requirements. TNBank is subject to the provisions of the Tennessee Banking Act, which provides that dividends will be paid out of undivided profits. Dividends are further limited to TNBank’s earnings for the current year and last two fiscal years.  Capital surplus, however, must equal or exceed 50% of capital stock, and in the event capital surplus falls below 50% of capital stock, no dividends may be paid until net profits have been transferred to capital surplus so that it equals 50% of capital stock.  Thereafter, 10% of net profits must be transferred to capital surplus prior to the payment of dividends until capital surplus equals capital stock. TNBank is also subject to the minimum capital requirements of the FDIC, which impact the TNBank’s ability to pay dividends to us. If  TNBank fails to meet these standards, it may not be able to pay dividends to us or to accept additional deposits because of regulatory requirements. We cannot assure you that any dividend will be declared or, if declared, what the amount of the dividend would be or whether the dividends would continue in future periods.

 Securities Authorized for Issuance Under Equity Compensation Plans
 
Our option plan, under which our officers, directors and employees may purchase shares of our common stock, was approved by our shareholders in 2002.  The reclassification will not affect any outstanding options and each option, after the reclassification transaction, will continue to be exercisable for one share of common stock.  As of July __, 2008 there are outstanding options to purchase 94,000 shares of common stock.
    
    Prior Public Offerings and Stock Purchases
 
We have not made an underwritten public offering of our common stock during the past three years.  We have purchased 3,800 shares of our common stock during the past two years, principally for use as compensation for directors in lieu of cash payments.
 

 
44

 

Security Ownership of Certain Beneficial Owners and Management
 
The following table sets forth certain information concerning the beneficial ownership of shares of our common stock by (i) our directors and executive officers and (ii) our directors and executive officers as a group. We do not know of any person who is the beneficial owner of more than 5% of the outstanding common stock. The information shown in this table is based on information provided as of July __, 2008.
 
Name and Address of Beneficial Owner
Number of
Shares (1)
Percent of
Outstanding
Common
Stock
Percentage of
Outstanding
Common Stock
Post
Reclassification
       
Larry Beeman
43, 325
2.86%
  3.46%
687 Emory Valley Rd., Suite A, Oak Ridge, TN 37830
     
A.P. Cappiello
24,526
1.62%
  1.96%
100 Tulsa Rd., Suite 28, Oak Ridge, TN 37830
     
Mark B. Holder (3)
13,245
*
  1.06%
401 South Illinois Ave., Oak Ridge, TN 37830
     
J. Frank Jamison
45,347
2.99%
  3.62%
673 Emory Valley Rd., Oak Ridge, TN 37830
     
Terry L. Kerbs
38,069
2.51%
  3.04%
10613 Dutchtown Rd., Knoxville, TN 37932
     
Janice B. McNally
 -0-
 *  *
94 Royal Troon Circle, Oak Ridge, TN  37830      
Thomas D. Moye
</