Form S-4
Table of Contents
Index to Financial Statements

As filed with the Securities and Exchange Commission on July 10, 2018

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

CapStar Financial Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Tennessee   6022   81-1527911
(State or other jurisdiction of
incorporation or organization)
 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

1201 Demonbreun Street Suite 700

Nashville, Tennessee 37203

(615) 732-6400

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Claire W. Tucker

President and Chief Executive Officer

1201 Demonbreun Street Suite 700

Nashville, Tennessee 37203

(615) 732-6400

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Matthew M. Guest, Esq.

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

(212) 403-1000

 

Jeffrey L. Cunningham

President and Chief Executive Officer

Athens Bancshares Corporation

106 Washington Avenue

Athens, Tennessee 37303

 

Victor L. Cangelosi, Esq.

Thomas P. Hutton, Esq.

Luse Gorman, PC

5335 Wisconsin Avenue, N.W. Suite 780

Washington, D.C. 20015
(202) 274-2000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective and all other conditions to the proposed merger described in the enclosed joint proxy statement/prospectus have been satisfied or waived.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☒

 

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each Class of

Securities to be Registered

 

Amount

to be
Registered

  Proposed
Maximum
Offering Price
Per Share
 

Proposed
Maximum
Aggregate

Offering Price

 

Amount of

Registration Fee

Common Stock, par value $1.00 per share

  5,794,182(1)   N/A   $104,513,760(2)   $13,012(3)

 

 

 

(1) Represents the estimated maximum number of shares of the registrant’s common stock, par value $1.00 per share, to be issued in connection with the merger described in the joint proxy statement/prospectus contained herein, calculated as the product of (a) the sum of (i) 1,831,747 shares of common stock, $0.01 par value per share, of Athens Bancshares Corporation (“Athens common stock”), outstanding as of July 9, 2018 and (ii) 191,361 shares of Athens common stock underlying Athens stock options outstanding as of July 9, 2018, and (b) 2.864, the exchange ratio in the merger.
(2) Pursuant to Rules 457(c), 457(f)(1) and 457(f)(3) promulgated under the Securities Act and solely for the purpose of calculating the registration fee, the proposed maximum aggregate offering price is equal to the product of (a) 51.66, the average of the high and low prices of Athens common stock, as quoted on the OTCQX Market on July 6, 2018, and (b) 2,023,108, the estimated maximum number of Athens common stock, including Athens common stock underlying certain Athens stock options that may be issued in the future pursuant to the terms of the merger agreement, which may be exchanged for merger consideration.
(3) Computed in accordance with Rules 457(c) and 457(f) under the Securities Act to be $13,012, which is equal to 0.0001245 multiplied by the proposed maximum aggregate offering price of $104,513,760.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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Index to Financial Statements

Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This document shall not constitute an offer to sell or the solicitation of any offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED JULY 10, 2018

 

LOGO    LOGO

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Shareholder:

On June 11, 2018, Athens Bancshares Corporation, or “Athens,” and CapStar Financial Holdings, Inc., or “CapStar,” entered into an Agreement and Plan of Merger (which, as it may be amended, supplemented or modified from time to time, we refer to as the “merger agreement”), pursuant to which Athens will merge with and into CapStar (which we refer to as the “merger”). Immediately following the completion of the merger, Athens Federal Community Bank, National Association, Athens’ wholly owned bank subsidiary (which we refer to as “Athens Federal”), will merge with and into CapStar Bank, CapStar’s wholly owned bank subsidiary, with CapStar Bank continuing as the surviving bank (which we refer to as the “bank merger”).

In the merger, each share of Athens common stock (other than certain excluded shares as described in the attached joint proxy statement/prospectus) will be converted into the right to receive 2.864 shares of CapStar common stock (which we refer to as the “merger consideration”). Based on CapStar’s closing price of $20.05 per share on June 8, 2018, the last trading day before the announcement of the merger agreement, and the number of shares of Athens common stock outstanding as of June 8, 2018, the merger consideration represented approximately $57.42 for each share of Athens common stock. Based on CapStar’s closing price of $[                ] per share on [                ], the last practicable trading day before the mailing of the enclosed joint proxy statement/prospectus, the merger consideration represented approximately $[                ] for each share of Athens common stock. We encourage you to obtain current market quotations for the common stock of CapStar and Athens before you vote. CapStar common stock is currently quoted on the Nasdaq Global Select Market (which we refer to as the “NASDAQ”) under the symbol “CSTR.” Athens common stock is currently quoted on the OTCQX Market under the symbol “AFCB.”

Based on the number of shares of Athens common stock outstanding on [                ], the record date for the Athens special meeting, we expect that holders of shares of Athens common stock as of immediately prior to the closing of the merger will hold, in the aggregate, approximately [        ]% of the issued and outstanding shares of CapStar common stock immediately following the closing of the merger (including shares received in respect of Athens stock options and without giving effect to any shares of CapStar common stock held by Athens shareholders prior to the merger).    As a result, current CapStar shareholders will hold, in the aggregate, approximately [        ]% of the outstanding shares of CapStar common stock immediately following the closing of the merger. An increase or decrease in the number of outstanding shares of Athens common stock prior to completion of the merger could cause the actual number of shares issued upon completion of the merger to change.

CapStar and Athens will each hold a special meeting of their respective shareholders in connection with the merger. CapStar shareholders will be asked to vote to approve the merger agreement and approve related matters, as described in the attached joint proxy statement/prospectus. Athens shareholders will be asked to vote to approve the merger agreement and approve related matters, as described in the attached joint proxy statement/prospectus.

The special meeting of CapStar shareholders will be held on [                ], at [                ] local time, at [                ], Tennessee. The special meeting of Athens shareholders will be held on [                ], at [                ] local time, at [                ], Tennessee.

Your vote is important. We cannot complete the merger unless CapStar’s shareholders and Athens’ shareholders approve the merger agreement. Approval of the merger agreement requires (1) the affirmative vote of the holders of a majority of the outstanding shares of CapStar common stock entitled to vote on the proposal and (2) the affirmative vote of the holders of a majority of the outstanding shares of Athens common stock entitled to vote on the proposal. Regardless of whether or not you plan to attend your special meeting, please take the time to vote your shares in accordance with the instructions contained in the enclosed joint proxy statement/prospectus.

The CapStar board of directors unanimously recommends that CapStar shareholders vote “FOR” the approval of the merger agreement and “FOR” the other matters to be considered at the CapStar special meeting.

The Athens board of directors unanimously recommends that Athens shareholders vote “FOR” the approval of the merger agreement and “FOR” the other matters to be considered at the Athens special meeting.

The enclosed joint proxy statement/prospectus describes the special meetings, the merger, the documents related to the merger and other related matters. Please carefully read the entire joint proxy statement/prospectus, including the section entitled “Risk Factors,” for a discussion of the risks relating to the proposed merger. You also can obtain information about the proposed merger, CapStar and Athens from documents that CapStar has filed with the Securities and Exchange Commission.

If you have any questions concerning the merger, CapStar shareholders should please contact Daniel Fox, 1201 Demonbreun Street, Suite 700, Nashville, Tennessee 37203, at (615) 732-6455, and Athens shareholders should please contact Jeffrey L. Cunningham, President and Chief Executive Officer, P.O. Box 869, Athens, Tennessee 37371-0869, at (423) 745-1111. We look forward to seeing you at the special meetings.

 

 

  

 

Claire W. Tucker

President and Chief Executive Officer
CapStar Financial Holdings, Inc.

  

Jeffrey L. Cunningham

President and Chief Executive Officer

Athens Bancshares Corporation

Neither the Securities and Exchange Commission nor any state securities commission or any other bank regulatory agency has approved or disapproved the securities to be issued in the merger or determined if the enclosed joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

The securities to be issued in the merger are not savings or deposit accounts or other obligations of any bank or non-bank subsidiary of either CapStar or Athens, and they are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

The date of the enclosed joint proxy statement/prospectus is [                ], 2018, and it is first being mailed or otherwise delivered to the respective shareholders of CapStar and Athens on or about [                ], 2018.


Table of Contents
Index to Financial Statements

LOGO

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To the Shareholders of CapStar Financial Holdings, Inc.:

CapStar Financial Holdings, Inc. (which we refer to as “CapStar”) will hold a special meeting of shareholders on [                ], at [                ] local time, at [                ], Tennessee to consider and vote upon the following matters:

 

    a proposal to approve the Agreement and Plan of Merger, dated as of June 11, 2018, by and between Athens Bancshares Corporation (which we refer to as “Athens”) and CapStar, as more fully described in the enclosed joint proxy statement/prospectus (which we refer to as the “CapStar merger proposal”); and

 

    a proposal to adjourn the CapStar special meeting, if necessary or appropriate, to solicit additional proxies in favor of the CapStar merger proposal (which we refer to as the “CapStar adjournment proposal”).

We have fixed the close of business on [                ], 2018 as the record date for the determination of shareholders entitled to notice of and to vote at the CapStar special meeting (which we refer to as the “CapStar record date”). Only CapStar common shareholders of record at that time are entitled to notice of, and to vote at, the CapStar special meeting, or any adjournment or postponement of the CapStar special meeting.

Approval of the CapStar merger proposal requires the affirmative vote of holders of a majority of the outstanding shares of CapStar common stock entitled to vote. The CapStar adjournment proposal will be approved if the number of shares of CapStar common stock, represented in person or by proxy at the CapStar special meeting and entitled to vote thereon, voted in favor of the CapStar adjournment proposal exceeds the number of shares voted against such proposal at the CapStar special meeting.

The CapStar board of directors has unanimously approved the merger agreement, has determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of CapStar and its shareholders, and unanimously recommends that CapStar shareholders vote “FOR” the CapStar merger proposal and “FOR” the CapStar adjournment proposal.

Your vote is very important. We cannot complete the merger unless CapStar’s common shareholders approve the merger agreement.

You are urged to execute and return the enclosed proxy promptly in the enclosed self-addressed envelope or to vote your shares in advance of the CapStar special meeting by Internet or phone, as described in the accompanying joint proxy statement/prospectus. In the event you decide to attend the special CapStar meeting, you may, if you desire, revoke the proxy and vote your shares in person. If you hold your stock in “street name” through a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished by the record holder.

The enclosed joint proxy statement/prospectus provides a detailed description of the CapStar special meeting, the merger, the documents related to the merger and other related matters. We urge you to read the joint proxy statement/prospectus, including any documents incorporated in the joint proxy statement/prospectus by reference, and its appendices carefully and in their entirety.


Table of Contents
Index to Financial Statements

If you have any questions concerning the merger or the joint proxy statement/prospectus, would like additional copies of the joint proxy statement/prospectus or need help voting your shares of CapStar common stock, please contact Daniel Fox, 1201 Demonbreun Street, Suite 700, Nashville, Tennessee 37203, at (615) 732-6455.

On behalf of the CapStar board of directors, thank you for your prompt attention to this important matter.

 

BY ORDER OF THE BOARD OF DIRECTORS
 

 

Dennis C. Bottorff
Chairman of the Board of Directors


Table of Contents
Index to Financial Statements

LOGO

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To the Shareholders of Athens Bancshares Corporation:

Athens Bancshares Corporation (which we refer to as “Athens”) will hold a special meeting of shareholders on [                ], at [                ] local time, at [                ], Tennessee to consider and vote upon the following matters:

 

    a proposal to approve the Agreement and Plan of Merger, dated as of June 11, 2018, by and between Athens and CapStar Financial Holdings, Inc., as more fully described in the enclosed joint proxy statement/prospectus (which we refer to as the “Athens merger proposal”); and

 

    a proposal to adjourn the Athens special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Athens merger proposal (which we refer to as the “Athens adjournment proposal”).

We have fixed the close of business on [                ], 2018 as the record date for the determination of shareholders entitled to notice of and to vote at the Athens special meeting (which we refer to as the “Athens record date”). Only holders of record of Athens’ common stock at the close of business on that date are entitled to notice of, and to vote at, the Athens special meeting or any adjournment or postponement thereof. Approval of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Athens’ common stock entitled to vote on the proposal. Approval of the Athens adjournment proposal requires the votes cast by Athens shareholders in favor of the proposal to exceed the votes cast by Athens shareholders against the proposal at the Athens special meeting.

The Athens board of directors has unanimously approved the merger agreement and the merger and unanimously recommends that Athens shareholders vote “FOR” the Athens merger proposal and “FOR” the Athens adjournment proposal.

Your vote is very important. We cannot complete the merger unless Athens’ shareholders approve the merger agreement.

Whether or not you plan to attend the Athens special meeting, we encourage you to execute and return the enclosed proxy card promptly in the enclosed self-addressed envelope or to vote your shares in advance of the Athens special meeting by Internet or phone, as described in the accompanying joint proxy statement/prospectus. If you decide to attend the Athens special meeting, then you may, if you desire, revoke the proxy and vote your shares in person. If you hold your stock in “street name” through a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished by the record holder. If you have shares of Athens common stock allocated to your account under the Athens Federal Employee Stock Ownership Plan or Athens Federal Employees’ Savings & Profit Sharing Plan, please follow the separate voting instructions relating to such plans.

The enclosed joint proxy statement/prospectus provides a detailed description of the Athens special meeting, the merger, the documents related to the merger and other related matters. We urge you to read the joint proxy statement/prospectus, including any documents incorporated in the joint proxy statement/prospectus by reference, and its appendices carefully and in their entirety.

If you have any questions concerning the merger or the joint proxy statement/prospectus, would like additional copies of the joint proxy statement/prospectus or need help voting your shares of Athens common stock, please contact Jeffrey L. Cunningham, President and Chief Executive Officer, P.O. Box 869, Athens, Tennessee 37371-0869, at (423) 745-1111.


Table of Contents
Index to Financial Statements

On behalf of the Athens board of directors, thank you for your prompt attention to this important matter.

 

BY ORDER OF THE BOARD OF DIRECTORS
 

 

Larry D. Wallace
Chairman of the Board of Directors


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Index to Financial Statements

REFERENCES TO ADDITIONAL INFORMATION

CapStar

CapStar files annual, quarterly and special reports, joint proxy statements and other business and financial information with the Securities and Exchange Commission (which we refer to as the “SEC”). You may read and copy any materials that CapStar files with the SEC at its Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. Please call the SEC at (800) SEC-0330 ((800) 732-0330) for further information on the public reference room. In addition, CapStar files reports and other business and financial information with the SEC electronically, and the SEC maintains a website located at http://www.sec.gov containing this information. You will also be able to obtain these documents, free of charge, from CapStar by accessing CapStar’s website at www.CapStarbanks.com. References to CapStar’s and Athens’ website in this joint proxy statement/prospectus are intended to serve as textual references only; the contents of those websites are not incorporated herein by reference.

Copies of these documents can also be obtained, free of charge, by directing a written request to:

CapStar Financial Holdings, Inc.

1201 Demonbreun Street, Suite 700

Nashville, Tennessee 37203

Attn: Daniel Fox

Telephone: (615) 732-6455

CapStar has filed a registration statement on Form S-4 (File No. 333-[                ]) to register with the SEC shares of CapStar common stock to be issued pursuant to the merger. This joint proxy statement/prospectus is a part of that registration statement on Form S-4. As permitted by SEC rules, this joint proxy statement/prospectus does not contain all of the information included in the registration statement on Form S-4 or in the exhibits or schedules to the registration statement on Form S-4. You may read and copy the registration statement on Form S-4, including any amendments, schedules and exhibits, at the SEC’s Public Reference Room at the address set forth above. The registration statement on Form S-4, including any amendments, schedules and exhibits, is also available, free of charge, by accessing the websites of the SEC and CapStar or upon written request to CapStar at the address set forth above.

Statements contained in this joint proxy statement/prospectus as to the contents of any contract or other documents referred to in this joint proxy statement/prospectus are not necessarily complete. In each case, you should refer to the copy of the applicable contract or other document filed as an exhibit to the registration statement on Form S-4. This joint proxy statement/prospectus incorporates important business and financial information about CapStar that is not included in or delivered with this joint proxy statement/prospectus, including incorporating by reference documents that CapStar has previously filed with the SEC. These documents contain important information about CapStar and its financial condition. See the section entitled “Where You Can Find More Information.” These documents are available free of charge upon written request to CapStar at the address listed above.

To obtain timely delivery of these documents, you must request them no later than [                ], 2018 in order to receive them before the CapStar special meeting.

Except where the context otherwise indicates, CapStar supplied all information contained in, or incorporated by reference into, this joint proxy statement/prospectus relating to CapStar, and Athens supplied all information contained in this joint proxy statement/prospectus relating to Athens.

Athens

Athens does not have a class of securities registered under Section 12 of the Securities Exchange Act of 1934 (which we refer to as the “Exchange Act”), is not subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, and accordingly does not file documents and reports with the SEC.


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Index to Financial Statements

If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies of this joint proxy statement/prospectus or need help voting your shares of Athens common stock, please contact Athens at:

Athens Bancshares Corporation

P.O. Box 869

Athens, Tennessee 37371-0869

Attn: Jeffrey L. Cunningham, President and Chief Executive Officer

Telephone: (423) 745-1111

To obtain timely delivery of these documents, you must request them no later than [                ], 2018 in order to receive them before the Athens special meeting.

You should rely only on the information contained in, or incorporated by reference into, this joint proxy statement/prospectus. No one has been authorized to give any information or make any representation about the merger or Athens or CapStar that differs from, or adds to, the information in this joint proxy statement/prospectus or in documents that are publicly filed with the SEC. Therefore, if anyone does give you different or additional information, you should not rely on it. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than the date of this joint proxy statement/prospectus, and you should not assume that any information incorporated by reference into this joint proxy statement/prospectus is accurate as of any date other than the date of such other document, and neither the mailing of this joint proxy statement/prospectus to Athens shareholders or CapStar shareholders nor the issuance of CapStar common stock or the payment of cash in lieu of fractional shares by CapStar in the merger shall create any implication to the contrary.


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Index to Financial Statements

TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE CAPSTAR SPECIAL MEETING AND THE ATHENS SPECIAL MEETING

     1  

SUMMARY

     9  

Information Regarding CapStar and Athens

     9  

The Merger

     10  

Closing and Effective Time of the Merger

     10  

Merger Consideration

     10  

Conversion of Shares; Exchange of Certificates

     11  

Material U.S. Federal Income Tax Consequences of the Merger

     11  

Dissenters’ Rights for Athens Shareholders

     11  

Opinions of CapStar’s Financial Advisors

     12  

Opinion of Athens’ Financial Advisor

     12  

Recommendation of the CapStar Board of Directors

     13  

Recommendation of the Athens Board of Directors

     13  

Interests of Athens Directors and Executive Officers in the Merger

     13  

Treatment of Athens Equity Awards

     13  

Regulatory Approvals

     14  

Conditions to Completion of the Merger

     14  

Agreement Not to Solicit Other Offers

     15  

Termination of the Merger Agreement

     15  

Termination Fee

     16  

Public Trading Markets

     17  

CapStar Special Meeting

     17  

Athens Special Meeting

     17  

CapStar Voting Agreements

     18  

Athens Voting Agreements

     18  

Comparison of Shareholders’ Rights

     19  

Risk Factors

     19  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CAPSTAR

     20  

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL DATA

     22  

COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA

     23  

MARKET PRICES AND DIVIDEND INFORMATION

     24  

RISK FACTORS

     25  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     33  

INFORMATION ABOUT THE CAPSTAR SPECIAL MEETING

     35  

CAPSTAR PROPOSALS

     39  

INFORMATION ABOUT THE ATHENS SPECIAL MEETING

     40  

ATHENS PROPOSALS

     45  

THE MERGER

     46  

Terms of The Merger

     46  

Background of the Merger

     46  

Recommendation of the CapStar Board of Directors and CapStar’s Reasons for the Merger

     51  

Opinions of CapStar’s Financial Advisors

     53  

Recommendation of the Athens Board of Directors and Athens’ Reasons for the Merger

     76  

Opinion of Athens’ Financial Advisor

     78  

Certain CapStar and Athens Unaudited Prospective Financial Information

     88  

Interest of CapStar Director and Executive Officers in the Merger

     90  

Interests of Athens Directors and Executive Officers in the Merger

     91  

 

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Index to Financial Statements
     Page  

Public Trading Markets

     93  

CapStar’s Dividend Policy

     94  

Regulatory Approvals

     94  

Dissenters’ Rights for Athens Shareholders

     96  

Board of Directors and Management of CapStar Following the Merger

     98  

THE MERGER AGREEMENT

     99  

ACCOUNTING TREATMENT

     115  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     116  

THE COMPANIES

     119  

CapStar

     119  

Athens

     119  

ATHENS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     126  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ATHENS

     148  

COMPARISON OF SHAREHOLDERS’ RIGHTS

     152  

LEGAL MATTERS

     158  

EXPERTS

     158  

HOUSEHOLDING OF PROXY MATERIALS

     159  

DEADLINES FOR SUBMITTING SHAREHOLDER PROPOSALS

     160  

WHERE YOU CAN FIND MORE INFORMATION

     161  

UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION

     162  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF ATHENS BANCSHARES CORPORATION

     F-1  

APPENDICES:

 

Appendix A —

  Agreement and Plan of Merger dated June 11, 2018 by and between CapStar Financial Holdings, Inc. and Athens Bancshares Corporation

Appendix B —

  Opinion of Keefe, Bruyette & Woods, Inc.

Appendix C —

  Opinion of Sandler O’Neill & Partners, L.P.

Appendix D —

  Opinion of BSP Securities, LLC

Appendix E —

  Provisions of Tennessee Business Corporation Act Relating to Dissenters’ Rights

 

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Index to Financial Statements

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE CAPSTAR SPECIAL MEETING AND THE ATHENS SPECIAL MEETING

The following are some questions that you may have about the merger and the CapStar special meeting or the Athens special meeting, and brief answers to those questions. We urge you to read carefully the remainder of this joint proxy statement/prospectus because the information in this section does not provide all of the information that might be important to you with respect to the merger and the CapStar special meeting or the Athens special meeting. Additional important information is also contained in the documents incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information.”

 

Q: What am I being asked to vote on and why is this approval necessary?

 

A: CapStar has entered into an Agreement and Plan of Merger, dated as of June 11, 2018, with Athens (which we refer to as the “merger agreement”). A copy of the merger agreement is included in this joint proxy statement/prospectus as Appendix A. Under the merger agreement, Athens will be merged with and into CapStar (which we refer to as the “merger”), with CapStar continuing as the surviving corporation. We sometimes refer to CapStar following the merger as the “surviving corporation.” Immediately following the completion of the merger, Athens Federal, Athens’ wholly owned bank subsidiary, will merge with and into CapStar Bank, CapStar’s wholly owned bank subsidiary, with CapStar Bank continuing as the surviving bank (which we refer to as the “bank merger”).

The merger cannot be completed unless, among other things, both CapStar shareholders and Athens shareholders approve the respective proposals to approve the merger agreement (which we refer to as the “CapStar merger proposal” and the “Athens merger proposal,” respectively).

In addition, CapStar and Athens are soliciting proxies from their respective shareholders with respect to the following additional proposals, approvals of which are not conditions to the completion of the merger:

 

    a proposal to adjourn the CapStar special meeting, if necessary or appropriate, to solicit additional proxies in favor of the CapStar merger proposal (which we refer to as the “CapStar adjournment proposal”); and

 

    a proposal to adjourn the Athens special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Athens merger proposal (which we refer to as the “Athens adjournment proposal”).

Each of CapStar and Athens will hold a separate special meeting of shareholders to obtain these approvals (which we refer to as the “CapStar special meeting” and the “Athens special meeting,” respectively). This joint proxy statement/prospectus contains important information about the merger and the other proposals being voted on at the special meetings. You should read it carefully and in its entirety. The enclosed materials allow you to have your shares voted by proxy without attending your special meeting. Your vote is important. We encourage you to submit your proxy as soon as possible.

This joint proxy statement/prospectus constitutes both a joint proxy statement of CapStar and Athens and a prospectus of CapStar. It is a joint proxy statement because each of the board of directors of Athens and CapStar is soliciting proxies using this joint proxy statement/prospectus from their respective shareholders. It is a prospectus because CapStar, in connection with the merger, is offering shares of its common stock in exchange for outstanding shares of Athens common stock in the merger.

 

Q: What will I receive in the merger?

 

A:

Athens shareholders: If the merger is completed, you will receive 2.864 shares (which we refer to as the “exchange ratio”) of CapStar common stock for each share of Athens common stock that you hold immediately prior to the merger (which we refer to as the “merger consideration”). CapStar will not issue any fractional shares of CapStar common stock in the merger. Instead, an Athens shareholder who otherwise

 

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  would have received a fraction of a share of CapStar common stock will receive an amount in cash rounded to the nearest whole cent. This cash amount will be determined by multiplying (1) the fraction of a share of CapStar common stock to which the holder would otherwise be entitled by (2) the average closing price of CapStar common stock reported on the Nasdaq Global Select Market (which we refer to as “NASDAQ”) for the 20 consecutive full trading days ending on and including the fifth day before the closing date (or if the fifth day before the closing day is not a trading day for CapStar common stock, the date immediately preceding the fifth day before the closing day on which shares of CapStar common stock actually trade on the NASDAQ) (which we refer to as the “CapStar average closing price”). See the section entitled “The Merger Agreement—Terms of the Merger—Merger Consideration.”

Based on CapStar’s closing price of $20.05 per share on June 8, 2018, the last trading day before the announcement of the merger agreement, the merger consideration represented approximately $57.42 for each share of Athens common stock. Based on CapStar’s closing price of $[            ] per share on [                ], the last practicable trading day before the mailing of this joint proxy statement/prospectus, the merger consideration represented approximately $[            ] for each share of Athens common stock.

We encourage you to obtain current market quotations for the common stock of CapStar and Athens before you vote.

If the merger is completed, Athens shareholders will be entitled to receive dividends with a record date after the effective time of the merger on shares of CapStar common stock received in the merger. See the section entitled “The Merger Agreement—Terms of the Merger—Dividends and Distributions.”

A quarterly cash dividend of $0.04 per share on CapStar’s common stock and preferred stock was declared on June 11, 2018, and will be payable to shareholders of record as of the close of business on July 31, 2018. For more information regarding CapStar’s dividend policy see the section entitled “The Merger—CapStar’s Dividend Policy.”

CapStar shareholders: If the merger is completed, you will not receive any merger consideration and will continue to hold the shares of CapStar common stock that you currently hold. Following the merger, shares of CapStar common stock will continue to be traded on the NASDAQ.

 

Q: What equity stake will CapStar and Athens shareholders hold in CapStar immediately following the merger?

 

A: As a result of the merger, based on the number of shares of Athens common stock outstanding on the Athens record date, we expect that holders of shares of Athens common stock as of immediately prior to the closing of the merger will hold, in the aggregate, approximately [        ]% of the issued and outstanding shares of CapStar common stock immediately following the closing of the merger (including shares received in respect of Athens stock options and without giving effect to any shares of CapStar common stock held by Athens shareholders prior to the merger). As a result, current CapStar shareholders will hold, in the aggregate, approximately [        ]% of the outstanding shares of CapStar common stock immediately following the closing of the merger.

 

Q: Will the value of the merger consideration change between the date of this joint proxy statement/prospectus and the time the merger is completed?

 

A: The value of the merger consideration may fluctuate between the date of this joint proxy statement/prospectus and the completion of the merger based upon the market value for CapStar common stock. The exchange ratio in the merger is a fixed number of shares of CapStar common stock. Any fluctuation in the market price of CapStar common stock after the date of this joint proxy statement/prospectus and before the effective time of the merger will change the value of the shares of CapStar common stock that Athens shareholders will receive.

Athens shareholders should obtain current sale prices for the CapStar common stock. The CapStar common stock is traded on the NASDAQ under the symbol “CSTR.”

 

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Q: How will the merger affect Athens equity awards?

 

A: At the effective time of the merger, referred to as the effective time, outstanding Athens equity awards will be treated as follows:

Except as described in the paragraph below, at the effective time, each outstanding and unexercised Athens stock option granted under the Athens Bancshares Corporation 2010 Equity Incentive Plan (which we refer to as the “Athens equity plan”) will be automatically assumed and converted into an option to purchase a number of shares of CapStar common stock equal to the product (rounded down to the nearest whole share) of (1) the number of shares of Athens common stock subject to the Athens stock option immediately prior to the effective time, multiplied by (2) the exchange ratio, with an exercise price per share of CapStar common stock equal to the quotient (rounded up to the nearest whole cent) obtained by dividing (x) the exercise price per share of Athens common stock subject to such Athens stock option immediately prior to the effective time by (y) the exchange ratio.

At the effective time, each outstanding and unexercised stock option granted under the Athens equity plan that is held by any employee or service provider of Athens who has terminated employment or service prior to the effective time will be cancelled and converted into a right to receive a cash payment (without interest and less applicable withholding taxes) equal to the product of (1) the number of shares of Athens common stock subject to such Athens stock option and (2) the excess, if any, of (x) the product of the exchange ratio and the CapStar average closing price over (y) the per-share exercise price of such Athens stock option. In the event that the product obtained by the prior sentence is zero or a negative number, then the Athens stock option will be cancelled for no consideration.

 

Q: How does CapStar’s board of directors recommend that I vote at the CapStar special meeting?

 

A: The CapStar board of directors unanimously recommends that CapStar’s shareholders vote “FOR” the CapStar merger proposal and “FOR” the CapStar adjournment proposal.

 

Q: How does Athens’ board of directors recommend that I vote at the Athens special meeting?

 

A: The Athens board of directors unanimously recommends that Athens’ shareholders vote “FOR” the Athens merger proposal and “FOR” the Athens adjournment proposal.

 

Q: When and where are the special meetings?

 

A: The CapStar special meeting will be held on [                ], at [                ] local time, at [                ].

The Athens special meeting will be held on [                ], at [                ] local time, at [                ].

 

Q: Who can vote at the special meetings of shareholders?

 

A: CapStar Special Meeting. Holders of record of CapStar common stock at the close of business on [                ], 2018, which is the date that the CapStar board of directors has fixed as the record date for the CapStar special meeting, are entitled to vote at the CapStar special meeting.

Athens Special Meeting. Holders of shares of Athens common stock at the close of business on [                ], 2018, which is the date that the Athens board of directors has fixed as the record date for the Athens special meeting, are entitled to vote at the Athens special meeting.

 

Q: What do I need to do now?

 

A: After you have carefully read this joint proxy statement/prospectus and have decided how you wish to vote your shares, please vote your shares promptly so that your shares are represented and voted at your special meeting.

If you are a shareholder of record of CapStar as of the CapStar record date or a shareholder of record of Athens as of the Athens record date, you may submit your proxy before your respective company’s special meeting in one of the following ways:

 

    Use the toll-free number shown on your proxy card;

 

    Visit the website shown on your proxy card to vote via the Internet;

 

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    Complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope; or

 

    You may also cast your vote in person at your respective company’s special meeting.

If your shares are held in “street name” through a broker, bank or other nominee, that institution will send you separate instructions describing the procedure for voting your shares. “Street name” shareholders who wish to vote at the special meetings will need to obtain a proxy form from their broker, bank or other nominee.

If you have Athens shares allocated to your account under the Athens Federal Employee Stock Ownership Plan (which we refer to as the “Athens ESOP”) and/or Athens Federal Employees’ Savings & Profit Sharing Plan (which we refer to as the “Athens 401(k) plan”), you will receive separate instructions describing the procedure for voting your shares.

 

Q: What constitutes a quorum for the special meetings?

 

A: For each company’s special meeting of shareholders, the presence, in person or by proxy, of holders of a majority of the outstanding shares of that company’s common stock entitled to vote at its special meeting will constitute a quorum for the transaction of business. Abstentions and broker non-votes, if any, will be included in determining the number of shares present at its special meeting for the purpose of determining the presence of a quorum.

 

Q: What is the vote required to approve each proposal?

 

A: CapStar special meeting:

Approval of the CapStar merger proposal requires the affirmative vote of the holders of a majority of the outstanding shares of CapStar common stock entitled to vote on the proposal. If you mark “ABSTAIN” on your proxy card or when voting by Internet or phone, fail to submit a proxy or vote in person at the CapStar special meeting or fail to instruct your bank, broker or other nominee with respect to the CapStar merger proposal, it will have the same effect as a vote “AGAINST” the proposal.

Approval of the CapStar adjournment proposal requires the votes cast by shareholders of CapStar in favor of the proposal to exceed the votes cast by shareholders of CapStar against the proposal at the CapStar special meeting. If a CapStar shareholder present in person at the CapStar special meeting abstains from voting, or responds by proxy with an “abstain” vote, it will have no effect on the vote count for this proposal. If a CapStar shareholder is not present in person at the CapStar special meeting and does not respond by proxy, it will have no effect on the vote count for this proposal.

Athens special meeting:

Approval of the Athens merger proposal requires the affirmative vote of a majority of the outstanding shares of Athens common stock entitled to vote on the proposal. If you mark “ABSTAIN” on your proxy card or when voting by Internet or phone, fail to submit a proxy or vote in person at the Athens special meeting or fail to instruct your bank, broker or other nominee with respect to the Athens merger proposal, it will have the same effect as a vote “AGAINST” the proposal.

Approval of the Athens adjournment proposal requires the votes cast by shareholders of Athens in favor of each proposal to exceed the votes cast by shareholders of Athens against such proposal at the Athens special meeting. However, if an Athens shareholder present in person at the Athens special meeting abstains from voting, or responds by proxy with an “abstain” vote, it will have no effect on the vote count for this proposal. If an Athens shareholder does not vote in person or by proxy, it will have no effect on the vote count for this proposal.

 

Q: Why is my vote important?

 

A: If you do not return your proxy, it will be more difficult for CapStar or Athens to obtain the necessary quorum to hold their special meetings. In addition, your failure to submit a proxy or vote in person, or failure to instruct your bank, broker or other nominee how to vote, or abstention will have the same effect as a vote “AGAINST” approval of the merger agreement.

 

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The merger agreement must be approved by the affirmative vote of a majority of the outstanding shares of CapStar common stock entitled to vote on the merger agreement and approved by the affirmative vote of a majority of the outstanding shares of Athens common stock entitled to vote on the merger agreement.

The CapStar board of directors and the Athens board of directors unanimously recommend that you vote “FOR” the merger proposals.

 

Q: If my shares of common stock are held in “street name” by my bank, broker or other nominee, will my bank, broker or other nominee automatically vote my shares for me?

 

A: CapStar shareholders: No. If your bank, broker or other nominee holds your shares of CapStar common stock in “street name,” your bank, broker or other nominee will vote your shares of CapStar common stock only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your bank, broker or other nominee with this joint proxy statement/prospectus. Any such shares for which you do not give voting instructions will constitute a broker non-vote, and will have the effect of a vote “AGAINST” the merger proposal.

Athens shareholders: No. If your bank, broker or other nominee holds your shares of Athens common stock in “street name,” your bank, broker or other nominee will vote your shares of Athens common stock only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your bank, broker or other nominee with this joint proxy statement/prospectus. Any such shares for which you do not give voting instructions will constitute a broker non-vote, and will have the effect of a vote “AGAINST” the merger proposal.

 

Q: How are shares of Athens common stock allocated to accounts under the Athens ESOP voted?

 

A: Generally, the trustee of the Athens ESOP is permitted to vote shares of Athens common stock held in the trust of the Athens ESOP. However, you have the ability to direct how the trustee of the Athens ESOP will vote the shares of Athens common stock allocated to your account under the Athens ESOP. You will receive separate instructions describing the procedure for voting the shares allocated to your account under the Athens ESOP

If you fail to direct the trustee of the Athens ESOP how to vote the shares of Athens common stock allocated to your account under the Athens ESOP, generally, your shares will be voted by the trustee in a manner calculated to most accurately reflect the instructions the trustee has received from participants regarding voting shares of Athens common stock allocated to participants’ accounts under the Athens ESOP. Shares of unallocated common stock in the Athens ESOP will also be voted by the trustee in a manner calculated to most accurately reflect the instructions the trustee has received from participants’ voting shares of Athens common stock allocated to participants’ accounts under the Athens ESOP. Notwithstanding the foregoing, with respect to shares for which the trustee does not receive instructions and unallocated shares, the trustee must vote the shares in a manner determined by the trustee to be in the participants’ and their beneficiaries’ best interests.

 

Q: How do I vote the shares of Athens common stock allocated to my account under the Athens 401(k) plan?

 

A: Generally, the trustee of the Athens 401(k) plan is permitted to vote shares of Athens common stock held in the trust of the Athens 401(k) plan. However, you have the ability to direct how the trustee of the Athens 401(k) plan will vote the shares of Athens common stock allocated to your account under the Athens 401(k) plan. You will receive separate instructions describing the procedure for voting the shares allocated to your account under the Athens 401(k) plan.

If you fail to direct the trustee of the Athens 401(k) plan how to vote the shares of Athens common stock allocated to your account under the Athens 401(k) plan, generally, your shares will be voted by the trustee in a manner calculated to most accurately reflect the instructions the trustee has received from participants regarding voting shares of Athens common stock allocated to participants’ accounts under the Athens 401(k) plan.

 

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Q: Can I attend the special meetings and vote my shares in person?

 

A: Yes. All shareholders of each of CapStar and Athens, including shareholders of record and shareholders who hold their shares through banks, brokers or other nominees, are invited to attend their respective special meetings. If you are not a shareholder of record, you must obtain a proxy, executed in your favor, from the record holder of your shares, such as a bank, broker or other nominee, to be able to vote in person at the special meetings. Please bring proper identification to the special meeting, together with proof that you are a record owner of CapStar or Athens common stock, as the case may be. If your shares are held in street name, please bring acceptable proof of ownership to the special meeting, such as a letter from your broker or an account statement showing that you beneficially owned shares of CapStar or Athens common stock, as applicable, on the respective record date.

 

Q: What will happen if I return my proxy or voting instruction card without indicating how to vote?

 

A: Except as described below, if you sign and return your proxy or voting instruction card without indicating how to vote on any particular proposal, the shares represented by your proxy will be voted as recommended by your company’s board of directors. Unless you check the box on your proxy card to withhold discretionary authority, the proxy holders may use their discretion to vote on other matters relating to their company’s special meeting, as applicable.

If you fail to direct the trustee of the Athens ESOP how to vote the shares of Athens common stock allocated to your account under the Athens ESOP (including by failing to indicate how to vote on any particular proposal), generally, the shares will be voted by the trustee in a manner calculated to most accurately reflect the instructions the trustee has received from participants regarding voting shares of Athens common stock allocated to participants’ accounts under the Athens ESOP.

If you fail to direct the trustee of the Athens 401(k) plan how to vote the shares of Athens common stock allocated to your account under the Athens 401(k) plan (including by failing to indicate how to vote on any particular proposal), generally, the shares will be voted by the trustee in a manner calculated to most accurately reflect the instructions the trustee has received from participants regarding voting shares of Athens common stock allocated to participants’ accounts under the Athens 401(k) plan.

 

Q: Can I change my vote?

 

A: Yes. If you are the record holder of your shares, you may revoke your proxy in any of the following ways:

 

    submitting another valid proxy card bearing a later date;

 

    prior to the special meeting, by logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number specified on your proxy card, in each case if you are eligible to do so, and following the instructions on the proxy card;

 

    attending the applicable special meeting and voting your shares in person; or

 

    (1) If you are a CapStar shareholder, delivering prior to the CapStar special meeting a written notice of revocation to CapStar’s Corporate Secretary at the following address: 1201 Demonbreun Street, Suite 700, Nashville, Tennessee 37203, Attention: Corporate Secretary; and (2) if you are an Athens shareholder delivering prior to the Athens special meeting a written notice of revocation to Athens at the following address: P.O. Box 869, Athens, Tennessee 37371-0869, Attention: Jeffrey L. Cunningham, President and Chief Executive Officer.

If you choose to send a completed proxy card bearing a later date or a notice of revocation, the new proxy card or notice of revocation must be received by [                ], 2018. Attendance at the applicable special meeting will not, in and of itself, constitute revocation of a proxy. If you hold your shares in street name with a bank, broker or other nominee, you must follow the directions you receive from your bank, broker or other nominee to change your vote.

 

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Q: What are the U.S. federal income tax consequences of the merger to Athens shareholders?

 

A: The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”), and it is a condition to the respective obligations of CapStar and Athens to complete the merger that each of CapStar and Athens receives a legal opinion to that effect. Accordingly, holders of Athens common stock are not expected to recognize any gain or loss for U.S. federal income tax purposes on the exchange of shares of Athens common stock for shares of CapStar common stock in the merger, except with respect to any cash received instead of fractional shares of CapStar common stock.

For further information, see the section entitled “Material U.S. Federal Income Tax Consequences of the Merger.”

The U.S. federal income tax consequences described above may not apply to all holders of Athens common stock. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your independent tax advisor for a full understanding of the particular tax consequences of the merger to you.

 

Q: Are Athens shareholders entitled to appraisal or dissenters’ rights?

 

A: Yes. If you are an Athens shareholder who wants to exercise appraisal rights and receive the fair value of shares of Athens common stock in cash instead of the merger consideration, then you must deliver a written notice to Athens prior to the Athens special meeting stating, among other things, that you will exercise your right to dissent if the merger is completed. Also, you may not vote in favor of the merger agreement and must follow other procedures, both before and after the Athens special meeting, as described in Appendix E to this joint proxy statement/prospectus. Note that if you return a signed proxy card without voting instructions or with instructions to vote “FOR” the merger agreement, then your shares will automatically be voted in favor of the merger agreement and you will lose all appraisal rights available under the Tennessee Business Corporation Act (which we refer to as the “TBCA”). A summary of these provisions can be found under “The Merger—Dissenters’ Rights for Athens Shareholders.” Due to the complexity of the procedures for exercising dissenters’ right to seek appraisal, Athens shareholders who are considering exercising such rights are encouraged to seek the advice of legal counsel. Failure to strictly comply with the applicable TBCA provisions will result in the loss of the right of appraisal.

 

Q: If I am an Athens shareholder, should I send in my Athens stock certificates now?

 

A: No. Please do not send in your Athens stock certificates with your proxy. After the completion of the merger, an exchange agent agreed upon by CapStar and Athens will send you instructions for exchanging Athens stock certificates for the merger consideration. See the section entitled “The Merger Agreement—Terms of the Merger—Conversion of Shares; Exchange of Certificates.”

 

Q: What should I do if I hold my shares of Athens common stock in book-entry form?

 

A: You are not required to take any special additional actions if your shares of Athens common stock are held in book-entry form. After the completion of the merger, the exchange agent will send you instructions for converting your book-entry shares into the merger consideration.

 

Q: What should I do if I receive more than one set of voting materials?

 

A:

CapStar and Athens shareholders may receive more than one set of voting materials, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold shares of CapStar and/or Athens common stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold such shares. If you are a holder of record of CapStar common stock or Athens common stock and your shares are registered in more than one name, you will receive more than one proxy card. In addition, if you are a holder

 

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  of both CapStar common stock and Athens common stock, you will receive one or more separate proxy cards or voting instruction cards for each company. Please complete, sign, date and return each proxy card and voting instruction card that you receive or otherwise follow the voting instructions set forth in this joint proxy statement/prospectus to ensure that you vote every share of CapStar common stock and/or Athens common stock that you own.

 

Q: When do you expect to complete the merger?

 

A: CapStar and Athens expect to complete the merger in the fourth quarter of 2018. However, neither CapStar nor Athens can assure you of when or if the merger will be completed. CapStar and Athens must first obtain the approval of CapStar shareholders and Athens shareholders for the merger, as well as obtain necessary regulatory approvals and satisfy certain other closing conditions. For further information, see the section entitled “The Merger Agreement—Conditions to Completion of the Merger.”

 

Q: What happens if the merger is not completed?

 

A: If the merger is not completed, Athens common shareholders will not receive any consideration for their shares of Athens common stock in connection with the merger. Instead, Athens will remain an independent company and Athens common stock will remain outstanding. In addition, if the merger agreement is terminated in certain circumstances, Athens or CapStar may be required to pay a termination fee. See the section entitled “The Merger Agreement—Termination Fee” for a complete discussion of the circumstances under which a termination fee will be required to be paid.

 

Q: Where can I find the voting results of the special meetings?

 

A: The preliminary voting results will be announced at each of the special meetings. In addition, within four business days following certification of the final voting results, CapStar will disclose the final voting results of the CapStar special meeting on a Current Report on Form 8-K filed with the SEC.

 

Q: Are there any risks that I should consider in deciding whether to vote for the approval of the merger agreement?

 

A: Yes. You should read and carefully consider the risk factors set forth in the section entitled “Risk Factors.” You also should read and carefully consider the risk factors of CapStar contained in the documents that are incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information.”

 

Q: Whom should I call with questions or to obtain additional copies of this joint proxy statement/prospectus?

 

A: CapStar shareholders: If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies of this joint proxy statement/prospectus or need help voting your shares of CapStar common stock, you should contact CapStar’s Daniel Fox department via (1) mail at CapStar Financial Holdings, Inc.,1201 Demonbreun Street, Suite 700, Nashville, Tennessee 37203, Attention: Daniel Fox, (2) email at ir@capstarbank.com or (3) phone at (615) 732-6455.

Athens shareholders: If you have any questions concerning the merger or this joint proxy statement/prospectus, would like additional copies of this joint proxy statement/prospectus or need help voting your shares of Athens common stock, you should contact Jeffrey L. Cunningham, President and Chief Executive Officer, (1) by mail at P.O. Box 869, Athens, Tennessee 37371-0869, or (2) by phone at (423) 745-1111.

 

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SUMMARY

The following summary highlights selected information from this joint proxy statement/prospectus. It does not contain all of the information that is important to you. Each item in this summary refers to the page where that subject is discussed in more detail. You should carefully read the entire joint proxy statement/prospectus and the other documents to which we refer to understand fully the merger. See the section entitled “Where You Can Find More Information” on how to obtain copies of those documents. In addition, the merger agreement is attached as Appendix A to this joint proxy statement/prospectus. We encourage you to read the merger agreement because it is the legal document that governs the merger.

Unless the context otherwise requires throughout this joint proxy statement/prospectus, “CapStar” refers to CapStar Financial Holdings, Inc., “Athens” refers to Athens Bancshares Corporation and “we,” and “our” refer collectively to CapStar and Athens.

Information Regarding CapStar and Athens

CapStar Financial Holdings, Inc. (see page 119)

1201 Demonbreun Street, Suite 700

Nashville, Tennessee 37203

(615) 732-6400

CapStar is a bank holding company headquartered in Nashville, Tennessee and operates primarily through its wholly owned subsidiary, CapStar Bank, a state banking association chartered under the laws of the State of Tennessee. CapStar Bank was incorporated in the State of Tennessee in 2007 and acquired a state charter in 2008, which was accomplished through a de novo application with the Tennessee Department of Financial Institutions (which we refer to as the “TDFI”) and the Federal Reserve Bank of Atlanta. Upon approval of its charter, CapStar Bank opened for business to the public on July 14, 2008. CapStar was incorporated in 2015. On February 5, 2016, CapStar completed a share exchange with CapStar Bank’s shareholders that resulted in CapStar Bank becoming a wholly owned subsidiary of CapStar.

CapStar Bank is a commercial bank that seeks to establish and maintain comprehensive relationships with its clients by delivering customized and creative banking solutions and superior client service. CapStar’s products and services include (1) commercial and industrial loans to small and medium sized businesses, with a particular focus on businesses operating in the health care industry, (2) commercial real estate loans, (3) private banking and wealth management services for the owners and operators of its business clients and other high net worth individuals and (4) correspondent banking services to meet the needs of Tennessee’s smaller community banks. CapStar’s operations are presently concentrated in the Nashville Metropolitan Statistical Area.

As of March 31, 2018, on a consolidated basis, CapStar had total assets of $1.4 billion, total deposits of $1.1 billion, total net loans of $1.0 billion, and shareholders’ equity of $148.7 million.

Additional information about CapStar is included in documents incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information.”

Athens Bancshares Corporation (see page 119)

106 Washington Avenue

Athens, Tennessee 37303

(423) 745-1111



 

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Athens is a Tennessee corporation registered with the Federal Reserve Board and serves as a bank holding company under the Bank Holding Company Act of 1956, as amended (which we refer to as the “BHCA”). Athens’ primary business activity is its ownership of the outstanding shares of Athens Federal, a national bank. Athens Federal offers a variety of traditional banking products to consumers and businesses through 10 branch offices and one lending center located in southeastern Tennessee. At March 31, 2018, Athens had total consolidated assets of $482.3 million, gross loans of $334.5 million, deposits of $422.2 million and stockholders’ equity of $53.0 million. Athens’ common stock is quoted on the OTCQX under the symbol “AFCB.”

The Merger (see page 46)

The terms and conditions of the merger are contained in the merger agreement, a copy of which is included as Appendix A to this joint proxy statement/prospectus and is incorporated by reference herein. You should read the merger agreement carefully and in its entirety, as it is the legal document governing the merger.

In the merger, Athens will merge with and into CapStar, with CapStar as the surviving corporation in the merger. Immediately following the effective time of the merger, Athens Federal will merge into CapStar Bank, with CapStar Bank as the surviving bank in the bank merger.

Closing and Effective Time of the Merger (see page 100)

The closing date is currently expected to occur in the fourth quarter of 2018. On the closing date, CapStar will file articles of merger with the Secretary of State of the State of Tennessee. The merger will become effective at such time as the articles of merger are filed or such later time as may be specified in the articles of merger (which we refer to as the “effective time”). Neither CapStar nor Athens can predict the actual date on which the merger will be completed because it is subject to factors beyond each company’s control, including whether or when the required regulatory approvals and the parties’ respective shareholders’ approvals will be received.

Merger Consideration (see page 100)

Under the terms of the merger agreement, each share of Athens common stock issued and outstanding immediately prior to the completion of the merger (other than (1) dissenting shares as described below and (2) shares of Athens common stock owned directly or indirectly by Athens, CapStar and their wholly owned subsidiaries (in each case, other than shares of Athens common stock held in a fiduciary capacity or in connection with debts previously contracted) (together, the “excluded shares”)) will be converted into the right to receive the exchange ratio of CapStar common stock.

CapStar will not issue any fractional shares of CapStar common stock in the merger. Instead, an Athens shareholder who otherwise would have received a fraction of a share of CapStar common stock will receive an amount in cash rounded to the nearest whole cent. This cash amount will be determined by multiplying the fraction of a share of CapStar common stock to which the holder would otherwise be entitled by the CapStar average closing price

CapStar common stock trades on the NASDAQ under the symbol “CSTR.” Athens common stock trades on the OTCQX Market under the ticker symbol “AFCB.” The following table presents the closing price of CapStar common stock and Athens common stock on June 8, 2018, the last trading day before the date of the public announcement of the merger agreement, and [                ], 2018, the last practicable trading day prior to the mailing of this joint proxy statement/prospectus. The table also presents the equivalent value of the merger



 

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consideration per share of Athens common stock on those dates, calculated by multiplying the closing sales price of CapStar common stock on those dates by the exchange ratio.

 

Date

   CapStar closing
sale price
     Athens closing
sale price
     Equivalent Athens per
share value
 

June 8, 2018

   $ 20.05      $ 44.50      $ 57.42  

[                ], 2018

   $ [            $ [            $ [        

The value of the shares of CapStar common stock to be issued in the merger will fluctuate between now and the closing date of the merger. Athens shareholders should obtain current sale prices for CapStar common stock.

Conversion of Shares; Exchange of Certificates (see page 101)

Promptly after the effective time of the merger, CapStar’s exchange agent will mail to each holder of record of Athens common stock that is converted into the right to receive the merger consideration a letter of transmittal and instructions for the surrender of the holder’s Athens stock certificate(s) for the merger consideration (including cash in lieu of any fractional CapStar shares) and any dividends or distributions to which such holder is entitled to pursuant to the merger agreement.

Please do not send in your certificate until you receive these instructions.

Material U.S. Federal Income Tax Consequences of the Merger (see page 116)

The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code and it is a condition to the respective obligations of Athens and CapStar to complete the merger that each of Athens and CapStar receives a legal opinion to that effect. Accordingly, holders of Athens common stock are not expected to recognize any gain or loss for U.S. federal income tax purposes on the exchange of shares of Athens common stock for shares of CapStar common stock in the merger, except with respect to any cash received instead of fractional shares of CapStar common stock. For further information, see the section entitled “Material U.S. Federal Income Tax Consequences of the Merger.”

The U.S. federal income tax consequences described above may not apply to all holders of Athens common stock. Your tax consequences will depend on your individual situation. Accordingly, we strongly urge you to consult your tax advisor for a full understanding of the particular tax consequences of the merger to you.

Dissenters’ Rights for Athens Shareholders (see page 96 and Appendix E)

Under Tennessee law, Athens shareholders have the right to dissent from the merger and receive a cash payment equal to the fair value of their shares of Athens common stock appraised by a court instead of receiving the merger consideration. To exercise appraisal rights, Athens shareholders must strictly follow the procedures established by Sections 48-23-201 through 48-23-209 of the TBCA, which include delivering a written notice to Athens prior to the Athens special meeting stating, among other things, that the shareholder will exercise his or her right to dissent if the merger is completed, and not voting for approval of the merger agreement. A shareholder’s failure to vote against the merger agreement will not constitute a waiver of such shareholder’s dissenters’ rights.

Due to the complexity of the procedures for exercising dissenters’ right to seek appraisal, Athens shareholders who are considering exercising such rights are encouraged to seek the advice of legal counsel. Failure to strictly comply with the applicable TBCA provisions will result in the loss of the right of appraisal.



 

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Opinions of CapStar’s Financial Advisors (see pages 53 and 65; Appendix B and Appendix C)

On June 11, 2018, at the meeting of the CapStar board of directors held to evaluate the merger, Keefe, Bruyette & Woods, Inc. (which we refer to as “KBW”) delivered an opinion (which was initially rendered verbally and confirmed in a written opinion, dated June 11, 2018) to the CapStar board of directors to the effect that, as of that date and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by KBW as set forth in such opinion, the exchange ratio in the merger was fair, from a financial point of view, to CapStar. On June 11, 2018, at the meeting of the CapStar board of directors held to evaluate the merger, Sandler O’Neill & Partners, L.P. (which we refer to as “Sandler O’Neill”) delivered an opinion (which was initially rendered verbally and confirmed in a written opinion, dated June 11, 2018) to the CapStar board of directors to the effect that, as of that date and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill as set forth in such opinion, exchange ratio in the merger was fair, from a financial point of view, to CapStar. The full text of the written opinions of KBW and Sandler O’Neill are attached as Appendix B and Appendix C, respectively, to this joint proxy statement/prospectus. CapStar shareholders should read the entire opinions for a description of, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by KBW and Sandler O’Neill in rendering their respective opinions.

The opinions of KBW and Sandler O’Neill were for the information of, and were directed to, the CapStar board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinions of KBW and Sandler O’Neill did not address the underlying business decision of CapStar to engage in the merger or enter into the merger agreement or constitute a recommendation of KBW or Sandler O’Neill, respectively, to the CapStar board of directors in connection with the merger, and the opinions of KBW and Sandler O’Neill do not constitute a recommendation of KBW or Sandler O’Neill, respectively, to any holder of CapStar common stock or any shareholder of any other entity as to how to vote in connection with the merger or any other matter.

For further information, see the section entitled “The Merger—Opinions of CapStar’s Financial Advisors.”

Opinion of Athens’ Financial Advisor (see page 78 and Appendix D)

On June 11, 2018, BSP Securities, LLC (which we refer to as “BSP Securities”), a wholly owned broker-dealer subsidiary of Banks Street Partners, LLC (which we refer to as “Banks Street,” and together with BSP Securities, “BSP”) rendered an opinion to the Athens board of directors to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by BSP as set forth in such opinion, the merger consideration in the proposed merger was fair, from a financial point of view, to the holders of Athens common stock. The full text of the written opinions of BSP is attached as Appendix D to this joint proxy statement/prospectus. Athens shareholders should read the entire opinion for a discussion of, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken by BSP in rendering its opinion.

The opinion of BSP Securities is addressed to the Athens board of directors, is directed only to the fairness, from a financial point of view, of the merger consideration to be paid to the holders of Athens common stock in the merger and does not constitute a recommendation to any holder of shares of Athens common stock as to how such shareholder should vote with respect to the merger or any other matter at the Athens special meeting.

For further information, see the section entitled “The Merger—Opinion of Athens’ Financial Advisor.”



 

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Recommendation of the CapStar Board of Directors (see page 51)

The CapStar board of directors unanimously recommends that CapStar shareholders vote “FOR” the CapStar merger proposal and “FOR” the CapStar adjournment proposal.

The CapStar board of directors has determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of CapStar and its shareholders and has unanimously approved the merger agreement. For the factors considered by the CapStar board of directors in reaching its decision to approve the merger agreement, see the section entitled “The Merger—Recommendation of the CapStar Board of Directors and CapStar’s Reasons for the Merger.”

Recommendation of the Athens Board of Directors (see page 76)

The Athens board of directors unanimously recommends that Athens shareholders vote “FOR” the Athens merger proposal and “FOR” the Athens adjournment proposal.

The Athens board of directors has determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Athens and its shareholders and has unanimously approved the merger agreement. For the factors considered by the Athens board of directors in reaching its decision to approve the merger agreement, see the section entitled “The Merger—Recommendation of the Athens Board of Directors and Athens’ Reasons for the Merger.”

Interests of Athens Directors and Executive Officers in the Merger (see page 91)

In considering the recommendation of the Athens board of directors with respect to the merger agreement, Athens’ shareholders should be aware that some of Athens’ directors and executive officers have interests in the merger that are different from, or in addition to, the interests of Athens’ shareholders generally. Interests of officers and directors that may be different from or in addition to the interests of Athens’ shareholders include, among others:

 

    The merger agreement provides for the rollover of certain Athens stock options and the cash-out of certain other Athens stock options.

 

    Certain of Athens’ executive officers and directors have entered into employment agreements with CapStar and CapStar Bank that will be effective following the merger, pursuant to which they will receive certain payments at or shortly following the effective time of the merger.

 

    Certain of Athens’ executive officers and directors are entitled to severance benefits upon a qualifying termination of employment in connection with or following the merger.

 

    Athens’ directors and executive officers are entitled to continued indemnification and insurance coverage under the merger agreement.

These interests are discussed in more detail in the section entitled “The Merger—Interests of Athens Directors and Executive Officers in the Merger.” The Athens board of directors was aware of the different or additional interests set forth herein and considered such interests along with other matters in adopting and approving the merger agreement and the transactions contemplated thereby, including the merger.

Treatment of Athens Equity Awards (see page 91)

Except as described in the paragraph below, at the effective time, each outstanding and unexercised Athens stock option granted under the Athens equity plan will be automatically assumed and converted into an option to purchase a number of shares of CapStar common stock equal to the product (rounded down to the nearest whole share) of (1) the number of shares of Athens common stock subject to the Athens stock option immediately prior



 

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to the effective time, multiplied by (2) the exchange ratio, with an exercise price per share of CapStar common stock equal to the quotient (rounded up to the nearest whole cent) obtained by dividing (x) the exercise price per share of Athens common stock subject to such Athens stock option immediately prior to the effective time by (y) the exchange ratio.

At the effective time, each outstanding and unexercised stock option granted under the Athens equity plan that is held by any employee or service provider of Athens who has terminated employment or service prior to the effective time will be cancelled and converted into a right to receive a cash payment (without interest and less applicable withholding taxes) equal to the product of (1) the number of shares of Athens common stock subject to such Athens stock option and (2) the excess, if any, of (x) the product of the exchange ratio and the CapStar average closing price over (y) the per-share exercise price of such Athens stock option. If the product obtained by the prior sentence is zero or a negative number, then the Athens stock option will be cancelled for no consideration.

Regulatory Approvals (see page 94)

Completion of the merger and the bank merger are subject to various regulatory approvals and notifications, including approvals from the Board of Governors of the Federal Reserve System (which we refer to as the “Federal Reserve Board”) and the TDFI. CapStar and Athens have agreed to use their reasonable best efforts to obtain all requisite regulatory approvals. CapStar and Athens and/or their respective subsidiaries are in the process of filing applications and notifications to obtain these regulatory approvals. Although the parties currently believe they should be able to obtain all regulatory approvals in a timely manner, they cannot be certain when or if they will obtain them or, if obtained, whether they will contain terms, conditions or restrictions not currently contemplated that will be detrimental to or have a material adverse effect on the combined company after the completion of the merger. The regulatory approvals to which the completion of the merger and bank merger are subject are described in more detail under the section entitled “The Merger—Regulatory Approvals.”

Conditions to Completion of the Merger (see page 111)

The completion of the merger depends on a number of conditions being satisfied or, where permitted, waived, including:

 

    the approval of the merger agreement by CapStar’s and Athens’ respective shareholders;

 

    receipt of all required regulatory approvals, consents or waivers to permit the consummation of the transactions contemplated by the merger agreement, and the expiration or termination of all statutory waiting periods;

 

    the absence of any order, decree, injunction or proceeding by any governmental entity of competent jurisdiction prohibiting or enjoining the consummation of the merger or the bank merger, and the absence of any statute, rule or regulation that prohibits or makes illegal the consummation of the merger or the bank merger;

 

    the effectiveness of the registration statement of which this joint proxy statement/prospectus is a part with respect to the CapStar common stock to be issued upon the consummation of the merger under the Exchange Act, and the absence of any proceedings pending or threatened by the SEC to suspend the effectiveness of the registration statement;

 

    the authorization of the listing of the CapStar common stock to be issued upon the consummation of the merger on the NASDAQ, without objection to the listing from the NASDAQ;

 

    receipt by each of CapStar and Athens of an opinion of its respective legal counsel as to certain tax matters;


 

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    the accuracy of the representations and warranties of each other party in the merger agreement as of June 11, 2018 and as of the closing date as though made at and as of the closing date, subject to the materiality standards provided in the merger agreement (and the receipt by each party of certificates from the other party to such effect);

 

    the performance by the other party in all material respects of all obligations required to be performed by it at or prior to the effective time of the merger under the merger agreement (and the receipt by each party of certificates from the other party to such effect); and

 

    the absence of a material adverse effect on the other party.

In addition, CapStar’s obligation to complete the merger is subject to a condition that none of the requisite governmental approvals will contain a requirement or condition that would so materially and adversely impact the economic or business benefits of the merger or the bank merger to CapStar that, had such requirement or condition been known, CapStar would not have entered into the merger agreement.

No assurance is given as to when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.

Agreement Not to Solicit Other Offers (see page 110)

Athens has agreed to a number of limitations with respect to soliciting, negotiating and discussing acquisition proposals involving persons other than CapStar, and to certain related matters. The merger agreement does not, however, prohibit Athens from considering an unsolicited bona fide acquisition proposal from a third party if certain specified conditions are met. Athens’ non-solicitation obligations are discussed in more detail in the section entitled “The Merger Agreement—Agreement Not to Solicit Other Offers.”

Termination of the Merger Agreement (see page 112)

The merger agreement can be terminated at any time prior to completion of the merger by mutual consent, or by either party in the following circumstances:

 

    Athens shareholders do not approve the merger agreement at the Athens special meeting, except that this right to terminate is only available to Athens if it has materially complied with its obligation to use reasonable best efforts to obtain the Athens shareholders’ approval;

 

    any required regulatory approval has been denied and such denial has become final and non-appealable, or a governmental authority or court has issued a final, unappealable order permanently prohibiting consummation of the transactions contemplated by the merger agreement, unless the failure to obtain the requisite approval was due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements in the merger agreement;

 

    the merger has not been consummated by March 31, 2019 (which we refer to as the “outside date”), except that (1) if on the outside date the conditions relating to requisite regulatory approval or absence of injunctions are not satisfied, then the outside date will be extended to June 30, 2019 and (2) this right to terminate will not be available to the party whose failure to perform or observe the covenants and agreements in the merger agreement is the reason for the failure to complete the merger by the outside date; or

 

   

there is a breach by the other party of any covenant or agreement contained in the merger agreement, or any representation or warranty of the other party becomes untrue, in each case such that the conditions to closing would not be satisfied and such breach or untrue representation or warranty has not been or



 

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cannot be cured by the earlier of the outside date or within 30 days after the giving of written notice to such party of such breach, except that this right to terminate will not be available to the party seeking to terminate if it is then in material breach of the merger agreement.

CapStar may also terminate the merger agreement if:

 

    Athens breaches in any material respect its obligations not to solicit other acquisition proposals, or its obligation to submit the merger agreement to Athens’ shareholders for approval and to use reasonable best efforts to obtain the Athens shareholders’ approval; or

 

    if the Athens board of directors does not publicly recommend in this joint proxy statement/prospectus that Athens shareholders approve the merger agreement or withdraws or revises its recommendation in a manner adverse to CapStar.

Athens may also terminate the merger agreement if, within the five-day period commencing with the fifth day prior to the closing date of the merger (or if the fifth day before the closing day is not a trading day for CapStar common stock, the date immediately preceding the fifth day before the closing day on which shares of CapStar common stock actually trade on the NASDAQ) (which we refer to as the “determinate date”), both of the following conditions are satisfied:

 

    the CapStar average closing price is less than $16.20; and

 

    the number obtained by dividing the CapStar average closing price by $20.25 is less than the number obtained by (A) dividing (x) the average of the closing price of the NASDAQ Bank Index for the 20 consecutive full trading days ending on and including the determination date by (y) $4,391.77 and (B) subtracting 0.20.

However, if Athens chooses to exercise this termination right, CapStar has the option, within five business days of receipt of notice from Athens, to adjust the merger consideration and prevent termination under this provision.

Termination Fee (see page 113)

Athens will pay CapStar a $5 million termination fee if the merger agreement is terminated in the following circumstances:

 

    CapStar terminates the merger agreement because (1) Athens breaches its obligations in any material respect regarding the solicitation of other acquisition proposals or submission of the merger agreement to Athens’ shareholders or (2) the Athens board of directors does not publicly recommend in this joint proxy statement/prospectus that Athens shareholders approve the merger agreement or withdraws or revises its recommendation in a manner adverse to CapStar; and

 

    if (1) the merger agreement is terminated (A) by either party because the Athens shareholder approval has not been obtained at the Athens shareholders’ meeting or (B) by either party because the merger has not occurred by the outside date and Athens shareholder approval has not been obtained or (C) by CapStar because of an uncured material breach by Athens, (2) an acquisition proposal has been publicly announced or communicated and (3) within 12 months of such termination Athens consummates or enters into an agreement with respect to an acquisition proposal (whether or not it is the same acquisition proposal).

Subject to certain conditions and exceptions, CapStar will pay Athens a $4 million termination fee if the merger agreement is terminated due to a failure to close by June 30, 2019, the reason for such failure to close is that the regulatory approval and/or absence of injunction conditions have not been satisfied by June 30, 2019, and the failure of either such condition to be satisfied is not attributable to Athens.



 

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Except in the case of fraud or a willful and material breach of the merger agreement, the payment of the termination fee will fully discharge the party paying such fee from any losses that may be suffered by the other party arising out of the termination of the merger agreement.

Public Trading Markets (see page 93)

CapStar will cause the shares of CapStar common stock to be issued to the holders of Athens common stock in the merger to be authorized for listing on the NASDAQ, subject to official notice of issuance, prior to the effective time of the merger.

CapStar Special Meeting (see page 35)

The special meeting of CapStar shareholders will be held at on [                ], at [                ] local time, at [                ], Tennessee. At the CapStar special meeting, CapStar shareholders will be asked to vote on:

 

    approve the CapStar merger proposal; and

 

    approve the CapStar adjournment proposal.

Only holders of record at the close of business on [                ], 2018 will be entitled to vote at the CapStar special meeting. Each share of CapStar common stock is entitled to one vote on each proposal to be considered at the CapStar special meeting.

As of the CapStar record date, the directors and executive officers of CapStar and their affiliates beneficially owned and were entitled to vote approximately [                ] shares of CapStar common stock representing approximately [        ]% of the shares of CapStar common stock outstanding on that date. For more information regarding the CapStar voting agreements, see the sections entitled “Information About the CapStar Special Meeting—Shares Subject to Voting Agreements” and “The Merger Agreement—CapStar Voting Agreements.”

Approval of the CapStar merger proposal requires the affirmative vote of holders of a majority of the outstanding shares of CapStar common stock entitled to vote on such proposal. If you mark “ABSTAIN” on your proxy card or when voting by Internet or phone, fail to submit a proxy or vote in person at the CapStar special meeting or fail to instruct your bank, broker or other nominee with respect to the CapStar merger proposal, it will have the same effect as a vote “AGAINST” such proposal.

Approval of the CapStar adjournment proposal requires the votes cast by shareholders of CapStar in favor of the proposal to exceed the votes cast by shareholders of CapStar against the proposal at the CapStar special meeting. If you mark “ABSTAIN” on your proxy, fail to submit a proxy or vote in person at the CapStar special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the CapStar adjournment proposal, it will have no effect on the proposal. The approval of the CapStar adjournment proposal is not a condition to the completion of the merger.

Athens Special Meeting (see page 40)

The special meeting of Athens shareholders will be held on [                ], at [                ] local time, at [                ], Tennessee. At the Athens special meeting, Athens shareholders will be asked to vote on:

 

    approve the Athens merger proposal; and

 

    approve the Athens adjournment proposal.


 

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Only holders of record at the close of business on [                ], 2018 will be entitled to vote at the Athens special meeting. Each share of Athens common stock is entitled to one vote on each proposal to be considered at the Athens special meeting. As of the Athens record date, there were [                ] shares of Athens common stock entitled to vote at the Athens special meeting.

As of the Athens record date, the directors and executive officers of Athens and their affiliates beneficially owned and were entitled to vote approximately [                ] shares of Athens common stock representing approximately [        ]% of the shares of Athens common stock outstanding on that date. For more information regarding the Athens voting agreements, see the sections entitled “Information About the Athens Special Meeting—Shares Subject to Voting Agreements” and “The Merger Agreement—Athens Voting Agreements.”

Approval of the Athens merger proposal requires the affirmative vote of a majority of the outstanding shares of Athens common stock entitled to vote on the proposal. Therefore, if you indicate “ABSTAIN” on your proxy card or when voting by Internet or phone, fail to either submit a proxy or vote in person at the Athens special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the proposal to approve the merger agreement, it will have the same effect as a vote “AGAINST” the proposal.

Approval of the Athens adjournment proposal requires the votes cast by Athens shareholders in favor of the proposal to exceed the votes cast by Athens shareholders against the proposal at the Athens special meeting. Abstentions and broker non-votes, if any, will not be treated as a vote cast either for or against either of the Athens adjournment proposal. The approval of the Athens adjournment proposal is not a condition to the completion of the merger.

CapStar Voting Agreements (see page 114)

Each of the directors of CapStar, solely in his or her individual capacity as a shareholder of CapStar, has entered into voting and support agreements (which we refer to collectively as the “CapStar voting agreements”) with CapStar and Athens, in which each such person agreed, on the terms and subject to the conditions set forth therein, to vote the shares of CapStar common stock beneficially owned by him or her in favor of the merger, as well as certain other customary restrictions with respect to the voting and transfer of his or her shares of CapStar common stock.

As of the CapStar record date, a total of [                ] shares of CapStar common stock, representing approximately [        ]% of the outstanding shares of CapStar common stock entitled to vote at the CapStar special meeting, are subject to the CapStar voting agreements.

For more information regarding the CapStar voting agreements, see the sections entitled “Information About the CapStar Special Meeting—Shares Subject to Voting Agreements” and “The Merger Agreement—CapStar Voting Agreements.”

Athens Voting Agreements (see page 114)

Each of the directors of Athens, solely in his or her individual capacity as a shareholder of Athens, has entered into a voting and support agreement (which we refer to collectively as the “Athens voting agreements”) with CapStar and Athens, in which each such person agreed, on the terms and subject to the conditions set forth therein, to vote the shares of Athens common stock beneficially owned by him or her in favor of the merger and against any proposal made in competition with the merger, as well as certain other customary restrictions with respect to the voting and transfer of his or her shares of Athens common stock.



 

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As of the Athens record date, a total of [                ] shares of Athens common stock, representing approximately [    ]% of the outstanding shares of Athens common stock entitled to vote at the Athens special meeting, are subject to the Athens voting agreements.

For more information regarding the Athens voting agreements, see the sections entitled “Information About the Athens Special Meeting—Shares Subject to Voting Agreements” and “The Merger Agreement—Athens Voting Agreements.”

Comparison of Shareholders’ Rights (see page 152)

The rights of Athens shareholders who continue as CapStar shareholders after the merger will be governed by the certificate of incorporation and bylaws of CapStar rather than the certificate of incorporation and bylaws of Athens. For more information, see the section entitled “Comparison of Shareholders’ Rights.”

Risk Factors (see page 25)

Before voting at the CapStar or Athens special meeting, you should carefully consider all of the information contained or incorporated by reference into this joint proxy statement/prospectus, including the risk factors set forth in the section entitled “Risk Factors” or described in CapStar’s reports filed with the SEC, which are incorporated by reference into this joint proxy statement/prospectus. For more information, see the sections entitled “References to Additional Information” and “Where You Can Find More Information.”



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CAPSTAR

The following table summarizes selected historical consolidated financial data of CapStar for the periods and as of the dates indicated. This information has been derived from CapStar’s consolidated financial statements filed with the SEC. Historical financial data as of and for the three months ended March 31, 2018 and March 31, 2017 are unaudited and include, in management’s opinion, all normal recurring adjustments considered necessary to present fairly the results of operations and financial condition of CapStar. You should not assume the results of operations for past periods and for the three months ended March 31, 2018 and March 31, 2017 indicate results for any future period.

You should read this information in conjunction with CapStar’s consolidated financial statements and related notes thereto included in CapStar’s Annual Report on Form 10-K for the year ended December 31, 2017, and in CapStar’s Quarterly Report on Form 10-Q for the three months ended March 31, 2018, which are incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information.”

 

    Three Months Ended     Year Ended December 31,  

(Dollars in thousands, except per
share data)

  March 31,
2018
    March 31,
2017
    2017     2016     2015     2014     2013  

Income Statement Data:

             

Interest income

  $ 13,744     $ 11,979     $ 51,515     $ 45,395     $ 40,504     $ 38,287     $ 41,157  

Interest expense

    2,898       2,047       9,652       6,931       5,731       5,871       6,577  

Net interest income

    10,846       9,932       41,863       38,464       34,773       32,416       34,581  

Provision for loan losses

    678       3,405       12,870       2,829       1,651       3,869       938  

Net interest income after provision for loan losses

    10,168       6,527       28,993       35,635       33,122       28,547       33,642  

Non-interest income

    3,090       2,134       10,908       11,084       8,884       7,419       1,946  

Non-interest expense

    9,580       8,376       33,765       33,129       30,977       28,562       25,431  

Net income before income tax expense

    3,678       285       6,136       13,590       11,029       7,404       10,157  

Income tax expense (benefit)

    483       (47     4,635       4,493       3,470       2,412       3,749  

Net income

    3,195       332       1,501       9,097       7,559       4,992       6,408  

Per Share Data:

             

Net income per share, basic

  $ 0.27     $ 0.03     $ 0.13     $ 0.98     $ 0.89     $ 0.59     $ 0.75  

Weighted average shares—basic

    11,664,467       11,210,948       11,280,580       9,328,236       8,538,970       8,456,386       8,583,105  

Net income per share, diluted

  $ 0.25     $ 0.03     $ 0.12     $ 0.81     $ 0.73     $ 0.49     $ 0.62  

Weighted average shares—diluted

    12,975,981       12,784,117       12,803,511       11,212,026       10,381,895       10,281,044       10,409,750  

Book value per share of common stock

  $ 11.87     $ 11.70     $ 11.91     $ 11.62     $ 10.74     $ 10.17     $ 9.54  

Tangible book value per share of common stock(1)

  $ 11.34     $ 11.14     $ 11.37     $ 11.06     $ 10.00     $ 9.41     $ 9.51  

Total shares of common stock outstanding

    11,773,358       11,218,328       11,582,026       11,204,515       8,577,051       8,471,516       8,353,087  

Total shares of preferred stock outstanding

    878,049       878,049       878,049       878,049       1,609,756       1,609,756       1,609,756  

Dividends per share

    —         —         —         —         —         —         —    


 

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    Three Months Ended     Year Ended December 31,  

(Dollars in thousands, except per
share data)

  March 31,
2018
    March 31,
2017
    2017     2016     2015     2014     2013  

Balance Sheet Data (at period end):

             

Total assets

  $ 1,382,745     $ 1,381,703     $ 1,344,429     $ 1,333,675     $ 1,206,800     $ 1,128,395     $ 1,008,709  

Total loans

    1,031,821       1,003,434       947,537       935,251       808,396       713,077       626,382  

Allowance for loan losses

    (14,563     (13,997     (13,721     (11,634     (10,132     (11,282     (8,459

Investment securities

    193,332       235,371       196,380       229,219       216,477       280,449       300,396  

Goodwill and core deposit intangible

    6,232       6,276       6,242       6,290       6,344       6,398       284  

Total deposits

    1,127,553       1,157,995       1,119,866       1,128,723       1,038,461       981,057       879,090  

FHLB advances and securities sold under repurchase agreements

    100,000       75,000       70,000       55,000       48,755       34,837       29,494  

Shareholders’ equity

    148,693       140,211       146,946       139,207       108,586       102,651       96,191  

Performance Ratios:

             

Return on average assets

    0.96     0.10     0.11     0.72     0.66     0.47     0.62

Return on average equity

    8.74     0.95     1.05     7.57     7.08     4.94     6.46

Net interest margin

    3.37     3.12     3.20     3.17     3.19     3.20     3.45

Non-interest income to average assets

    0.93     0.65     0.80     0.88     0.78     0.70     0.19

Efficiency ratio

    68.75     69.42     63.98     66.86     70.96     71.70     69.62

Asset Quality Data:

             

Allowance for loan losses to total loans

    1.41     1.39     1.45     1.24     1.25     1.58     1.35

Allowance for loan losses to non-performing loans

    1,095.7     102.7     509.08     321.42     376.78     145.80     129.11

Non-performing assets to total assets

    0.10     0.99     0.20     0.27     0.24     0.74     0.79

Net charge-offs to average loans

    -0.07     0.43     1.09     0.15     0.38     0.15     0.11

Capital ratios (CapStar Financial Holdings, Inc.):

             

Total risk based capital

    12.22     12.13     12.52     12.60     11.42     11.54     12.19

Tier 1 risk based capital

    11.11     11.01     11.41     11.61     10.41     10.32     11.14

Common equity tier 1 capital

    10.43     10.32     10.70     10.90     8.89     8.55     0.00

Leverage

    10.91     10.37     10.77     10.46     9.33     8.56     8.96

 

(1) This measure is not recognized under GAAP and is therefore considered to be a non-GAAP measure. See the section entitled “Non-GAAP Financial Measures—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in CapStar’s Annual Report on Form 10-K for the year ended December 31, 2017, which are incorporated by reference into this joint proxy statement/prospectus, for a reconciliation of this measure to its most comparable GAAP measure.


 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED

CONSOLIDATED FINANCIAL DATA

The following table shows selected unaudited pro forma condensed combined financial information about the financial condition and results of operations of CapStar giving effect to the merger, for the year ended December 31, 2017 and as of and for the three months ended March 31, 2018.

The selected unaudited pro forma condensed combined consolidated financial information has been prepared using the acquisition method of accounting, adjusted from CapStar’s unaudited interim financial statements as of and for the period ended March 31, 2018 and CapStar’s audited financial statements for the year ended December 31, 2017 to give effect to the merger and the estimated acquisition accounting adjustments resulting from the merger. The selected unaudited pro forma condensed combined consolidated balance sheet as of March 31, 2018 in the tables below are presented as if the merger had occurred on March 31, 2018, and the unaudited pro forma condensed combined consolidated statements of income statements for the year ended December 31, 2017 and the three months ended March 31, 2018 are presented as if the merger had occurred on January 1, 2017. The historical consolidated financial information has been adjusted to reflect factually supportable items that are directly attributable to the merger and, with respect to the income statement only, expected to have a continuing impact on consolidated results of operations; as such, one-time merger costs are not included.

The selected unaudited pro forma condensed combined consolidated financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had CapStar and Athens actually been combined as of the dates indicated and at the beginning of the periods presented, nor does it necessarily indicate the results of operations in future periods or the future financial position of the combined entities, which could differ materially from those shown in this information. The selected unaudited pro forma condensed combined consolidated financial information does not reflect the benefits of expected synergies or other factors that may result as a consequence of the merger.

The selected unaudited pro forma condensed combined consolidated financial information has been derived from, and should be read in conjunction with, the unaudited pro forma combined consolidated financial information, including the notes thereto, which is included in this joint proxy statement/prospectus under the section entitled “Unaudited Pro Forma Combined Consolidated Financial Information.”

 

(Dollars in thousands)

   For the three
months ended
March 31,
2018
     For the
year ended
December 31,
2017
 

Unaudited Pro Forma Condensed Consolidated Income Statement Information:

     

Net interest income

   $ 15,437      $ 58,244  

Provision for loan losses

     704        12,888  

Income before provision for income taxes

     5,547        12,339  

Net income

     4,627        5,306  

 

(Dollars in thousands)

   For the three
months ended
March 31,
2018
 

Unaudited Pro Forma Condensed Combined Balance Sheet Information:

  

Total loans, net

   $ 1,347,778  

Total assets

     1,897,342  

Total deposits

     1,535,884  

Shareholders’ equity

     246,362  


 

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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA

Presented below are CapStar’s historical per share data for the year ended December 31, 2017, as derived from audited financial statements of CapStar, and the three months ended March 31, 2018, derived from the unaudited financial statements of CapStar. Also presented below are Athens’ historical per share data for the year ended December 31, 2017, as derived from audited financial statements of Athens, and the three months ended March 31, 2018, derived from the unaudited financial statements of Athens. The pro forma combined per share data for the year ended December 31, 2017 and three months ended March 31, 2018 and the per equivalent Athens share information provided in the table below are unaudited. The unaudited pro forma data and equivalent per share information give effect to the merger as if the transaction had been effective on the dates presented, in the case of the book value data, and as if the transactions had become effective on beginning of the fiscal year or period presented, in the case of the earnings per share and dividends declared data. For a discussion of the assumptions and adjustments made in preparing the pro forma financial information presented in this joint proxy statement/prospectus, see the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements.”

The information presented below should be read together with: (1) CapStar’s consolidated financial statements and related notes thereto filed by CapStar with the SEC, and incorporated by reference in this joint proxy statement/prospectus; (2) Athens’ consolidated financial statements and related notes thereto, which are included in this joint proxy statement/prospectus; and (3) the unaudited pro forma combined consolidated financial information included in this joint proxy statement/prospectus. See the sections entitled “Unaudited Pro Forma Combined Consolidated Financial Information,” “Index to Consolidated Financial Statements of Athens Bancshares Corporation” and “Where You Can Find More Information.”

The unaudited pro forma financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of the period presented. The unaudited pro forma financial information also does not consider any potential impacts of current market conditions on revenues, potential revenue enhancements, anticipated cost savings and expense efficiencies, or asset dispositions, among other factors.

 

                   Pro Forma
Combined
     Athens Pro
Forma
Equivalent
Conversion
Ratio(1)
 
     Historical        
     CapStar      Athens        

For the three months ended March 31, 2018:

           

Net income per share (Basic)

   $ 0.27      $ 0.90      $ 0.27      $ 0.77  

Net income per share (Diluted)

     0.25        0.83        0.25        0.72  

Cash dividends declared per share

     —          0.05        0.01        0.03  

Book value per share

     11.87        29.16        13.98        40.04  

For the year ended December 31, 2017:

           

Net income per share (Basic)

   $ 0.13      $ 2.46      $ 0.32      $ 0.92  

Net income per share (Diluted)

     0.12        2.27        0.29        0.83  

Cash dividends declared per share

     —          0.20        0.02        0.06  

Book value per share

     11.91        29.09        14.01        40.12  

 

(1) Athens pro forma equivalent conversion ratio was computed by multiplying the CapStar pro forma combined amounts by the exchange ratio of 2.864.


 

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MARKET PRICES AND DIVIDEND INFORMATION

CapStar common stock is listed and trades on the NASDAQ under the symbol “CSTR.” As of the CapStar record date, there were [                ] shares of CapStar common stock outstanding, which were held by approximately [                ] holders of record.

Athens common stock is quoted on the OTCQX Market under the ticker symbol “AFCB.” As of the Athens record date, there were [                ] shares of Athens common stock outstanding, which were held by approximately [                ] holders of record.

The following table shows, for the indicated periods, the high and low sales prices per share for CapStar common stock, as reported on the NASDAQ and Athens common stock as reported in the OTCQX Market. Cash dividends declared and paid per share on CapStar and Athens common stock are also shown for the periods indicated below.

 

     CapStar      Athens Common Stock  
     High      Low      Dividend(1)      High      Low      Dividend  

2018

                 

First Quarter

   $ 21.91      $ 17.36        —        $ 51.00      $ 37.50      $ 0.05  

Second Quarter

   $ 20.87      $ 17.39        —        $ 56.00      $ 42.00      $ 0.05  

Third Quarter (Through July 9, 2018)

   $ 19.49      $ 18.38      $ 0.04      $ 53.00      $ 51.55        —    

2017

                 

First Quarter

   $ 22.05      $ 18.52        —        $ 34.51      $ 31.97      $ 0.05  

Second Quarter

   $ 19.53      $ 16.96        —        $ 44.89      $ 34.85      $ 0.05  

Third Quarter

   $ 19.62      $ 16.00        —        $ 40.00      $ 35.96      $ 0.05  

Fourth Quarter

   $ 22.22      $ 18.73        —        $ 38.50      $ 38.00      $ 0.05  

2016

                 

First Quarter

   $ —        $ —          —        $ 25.85      $ 22.97      $ 0.05  

Second Quarter

   $ —        $ —          —        $ 33.87      $ 25.10      $ 0.05  

Third Quarter(2)

   $ 17.41      $ 15.00        —        $ 28.39      $ 25.40      $ 0.05  

Fourth Quarter

   $ 22.35      $ 15.90        —        $ 34.61      $ 27.64      $ 0.05  

 

(1) A quarterly cash dividend of $0.04 per share on CapStar’s common stock and preferred stock was declared on June 11, 2018, and will be payable to shareholders of record as of the close of business on July 31, 2018.
(2) CapStar common stock has traded on the NASDAQ since September 22, 2016. Prior to that time, there was no established public trading market for CapStar common stock.

The above table shows only historical comparisons. These comparisons may not provide meaningful information to CapStar and Athens shareholders in determining whether to approve the merger agreement. Each CapStar and Athens shareholder is advised to obtain current market quotations for CapStar common stock and Athens common stock. The market price of CapStar common stock and Athens common stock will fluctuate between the date of this joint proxy statement/prospectus and the date of completion of the merger. No assurance can be given concerning the market price of CapStar common stock or Athens common stock before or after the effective date of the merger. Changes in the market price of CapStar common stock prior to the completion of the merger will affect the market value of the merger consideration that Athens shareholders will receive upon completion of the merger.



 

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RISK FACTORS

In addition to the other information contained in, or incorporated by reference into, this joint proxy statement/prospectus, including CapStar’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and the matters addressed under the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” Athens and CapStar shareholders should consider the matters described below carefully in determining whether to vote to approve the merger agreement and the transactions contemplated thereby.

Risks Related to the Merger and CapStar’s Business Upon Completion of the Merger

Because the sale price of the CapStar common stock may fluctuate, you cannot be sure of the value of the merger consideration that you will receive in the merger.

Under the terms of the merger agreement, each share of Athens common stock outstanding immediately prior to the effective time of the merger (excluding excluded shares) will be converted into the right to receive 2.864 shares of CapStar common stock. The market price of CapStar’s common stock could be subject to significant fluctuations due to changes in sentiment in the market regarding CapStar’s operations or business prospects, including market sentiment regarding CapStar’s entry into the merger agreement. These risks may be affected by:

 

    operating results that vary from the expectations of CapStar management or of securities analysts and investors;

 

    developments in CapStar’s business or in the financial services sector generally;

 

    regulatory or legislative changes affecting CapStar’s industry generally or its business and operations;

 

    operating and securities price performance of companies that investors consider to be comparable to CapStar;

 

    changes in estimates or recommendations by securities analysts or rating agencies;

 

    announcements of strategic developments, acquisitions, dispositions, financings, and other material events by CapStar or its competitors; and

 

    changes in global financial markets and economies and general market conditions, such as interest or foreign exchange rates, stock, commodity, credit or asset valuations or volatility.

Many of these factors are beyond the control of CapStar and Athens. We make no assurances as to whether or when the merger will be completed. Athens shareholders should obtain current sale prices for shares of CapStar common stock before voting their shares of Athens common stock at the Athens special meeting.

CapStar may fail to realize all of the anticipated benefits of the merger.

CapStar and Athens have operated and, until the completion of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and cost savings, will depend, in part, on CapStar’s ability to successfully combine and integrate the businesses of CapStar and Athens in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. The loss of key employees could adversely affect CapStar’s ability to successfully conduct its business, which could have an adverse effect on CapStar’s financial results and the value of CapStar common stock. If CapStar experiences difficulties with the integration process, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions,

 

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there also may be business disruptions that cause CapStar and/or Athens to lose customers or cause customers to remove their accounts from CapStar and/or Athens and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of CapStar and Athens during this transition period and for an undetermined period after completion of the merger on the combined company. In addition, the actual cost savings of the merger could be less than anticipated.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.

Before the transactions contemplated by the merger agreement, including the merger and the bank merger, may be completed, various approvals must be obtained from bank regulatory authorities. In determining whether to grant these approvals the regulators consider a variety of factors, including the regulatory standing of each party and the factors described under the section entitled “The Merger—Regulatory Approvals.” An adverse development in either party’s regulatory standing or these factors could result in an inability to obtain approval or delay their receipt. These regulators may impose conditions on the completion of the merger or the bank merger or require changes to the terms of the merger or the bank merger. Such conditions or changes could have the effect of delaying or preventing completion of the merger or the bank merger or imposing additional costs on or limiting the revenues of the combined company following the merger and the bank merger, any of which might have an adverse effect on the combined company following the merger. See the section entitled “The Merger—Regulatory Approvals.”

The regulatory approvals may not be received at all, may not be received in a timely fashion, and may contain conditions on the completion of the merger that are not anticipated or cannot be met. If the consummation of the merger is delayed, including by a delay in receipt of necessary governmental approvals, the business, financial condition and results of operations of each company may also be materially adversely affected.

The combined company may be unable to retain CapStar and/or Athens personnel successfully after the merger is completed.

The success of the merger will depend in part on the combined company’s ability to retain the talents and dedication of key employees currently employed by CapStar and Athens. It is possible that these employees may decide not to remain with CapStar or Athens, as applicable, while the merger is pending or with the combined company after the merger is consummated. If key employees terminate their employment, or if an insufficient number of employees is retained to maintain effective operations, the combined company’s business activities may be adversely affected and management’s attention may be diverted from successfully integrating Athens to hiring suitable replacements, all of which may cause the combined company’s business to suffer. In addition, CapStar and Athens may not be able to locate suitable replacements for any key employees who leave either company, or to offer employment to potential replacements on reasonable terms.

The unaudited pro forma combined consolidated financial information included in this joint proxy statement/prospectus are preliminary and the actual financial condition and results of operations of CapStar after the merger may differ materially.

The unaudited pro forma combined consolidated financial information in this joint proxy statement/prospectus are presented for illustrative purposes only and are not necessarily indicative of what CapStar’s actual financial condition or results of operations would have been had the merger been completed on the dates indicated. The unaudited pro forma combined consolidated financial information reflect adjustments, which are based upon preliminary estimates, to record the Athens identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill recognized. The purchase price allocation reflected in this joint proxy statement/

 

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prospectus is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of Athens as of the date of the completion of the merger. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this joint proxy statement/prospectus. For more information, see the section entitled “Unaudited Pro Forma Combined Consolidated Financial Information.”

Athens’ directors and executive officers have interests in the merger that may differ from the interests of Athens shareholders.

Athens shareholders should be aware that some of Athens’ directors and executive officers have interests in the merger that are different from, or in addition to, those of Athens shareholders generally. The Athens board of directors was aware of these interests and considered these interests, among other matters, when making its decision to approve the merger agreement, and in recommending that Athens shareholders vote in favor of approving the merger agreement.

For a more complete description of these interests, see the section entitled “The Merger—Interests of Athens Directors and Executive Officers in the Merger.”

Termination of the merger agreement could negatively impact CapStar and Athens.

The merger may be terminated as a result of factors beyond CapStar’s and Athens’ control. See the section entitled “The Merger Agreement—Termination of the Merger Agreement” for a complete discussion of the circumstances under which the merger agreement may be terminated. If the merger agreement is terminated, there may be various consequences. For example, CapStar’s or Athens’ businesses may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated, the market price of the CapStar common stock or the Athens common stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed. If the merger agreement is terminated under certain circumstances, subject to conditions and exceptions, Athens may be required to pay to CapStar a termination fee of $5 million, and under certain circumstances, CapStar may be required to pay Athens a termination fee of $4 million. See the section entitled “The Merger Agreement—Termination Fee” for a complete discussion of the circumstances under which any such termination fee will be required to be paid.

If the merger agreement is terminated and a party’s board of directors seeks another merger or business combination, such party’s shareholders cannot be certain that such party will be able to find a party willing to engage in a transaction on more attractive terms than the merger.

CapStar and Athens will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees, customers, suppliers and vendors may have an adverse effect on the business, financial condition and results of operations of Athens and CapStar. These uncertainties may impair CapStar’s or Athens’ ability to attract, retain and motivate key personnel, depositors and borrowers pending the consummation of the merger, as such personnel, depositors and borrowers may experience uncertainty about their future roles following the consummation of the merger. Additionally, these uncertainties could cause customers (including depositors and borrowers), suppliers, vendors and others who deal with us to seek to change existing business relationships with us or fail to extend an existing relationship with us. In addition, competitors may target each party’s existing customers by highlighting potential uncertainties and integration difficulties that may result from the merger.

CapStar and Athens have a small number of key personnel. The pursuit of the merger and the preparation for the integration may place a burden on each company’s management and internal resources. Any significant

 

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diversion of management attention away from ongoing business concerns and any difficulties encountered in the transition and integration process could have a material adverse effect on each company’s business, financial condition and results of operations.

In addition, the merger agreement restricts each party from taking certain actions without the other party’s consent while the merger is pending. These restrictions may, among other matters, prevent such party from pursuing otherwise attractive business opportunities, selling assets, incurring indebtedness, engaging in significant capital expenditures in excess of certain limits set forth in the merger agreement, entering into other transactions or making other changes to such party’s business prior to consummation of the merger or termination of the merger agreement. These restrictions could have a material adverse effect on each party’s business, financial condition and results of operations. See the section entitled “The Merger Agreement—Conduct of Business Pending the Completion of the Merger” for a description of the restrictive covenants applicable to Athens and CapStar.

If the merger is not completed, CapStar and Athens will have incurred substantial expenses without realizing the expected benefits of the merger.

Each of CapStar and Athens has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of filing, printing, and mailing this joint proxy statement/prospectus, and all filing and other fees paid to the SEC in connection with the merger. If the merger is not completed, CapStar and Athens would have to recognize these expenses without realizing the expected benefits of the merger.

The merger agreement limits Athens’ ability to pursue alternative acquisition proposals and requires Athens to pay a termination fee of $5 million under limited circumstances, including circumstances relating to acquisition proposals.

The merger agreement prohibits Athens from soliciting, initiating, inducing or encouraging, or taking any action to facilitate certain third party acquisition proposals. See the section entitled “The Merger Agreement—Agreement Not to Solicit Other Offers.” The merger agreement also provides that Athens will be required to pay a termination fee in the amount of $5 million in the event that the merger agreement is terminated under certain circumstances, including an adverse recommendation change by the Athens board of directors. See the sections entitled “The Merger Agreement—Termination of the Merger Agreement” and “The Merger Agreement—Termination Fee.” These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of Athens from considering or proposing such an acquisition.

The shares of CapStar common stock to be received by Athens shareholders as a result of the merger will have different rights from the shares of Athens common stock.

Upon completion of the merger, Athens shareholders will become CapStar shareholders and their rights as shareholders will be governed by the CapStar certificate of incorporation and bylaws. The rights associated with Athens common stock are different from the rights associated with CapStar common stock. See the section entitled “Comparison of Shareholders’ Rights” for a discussion of the different rights associated with CapStar common stock.

CapStar shareholders and Athens shareholders will have a reduced ownership and voting interest in the combined company after the merger and will exercise less influence over management, as compared to their ownership and voting interests in CapStar and Athens, respectively.

CapStar shareholders and Athens shareholders currently have the right to vote in the election of the board of directors and on other matters affecting CapStar and Athens, respectively. Upon completion of the merger, each

 

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Athens shareholder who receives shares of CapStar common stock will become a CapStar shareholder, with a percentage ownership of CapStar that is smaller than such shareholder’s percentage ownership of Athens. Based on the number of shares outstanding on the Athens record date, we expect that holders of shares of Athens common stock as of immediately prior to the closing of the merger will hold, in the aggregate, approximately [        ]% of the issued and outstanding shares of CapStar common stock immediately following the closing of the merger (including shares received in respect of Athens stock options and without giving effect to any shares of CapStar common stock held by Athens shareholders prior to the merger).    As a result, current CapStar shareholders will hold, in the aggregate, approximately [        ]% of the outstanding shares of CapStar common stock immediately following the closing of the merger. Because of this, Athens shareholders may have less influence on the management and policies of CapStar than they now have on the management and policies of Athens, and current CapStar shareholders may have less influence than they now have on the management and policies of CapStar.

The opinions of CapStar’s and Athens’ financial advisors delivered to the parties’ respective boards of directors prior to the signing of the merger agreement will not reflect changes in circumstances following the dates of the opinions.

Each of the CapStar and Athens board of directors received opinions (in each case, initially rendered verbally and confirmed in a written opinion, dated June 11, 2018) from the parties’ respective financial advisors regarding the fairness of the exchange ratio or the merger consideration, as applicable, from a financial point of view as of the date of such opinions. Subsequent changes in the operation and prospects of CapStar or Athens, general market and economic conditions and other factors that may be beyond the control of CapStar or Athens may significantly alter the value of CapStar or Athens or the prices of the shares of CapStar common stock or Athens common stock by the time the merger is completed. The opinions of CapStar’s and Athens’ financial advisors did not address the fairness of the exchange ratio or the merger consideration, as applicable, from a financial point of view at the time the merger is completed, or as of any other date other than the date of such opinions. For a description of the opinions of the parties’ respective financial advisors, see the sections entitled “The Merger—Opinion of Athens’ Financial Advisor” and “The Merger—Opinions of CapStar’s Financial Advisors.”

Risks Relating to CapStar’s Business

You should read and consider risk factors specific to CapStar’s business that will also affect the combined company after the merger. These risks are described in the sections entitled “Risk Factors” in CapStar’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and in other documents incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” of this joint proxy statement/prospectus for the location of information incorporated by reference into this joint proxy statement/prospectus.

Risks Relating to Athens’ Business

Athens’ concentration in non-owner occupied residential mortgage loans may expose it to increased credit risk.

Loans secured by non-owner occupied residential properties generally expose Athens to greater risk of non-payment and loss than loans secured by owner-occupied properties because the repayment of such loans depends primarily on the tenant’s continuing ability to pay rent to the property owner, who is Athens’ borrower, or, if the property owner is unable to find a tenant, the property owner’s ability to repay the loan without the benefit of a rental income stream. In addition, the physical condition of non-owner occupied residential properties is often below that of owner-occupied properties due to lax property maintenance standards, which has a negative impact on the value of the collateral properties. Furthermore, some non-owner-occupied residential loan borrowers have more than one loan outstanding with Athens. Consequently, an adverse development with

 

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respect to one credit relationship may expose Athens to a greater risk of loss compared to an adverse development with respect to an owner-occupied residential mortgage loan.

Athens’ concentration in loans to the health care industry may expose it to increased credit risk.

Athens’ health care industry loans consist primarily of loans to skilled nursing facilities and to assisted living facilities. These loans have risks in addition to the risks associated with commercial real estate loans, as described below. Skilled nursing facilities’ revenues depend heavily on payments from Medicare and Medicaid, so any changes in these government programs, particularly changes in maximum allowable charges and/or reimbursement rates, may have a material adverse effect on revenues. Assisted living facilities are subject to the same risk, but to a lesser extent, because they generally receive their revenues through private pay and private insurance. Furthermore, potential health reform initiatives to address the rising costs of healthcare, such as increased patient cost-sharing, among other initiatives, may have a material adverse effect on skilled nursing and assisted living providers.

Athens’ commercial real estate loan portfolio may expose it to increased credit risk.

Because the repayment of commercial real estate loans depends primarily on the successful management and operation of the borrower’s properties or related businesses, such loans are generally more sensitive to regional and local economic conditions, making loss levels more difficult to predict. A downturn in the real estate market or in the local economy could adversely impact the value of collateral properties or the revenues from the borrower’s business, thereby increasing the risk of non-performing loans. Additionally, these loans generally have relatively large balances to single borrowers or related groups of borrowers. Accordingly, any charge-offs may be larger on a per-loan basis than those incurred with residential mortgage loans or consumer loans.

Athens’ construction loan and land and land development loan portfolios may expose it to increased credit risk.

Historically, construction loans, including speculative construction loans, have been a material part of Athens’ loan portfolio. Speculative construction loans are loans made to builders who have not identified a buyer for the completed property at the time of loan origination. These loan types generally expose a lender to greater risk of nonpayment and loss than residential mortgage loans because the repayment of such loans often depends on the successful operation or sale of the property and the income stream of the borrowers and such loans typically involve larger balances to a single borrower or groups of related borrowers. In addition, many borrowers of these types of loans have more than one loan outstanding with Athens, so an adverse development with respect to one loan or credit relationship can expose Athens to significantly greater risk of non-payment and loss. Furthermore, Athens’ may need to increase its allowance for loan losses through future charges to income as the portfolio of these types of loans grows, which would decrease its earnings.

Athens’ consumer loan portfolio includes consumer loans secured by rapidly depreciable assets and may expose it to increased credit risk.

Athens’ originates consumer loans, including automobile loans and consumer finance loans made to borrowers by its consumer finance subsidiary, Southland Finance, Inc. These consumer finance loans are generally secured by used automobiles, televisions and various other personal property and are generally offered to borrowers with historically lower credit scores at higher risk-adjusted interest rates. Consumer loans secured by rapidly depreciable assets such as automobiles and other personal property may be subject to greater risk of loss than loans secured by real estate, because any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance.

 

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Significant loan losses could require Athens to increase its allowance for loan losses through a charge to earnings.

When Athens loans money, it incurs the risk that its borrowers will not repay their loans. Athens provides for loan losses by establishing an allowance through a charge to earnings. The amount of this allowance is based on Athens’ assessment of loan losses inherent in its loan portfolio. The process for determining the amount of the allowance is critical to Athens’ financial condition and results of operations. It requires subjective and complex judgments about the future, including forecasts of economic or market conditions that might impair the ability of Athens’ borrowers to repay their loans. Athens might underestimate the loan losses inherent in its loan portfolio and have loan losses that exceed the amount recorded in its allowance for loan losses. Athens might increase the allowance because of changing economic conditions. For example, in a rising interest rate environment, borrowers with adjustable-rate loans could see their payments increase. There may be a significant increase in the number of borrowers who are unable or unwilling to repay their loans, resulting in Athens charging off more loans and increasing its allowance for loan losses. In addition, when real estate values decline, the potential severity of loss on a real estate-secured loan can increase significantly, especially in the case of loans with high combined loan-to-value ratios. The recent decline in the national economy and the local economies of the areas in which the loans are concentrated could result in an increase in loan delinquencies, foreclosures or repossessions resulting in increased charge-off amounts and the need for additional loan loss allowances in future periods. In addition, Athens’ determination of the amount of its allowance for loan losses is subject to review by its primary regulator, the Office of the Comptroller of the Currency, as part of its examination process, which may result in the establishment of an additional allowance based upon the judgment of the Office of the Comptroller of the Currency after a review of the information available at the time of its examination. Athens’ allowance for loan losses may not be sufficient to cover future loan losses. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would decrease Athens’ earnings.

A return to recessionary conditions could result in increases in non-performing loans and/or reduce demand for Athens’ products and services, which would lead to lower revenue, higher loan losses and lower earnings.

A return of recessionary conditions and/or continued negative developments in the domestic and international credit markets may significantly affect the markets in which Athens does business, the value of its loans and investments, and its ongoing operations, costs and profitability. Further declines in real estate values and sales volumes and continued high unemployment levels may result in higher-than-expected loan delinquencies, increases in Athens’ levels of nonperforming and classified assets and a decline in demand for its products and services. These negative events may cause Athens to incur losses and may adversely affect its capital, liquidity, and financial condition.

Changing interest rates may decrease Athens’ earnings and asset values.

Athens’ net interest income is the interest it earns on loans and investments less the interest it pays on its deposits and borrowings. Athens’ net interest margin is the difference between the yield it earns on its assets and the interest rate it pays for deposits and other funding sources. Changes in interest rates—up or down—could adversely affect Athens’ net interest margin and, as a result, its net interest income. Although the yield Athens earns on its assets and its funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, causing net interest margin to expand or contract. At December 31, 2017, Athens’ interest rate risk profile was asset-sensitive, implying that its assets will reprice faster than its liabilities, indicating an increase in interest rates would increase its net interest margin while a decrease in interest rates would decrease its net interest margin. Furthermore, the value of Athens’ interest-earning assets is affected by changes in interest rates. Generally, rising interest rates tend to reduce the value of interest-earning assets while falling interest rates tend to increase their value.

Strong competition within Athens’ primary market area could negatively impact its profits and slow its growth.

Athens faces intense competition both in making loans and attracting deposits. Price competition for loans and deposits might result in Athens earning less on its loans and paying more on its deposits, which would reduce

 

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net interest income. Competition also makes it more difficult to grow loans and deposits. Some of the institutions with which Athens competes have substantially greater resources and lending limits than Athens has and may offer services that Athens does not provide. Athens expects competition to increase in the future because of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Athens’ profitability depends upon its continued ability to compete successfully in its primary market area.

Athens is subject to federal regulations that seek to protect the Deposit Insurance Fund and the depositors and borrowers of Athens Federal, and its federal regulators may impose restrictions on Athens’ operations that are detrimental to holders of Athens’ common stock.

Athens is subject to extensive regulation, supervision and examination by the Federal Reserve Board and by the Office of the Comptroller of the Currency, Athens’ primary federal regulators, and by the Federal Deposit Insurance Corporation, as insurer of Athens’ deposits. Such regulation and supervision governs the activities in which an institution and its holding company may engage, and are intended primarily for the protection of the insurance fund and the depositors and borrowers of Athens Federal rather than for holders of Athens’ common stock. These regulators may subject Athens to supervisory and enforcement actions, such as the imposition of certain restrictions on Athens’ operations, the classification of its assets and the determination of the level of its allowance for loan losses, that are aimed at protecting the insurance fund and the depositors and borrowers of the Bank but that are detrimental to holders of Athens’ common stock. Any change in regulation or oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on Athens’ operations.

Risks associated with system failures, interruptions or breaches of security could negatively affect Athens’ earnings and business reputation.

Information technology systems are critical to Athens’ business. Athens uses various technology systems to manage its customer relationships, general ledger, securities investments, deposits and loans. Athens has established policies and procedures to prevent or limit the impact of system failures, interruptions and security breaches (including privacy breaches), but such events may still occur or may not be adequately addressed if they do occur. In addition, any compromise of Athens’ systems could deter customers from using Athens’ products and services. Although Athens relies on security systems to provide the security and authentication necessary to affect the secure transmission of data, these precautions may not protect its systems from compromises or breaches of security.

In addition, Athens outsources a significant portion of its data processing to third-party providers. If these third-party providers encounter difficulties, or if Athens has difficulty communicating with them, Athens’ ability to adequately process and account for transactions could be affected, and its business operations could be adversely affected. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

The occurrence of any system failures, interruption or breach of security could damage Athens’ business reputation and result in a loss of customers and business, thereby subjecting it to additional regulatory scrutiny, or could expose it to litigation and possible financial liability. Any of these events could have a material adverse effect on Athens’ financial condition and results of operations and its business reputation.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus, including information included in, or incorporated by reference into, this joint proxy statement/prospectus, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to: (1) statements about the benefits of the merger, including future financial and operating results and cost savings that may be realized from the merger; (2) statements about our respective plans, objectives, expectations and intentions and other statements that are not historical facts; and (3) other statements identified by words such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based upon current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond CapStar’s and Athens’ control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Accordingly, actual results may differ materially from those expressed in, or implied by, the forward-looking statements.

Some of the factors that may cause actual results or earnings to differ materially from those contemplated by the forward-looking statements include, but are not limited to, those discussed under the section entitled “Risk Factors” and those discussed in the filings of CapStar with the SEC that are incorporated by reference into this joint proxy statement/prospectus, as well as the following:

 

    the inability to close the merger and the bank merger in a timely manner;

 

    the failure to complete the merger due to the failure of CapStar’s or Athens’ shareholders to approve the merger;

 

    failure to obtain the requisite regulatory approvals and meet other closing conditions to the merger on the expected terms and schedule;

 

    the potential impact of announcement or consummation of the merger on relationships with third parties, including customers, employees and competitors;

 

    business disruption following the merger;

 

    CapStar’s potential exposure to unknown or contingent liabilities of Athens;

 

    the challenges of integrating, retaining, and hiring key personnel;

 

    failure to attract new customers and retain existing customers in the manner anticipated;

 

    the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger;

 

    changes in CapStar’s share price before closing, including as a result of the financial performance of CapStar and Athens prior to closing, or more generally due to broader stock market movements and the performance of financial companies and peer group companies;

 

    the expected cost savings, synergies and other financial benefits from the merger might not be realized within the expected time frames or at all as a result of, among other things, changes in general economic and market conditions, interest and exchange rates, monetary policy, laws and regulations and their enforcement, and the degree of competition in the markets in which CapStar and Athens operate;

 

    Athens’ business may not be integrated into CapStar’s business successfully, or such integration may take longer to accomplish than expected;

 

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    operating costs, customer losses and business disruption following the merger, including adverse developments in relationships with employees, may be greater than expected; and

 

    management time and effort may be diverted to the resolution of merger-related issues.

Because these forward-looking statements are subject to assumptions and uncertainties, CapStar’s and the combined company’s actual results may differ materially from those expressed or implied by these forward-looking statements. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this joint proxy statement/prospectus or the date of any document incorporated by reference into this joint proxy statement/prospectus. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect us.

All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this joint proxy statement/prospectus, and attributable to CapStar, Athens or any person acting on their behalf, respectively, are expressly qualified in their entirety by the cautionary statements contained or referred to in this “Cautionary Statement Regarding Forward-Looking Statements.” Neither CapStar nor Athens undertakes any obligation to update these forward-looking statements to reflect events or circumstances after the date of this joint proxy statement/prospectus or to reflect the occurrence of unanticipated events, unless obligated to do so under the federal securities laws.

 

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INFORMATION ABOUT THE CAPSTAR SPECIAL MEETING

This section contains information about the special meeting that CapStar has called to allow CapStar shareholders to vote on the merger agreement and the transactions contemplated thereby. The CapStar board of directors is mailing this joint proxy statement/prospectus to you, as a CapStar shareholder, on or about [                ], 2018. Together with this joint proxy statement/prospectus, the CapStar board of directors is also sending to you a notice of the special meeting of CapStar shareholders and a form of proxy that the CapStar board of directors is soliciting for use at the CapStar special meeting and at any adjournments or postponements of the CapStar special meeting.

Time, Date, and Place

The special meeting is scheduled to be held on [                ], at [                ] local time, at [                ], Tennessee.

Matters to Be Considered at the Special Meeting

At the CapStar special meeting, CapStar shareholders will be asked to consider and vote on:

 

    a proposal to approve the Agreement and Plan of Merger, dated as of June 11, 2018, by and between Athens Bancshares Corporation (which we refer to as “Athens”) and CapStar Financial Holdings, Inc., as more fully described in the enclosed joint proxy statement/prospectus (which we refer to as the “CapStar merger proposal”); and

 

    a proposal to adjourn the CapStar special meeting, if necessary or appropriate, to solicit additional proxies in favor of the CapStar merger proposal (which we refer to as the “CapStar adjournment proposal”).

At this time, the CapStar board of directors is unaware of any other matters that may be presented for action at the CapStar special meeting. If any other matters are properly presented, however, and you have completed, signed and submitted your proxy, the person(s) named as proxy will have the authority to vote your shares in accordance with his or her judgment with respect to such matters. A copy of the merger agreement is included in this joint proxy statement/prospectus as Appendix A, and we encourage you to read it carefully in its entirety.

Recommendation of the CapStar Board of Directors

The CapStar board of directors unanimously recommends that CapStar shareholders vote “FOR” the CapStar merger proposal and “FOR” the CapStar adjournment proposal. See the section entitled “The Merger—Recommendation of the CapStar Board of Directors and CapStar’s Reasons for the Merger.”

Record Date and Quorum

[                ], 2018 has been fixed as the record date for the determination of CapStar shareholders entitled to notice of, and to vote at, the CapStar special meeting and any adjournment or postponement thereof. At the close of business on the CapStar record date, there were [                ] shares of CapStar common stock outstanding and entitled to vote at the CapStar special meeting, held by [                ] holders of record.

The presence at the CapStar special meeting, in person or by proxy, of holders of a majority of the outstanding shares of CapStar common stock entitled to vote at the CapStar special meeting will constitute a quorum for the transaction of business. All shares of CapStar common stock present in person or represented by proxy, including abstentions and broker non-votes, if any, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the CapStar special meeting.

 

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Required Vote

Approval of the CapStar merger proposal requires the affirmative vote of holders of a majority of the outstanding shares of CapStar common stock entitled to vote on such proposal. If you mark “ABSTAIN” on your proxy card or when voting by Internet or phone, fail to submit a proxy or vote in person at the CapStar special meeting or fail to instruct your bank, broker or other nominee with respect to the CapStar merger proposal, it will have the same effect as a vote “AGAINST” such proposal.

Approval of the CapStar adjournment proposal requires the votes cast by shareholders of CapStar in favor of the proposal to exceed the votes cast by shareholders of CapStar against the proposal at the CapStar special meeting. If you mark “ABSTAIN” on your proxy, fail to submit a proxy or vote in person at the CapStar special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the CapStar adjournment proposal, it will have no effect on the proposal.

Each share of CapStar common stock you own as of the CapStar record date entitles you to one vote at the CapStar special meeting on all matters properly presented at the CapStar special meeting.

How to Vote

Each copy of this joint proxy statement/prospectus mailed to holders of CapStar common stock is accompanied by a form of proxy with instructions for voting.

If you hold stock in your name as a shareholder of record, you should complete and return the proxy card accompanying this joint proxy statement/prospectus, regardless of whether you plan to attend the CapStar special meeting.

 

    Toll-Free Number. You may use the toll-free number shown on your proxy card to vote your shares.

 

    Voting by Internet. You may vote your shares by visiting the website shown on your proxy card to vote via the Internet.

 

    Voting by Proxy. Your proxy card includes instructions on how to vote by mailing in the proxy card. If you choose to vote by proxy, please mark each proxy card you receive, sign and date it, and promptly return it in the envelope enclosed with the proxy card. If you sign and return your proxy without instruction on how to vote your shares, your shares will be voted “FOR” the CapStar merger proposal and “FOR” the CapStar adjournment proposal.

 

    Voting in Person. If you are a shareholder of record, you can vote in person by submitting a ballot at the CapStar special meeting. Nevertheless, we recommend that you vote by proxy as promptly as possible, even if you plan to attend the CapStar special meeting. This will ensure that your vote is received. If you attend the CapStar special meeting, you may vote by ballot, thereby canceling any proxy previously submitted.

If you hold your stock in “street name” through a bank, broker or other nominee, you must direct your bank, broker or other nominee how to vote in accordance with the instructions you have received from your bank, broker or other nominee.

All shares represented by valid proxies that CapStar receives through this solicitation, and that are not revoked, will be voted in accordance with your instructions on the proxy card. If you make no specification on your proxy card as to how you want your shares voted before signing and returning it, your proxy will be voted “FOR” the CapStar merger proposal and “FOR” the CapStar adjournment proposal.

YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY

 

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CARD AND PROMPTLY RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. SHAREHOLDERS WHO ATTEND THE CAPSTAR SPECIAL MEETING MAY REVOKE THEIR PROXIES BY VOTING IN PERSON.

Shares Held in “Street Name”; Broker Non-Votes

If your bank, broker or other nominee holds your shares of CapStar common stock in “street name,” your bank, broker or other nominee will vote your shares of CapStar common stock only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your bank, broker or other nominee with this joint proxy statement/prospectus. Any such shares for which you do not give voting instructions will constitute a broker non-vote, and will have the effect of a vote “AGAINST” the merger proposal. Broker non-votes will have no effect on the outcome of the CapStar adjournment proposal.

Revocation of Proxies

You can revoke your proxy at any time before your shares are voted. If you are a shareholder of record, then you can revoke your proxy by:

 

    submitting another valid proxy card bearing a later date;

 

    prior to the CapStar special meeting, logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number specified on your proxy card, in each case if you are eligible to do so and following the instructions on the proxy card;

 

    attending the CapStar special meeting and voting your shares in person; or

 

    delivering prior to the CapStar special meeting a written notice of revocation to CapStar’s Corporate Secretary at the following address: 1201 Demonbreun Street, Suite 700, Nashville, Tennessee 37203, Attention: Corporate Secretary.

If you choose to send a completed proxy card bearing a later date or a notice of revocation, the new proxy card or notice of revocation must be received by [                ], 2018. Attendance at the CapStar special meeting will not, in and of itself, constitute revocation of a proxy. If you hold your shares in street name with a bank, broker or other nominee, you must follow the directions you receive from your bank, broker or other nominee to change your vote.

Shares Subject to Voting Agreements

As of the CapStar record date, a total of [                ] shares of CapStar common stock, representing approximately [        ]% of the outstanding shares of CapStar common stock entitled to vote at the CapStar special meeting, are subject to voting and support agreements between CapStar, Athens and each of CapStar’s directors (which we refer to collectively as the “CapStar voting agreements”). Pursuant to the CapStar voting agreements, each director agreed, on the terms and subject to the conditions set forth therein, to vote the shares of CapStar common stock beneficially owned by him or her in favor of the merger, as well as certain other customary restrictions with respect to the voting and transfer of his or her shares of CapStar common stock.

The foregoing description of the CapStar voting agreements does not purport to be complete and is qualified in its entirety by reference to the full text of the CapStar voting agreements, a form of which is included as Exhibit B to the merger agreement attached to this joint proxy statement/prospectus as Appendix A.

Shares Held by Directors and Executive Officers

As of the CapStar record date, CapStar’s directors and executive officers and their affiliates beneficially owned and were entitled to vote, in the aggregate, a total of [                ] shares of CapStar common stock

 

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(excluding shares issuable upon the exercise of outstanding options or warrants), representing approximately [        ]% of the outstanding shares of CapStar common stock entitled to vote at the CapStar special meeting.

Solicitation of Proxies

The proxy for the CapStar special meeting is being solicited on behalf of the CapStar board of directors. CapStar will bear the entire cost of soliciting proxies from you. CapStar will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of CapStar common stock. Proxies will be solicited principally by mail, but may also be solicited by the directors, officers, and other employees of CapStar in person or by telephone, facsimile or other means of electronic communication. Directors, officers and employees will receive no compensation for these activities in addition to their regular compensation, but may be reimbursed for out-of-pocket expenses in connection with such solicitation.

Attending the CapStar Special Meeting

All holders of CapStar common stock, including shareholders of record and shareholders who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the CapStar special meeting. Shareholders of record can vote in person at the CapStar special meeting. If you are not a shareholder of record, you must obtain a proxy executed in your favor from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote in person at the CapStar special meeting. If you plan to attend the CapStar special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership. In addition, you must bring a form of personal photo identification with you in order to be admitted. CapStar reserves the right to refuse admittance to anyone without proper proof of share ownership and without proper photo identification. The use of cameras, sound recording equipment, communications devices or any similar equipment during the CapStar special meeting is prohibited without CapStar’s express written consent.

Questions and Additional Information

If you have more questions about the merger or how to submit your proxy or vote, or if you need additional copies of this joint proxy statement/prospectus or the enclosed proxy card or voting instructions, please contact CapStar at:

CapStar Financial Holdings, Inc.

1201 Demonbreun Street, Suite 700

Nashville, Tennessee 37203

Telephone: (615) 732-6455

Attn: Daniel Fox

 

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CAPSTAR PROPOSALS

PROPOSAL NO. 1: CAPSTAR MERGER PROPOSAL

CapStar is asking its shareholders to approve the merger agreement and the transactions contemplated thereby. Holders of CapStar common stock should read this joint proxy statement/prospectus carefully and in its entirety for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Appendix A.

The CapStar board of directors has determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of CapStar and its shareholders and has unanimously approved the merger agreement. See the section entitled “The Merger—Recommendation of the CapStar Board of Directors and CapStar’s Reasons for the Merger” for a more detailed discussion of the recommendation of the CapStar board of directors.

The CapStar board of directors unanimously recommends a vote “FOR” the CapStar merger proposal.

PROPOSAL NO. 2: CAPSTAR ADJOURNMENT PROPOSAL

The CapStar special meeting may be adjourned to another time or place, if necessary or appropriate, to permit, among other things, further solicitation of proxies if necessary to obtain additional votes in favor of the CapStar merger proposal.

If, at the CapStar special meeting, the number of shares of CapStar common stock present or represented and voting in favor of the CapStar merger proposal is insufficient to approve such proposal, CapStar intends to move to adjourn the CapStar special meeting in order to solicit additional proxies for the approval of the CapStar merger proposal.

In this proposal, CapStar is asking its shareholders to authorize the holder of any proxy solicited by the CapStar board of directors on a discretionary basis to vote in favor of adjourning the CapStar special meeting to another time and place for the purpose of soliciting additional proxies, including the solicitation of proxies from CapStar shareholders who have previously voted.

The CapStar board of directors unanimously recommends a vote “FOR” the CapStar adjournment proposal.

 

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INFORMATION ABOUT THE ATHENS SPECIAL MEETING

This section contains information about the special meeting that Athens has called to allow Athens shareholders to vote on the approval of the merger agreement. The Athens board of directors is mailing this joint proxy statement/prospectus to you, as an Athens shareholder, on or about [                ], 2018. Together with this joint proxy statement/prospectus, the Athens board of directors is also sending to you a notice of the special meeting of Athens shareholders and a form of proxy that the Athens board of directors is soliciting for use at the Athens special meeting and at any adjournments or postponements of the Athens special meeting.

Time, Date, and Place

The special meeting is scheduled to be held [                ], at [                ] local time, at [                ], Tennessee.

Matters to Be Considered at the Special Meeting

At the Athens special meeting, Athens shareholders will be asked to consider and vote on:

 

    a proposal to approve the Agreement and Plan of Merger, dated as of June 11, 2018, by and between Athens and CapStar Financial Holdings, Inc. (which we refer to as “CapStar”), as more fully described in the enclosed joint proxy statement/prospectus (which we refer to as the “Athens merger proposal”); and

 

    a proposal to adjourn the Athens special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Athens merger proposal (which we refer to as the “Athens adjournment proposal”).

At this time, the Athens board of directors is unaware of any other matters that may be presented for action at the Athens special meeting. If any other matters are properly presented, however, and you have completed, signed and submitted your proxy, the person(s) named as proxy will have the authority to vote your shares in accordance with his or her judgment with respect to such matters. A copy of the merger agreement is included in this joint proxy statement/prospectus as Appendix A, and we encourage you to read it carefully in its entirety.

Recommendation of the Athens Board of Directors

The Athens board of directors unanimously recommends that Athens shareholders vote “FOR” the Athens merger proposal and “FOR” the Athens adjournment proposal. See the section entitled “The MergerRecommendation of the Athens Board of Directors and Athens’ Reasons for the Merger.”

Record Date and Quorum

[                ], 2018 has been fixed as the record date for the determination of Athens shareholders entitled to notice of, and to vote at, the Athens special meeting and any adjournment or postponement thereof. At the close of business on the Athens record date, there were [                ] shares of Athens common stock outstanding and entitled to vote at the Athens special meeting, held by approximately [                ] holders of record.

The presence at the Athens special meeting, in person or by proxy, of holders of a majority of the outstanding shares of Athens common stock entitled to vote at the Athens special meeting will constitute a quorum for the transaction of business. All shares of Athens common stock present in person or represented by proxy, including abstentions and broker non-votes, if any, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the Athens special meeting.

 

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Required Vote

Approval of the Athens merger proposal requires the affirmative vote of a majority of the outstanding shares of Athens common stock entitled to vote on the proposal. Therefore, if you indicate “ABSTAIN” on your proxy card or when voting by Internet or phone, fail to either submit a proxy or vote in person at the Athens special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the proposal to approve the merger agreement, it will have the same effect as a vote “AGAINST” the proposal.

Approval of the Athens adjournment proposal requires the votes cast by Athens shareholders in favor of the proposal to exceed the votes cast by Athens shareholders against the proposal at the Athens special meeting. Abstentions and broker non-votes, if any, will not be treated as a vote cast either for or against either of the Athens adjournment proposal.

Each share of Athens voting common stock you own as of the Athens record date entitles you to one vote at the Athens special meeting on all matters properly presented at the Athens special meeting.

How to Vote

Each copy of this joint proxy statement/prospectus mailed to holders of Athens common stock is accompanied by a form of proxy with instructions for voting.

If you hold stock in your name as a shareholder of record, you should complete and return the proxy card accompanying this joint proxy statement/prospectus, regardless of whether you plan to attend the Athens special meeting.

 

    Toll-Free Number. You may use the toll-free number shown on your proxy card to vote your shares.

 

    Voting by Internet. You may vote your shares by visiting the website shown on your proxy card to vote via the Internet.

 

    Voting by Proxy. Your proxy card includes instructions on how to vote by mailing in the proxy card. If you choose to vote by proxy, please mark each proxy card you receive, sign and date it, and promptly return it in the envelope enclosed with the proxy card. If you sign and return your proxy without instruction on how to vote your shares, your shares will be voted “FOR” the Athens merger proposal and “FOR” the Athens adjournment proposal.

 

    Voting in Person. If you are a shareholder of record, you can vote in person by submitting a ballot at the Athens special meeting. Nevertheless, we recommend that you vote by proxy as promptly as possible, even if you plan to attend the Athens special meeting. This will ensure that your vote is received. If you attend the Athens special meeting, you may vote by ballot, thereby canceling any proxy previously submitted.

If you hold your stock in “street name” through a bank, broker or other nominee, you must direct your bank, broker or other nominee how to vote in accordance with the instructions you have received from your bank, broker or other nominee.

If you have Athens shares allocated to your account under the Athens Federal Employee Stock Ownership Plan (which we refer to as the “Athens ESOP”) or the Athens Federal Employees’ Savings & Profit Sharing Plan (which we refer to as the “Athens 401(k) plan”), you must direct the trustee of the Athens ESOP or Athens 401(k) plan, as applicable, how to vote in accordance with the separate voting instructions for the Athens ESOP and Athens 401(k) plan, as applicable.

All shares represented by valid proxies that Athens receives through this solicitation, and that are not revoked, will be voted in accordance with your instructions on the proxy card. Except as described below with

 

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respect to shares allocated to accounts under the Athens ESOP or Athens 401(k) plan, if you make no specification on your proxy card as to how you want your shares voted before signing and returning it, your proxy will be voted “FOR” the Athens merger proposal and “FOR” the Athens adjournment proposal. No matters other than the matters described in this joint proxy statement/prospectus are anticipated to be presented for action at the Athens special meeting or at any adjournment or postponement of the Athens special meeting.

YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. SHAREHOLDERS WHO ATTEND THE ATHENS SPECIAL MEETING MAY REVOKE THEIR PROXIES BY VOTING IN PERSON.

Shares Held in “Street Name”; Broker Non-Votes

If your bank, broker or other nominee holds your shares of Athens common stock in “street name,” your bank, broker or other nominee will vote your shares of Athens common stock only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your bank, broker or other nominee with this joint proxy statement/prospectus. Any such shares for which you do not give voting instructions will constitute a broker non-vote, and will have the effect of a vote “AGAINST” the merger proposal. Broker non-votes will have no effect on the outcome of the Athens adjournment proposal.

Shares Allocated to Participant Accounts under the Athens ESOP

Generally, the trustee of the Athens ESOP is permitted to vote shares of Athens common stock held in the trust of the Athens ESOP. However, you have the ability to direct how the trustee of the Athens ESOP will vote the shares of Athens common stock allocated to your account under the Athens ESOP. You may direct the trustee to vote the shares of Athens common stock allocated to your account under the Athens ESOP by following instructions separately provided to you describing the voting procedures for voting the shares allocated to your account under the Athens ESOP.

If you fail to direct the trustee of the Athens ESOP how to vote the shares of Athens common stock allocated to your account under the Athens ESOP, generally, the shares will be voted by the trustee in a manner calculated to most accurately reflect the instructions the trustee has received from participants regarding voting shares of Athens common stock allocated to participants’ accounts under the Athens ESOP. Shares of unallocated common stock in the Athens ESOP will also be voted by the trustee in a manner calculated to most accurately reflect the instructions the trustee has received from participants’ voting shares of Athens common stock allocated to participants’ accounts under the Athens ESOP. Notwithstanding the foregoing, with respect to shares for which the trustee does not receive instructions and unallocated shares, the trustee must vote the shares in a manner determined by the trustee to be in the participants’ and their beneficiaries’ best interests.

Shares Allocated to Participant Accounts under the Athens 401(k) Plan

Generally, the trustee of the Athens 401(k) plan is permitted to vote shares of Athens common stock held in the trust of the Athens 401(k) plan. However, you have the ability to direct how the trustee of the Athens 401(k) plan will vote the shares of Athens common stock allocated to your account under the Athens 401(k) plan. You may direct the trustee to vote the shares of Athens common stock allocated to your account under the Athens 401(k) plan by following instructions separately provided to you describing the voting procedures for voting the shares allocated to your account under the Athens 401(k) plan.

If you fail to direct the trustee of the Athens 401(k) plan how to vote the shares of Athens common stock allocated to your account under the Athens 401(k) plan, generally, the shares will be voted by the trustee in a manner calculated to most accurately reflect the instructions the trustee has received from participants regarding voting shares of Athens common stock allocated to participants’ accounts under the Athens 401(k) plan.

 

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Revocation of Proxies

You can revoke your proxy at any time before your shares are voted. If you are a shareholder of record, then you can revoke your proxy by:

 

    submitting another valid proxy card bearing a later date;

 

    prior to the Athens special meeting, logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number specified on your proxy card, in each case if you are eligible to do so and following the instructions on the proxy card;

 

    attending the Athens special meeting and voting your shares in person; or

 

    delivering prior to the Athens special meeting a written notice of revocation to Athens at the following address: P.O. Box 869, Athens, Tennessee 37371-0869, Attention: Jeffrey L. Cunningham, President and Chief Executive Officer.

If you choose to send a completed proxy card bearing a later date or a notice of revocation, the new proxy card or notice of revocation must be received by [                ], 2018. Attendance at the Athens special meeting will not, in and of itself, constitute revocation of a proxy. If you hold your shares in street name with a bank, broker or other nominee, you must follow the directions you receive from your bank, broker or other nominee to change your vote.

Shares Subject to Voting Agreements

A total of [                ] shares of Athens common stock, representing approximately [        ]% of the outstanding shares of Athens common stock entitled to vote at the Athens special meeting, are subject to voting and support agreements between CapStar, Athens and each of Athens’ directors (which we refer to collectively as the “Athens voting agreements”). Pursuant to the Athens voting agreements, each director has agreed to, on the terms and subject to the conditions set forth therein, vote the shares of Athens common stock beneficially owned by him or her in favor of the merger and against any proposal made in competition with the merger, as well as certain other customary restrictions with respect to the voting and transfer of his or her shares of Athens common stock.

The foregoing description of the Athens voting agreements does not purport to be complete and is qualified in its entirety by reference to the full text of the Athens voting agreements, a form of which is included as Exhibit A to the merger agreement attached to this joint proxy statement/prospectus as Appendix A.

Shares Held by Directors and Executive Officers

As of the Athens record date, Athens’ directors and executive officers and their affiliates beneficially owned and were entitled to vote, in the aggregate, a total of [                ] shares of Athens common stock (excluding shares issuable upon the exercise of outstanding options), representing approximately [        ]% of the outstanding shares of Athens common stock entitled to vote at the Athens special meeting. For more information about the beneficial ownership of Athens common stock by each greater than 5% beneficial owner of Athens common stock, each director and executive officer of Athens and all Athens directors and executive officers as a group, see the section entitled “Security Ownership of Certain Beneficial Owners and Management of Athens.”

Solicitation of Proxies

The proxy for the Athens special meeting is being solicited on behalf of the Athens board of directors. Athens will bear the entire cost of soliciting proxies from you. Athens will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the

 

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beneficial owners of Athens common stock. Proxies will be solicited principally by mail, but may also be solicited by the directors, officers, and other employees of Athens in person or by telephone, facsimile or other means of electronic communication. Directors, officers and employees will receive no compensation for these activities in addition to their regular compensation, but may be reimbursed for out-of-pocket expenses in connection with such solicitation.

Attending the Athens Special Meeting

All holders of Athens common stock, including shareholders of record and shareholders who hold their shares through banks, brokers, nominees or any other holder of record, are invited to attend the Athens special meeting. Shareholders of record can vote in person at the Athens special meeting. If you are not a shareholder of record, you must obtain a proxy executed in your favor from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote in person at the Athens special meeting. If you plan to attend the Athens special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership. In addition, you must bring a form of personal photo identification with you in order to be admitted. Athens reserves the right to refuse admittance to anyone without proper proof of share ownership and without proper photo identification. The use of cameras, sound recording equipment, communications devices or any similar equipment during the Athens special meeting is prohibited without Athens’ express written consent.

Questions and Additional Information

If you have more questions about the merger or how to submit your proxy or vote, or if you need additional copies of this proxy statement/prospectus or the enclosed proxy card or voting instructions, please contact Athens at:

Athens Bancshares Corporation

P.O. Box 869

Athens, Tennessee 37371-0869

Telephone: (423) 745-1111

Attention: Jeffrey L. Cunningham, President and Chief Executive Officer

 

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ATHENS PROPOSALS

PROPOSAL NO. 1: ATHENS MERGER PROPOSAL

Athens is asking its shareholders to approve the merger agreement and the transactions contemplated thereby, including the merger. Holders of Athens common stock should read this joint proxy statement/prospectus carefully and in its entirety for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Appendix A.

The Athens board of directors has determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Athens and its shareholders and has unanimously approved the merger agreement. See the section entitled “The Merger—Recommendation of the Athens Board of Directors and Athens’ Reasons for the Merger” for a more detailed discussion of the recommendation of the Athens board of directors.

The Athens board of directors unanimously recommends a vote “FOR” the Athens merger proposal.

PROPOSAL NO. 2: ATHENS ADJOURNMENT PROPOSAL

The Athens special meeting may be adjourned to another time or place, if necessary or appropriate, to permit, among other things, further solicitation of proxies if necessary to obtain additional votes in favor of the Athens merger proposal.

If, at the Athens special meeting, the number of shares of Athens common stock present or represented and voting in favor of the Athens merger proposal is insufficient to approve such proposal, Athens intends to move to adjourn the Athens special meeting in order to solicit additional proxies for the approval of the Athens merger proposal.

In this proposal, Athens is asking its shareholders to authorize the holder of any proxy solicited by the Athens board of directors on a discretionary basis to vote in favor of adjourning the Athens special meeting to another time and place for the purpose of soliciting additional proxies, including the solicitation of proxies from Athens shareholders who have previously voted.

The Athens board of directors unanimously recommends a vote “FOR” the Athens adjournment proposal.

 

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THE MERGER

Terms of the Merger

Each of the CapStar board of directors and the Athens board of directors has unanimously approved the merger agreement. The merger agreement provides for the merger of Athens with and into CapStar, with CapStar continuing as the surviving corporation. Immediately following the completion of the merger, Athens Federal will merge with and into CapStar Bank, with CapStar Bank continuing as the surviving bank.

In the merger, each share of Athens common stock issued and outstanding immediately prior to the completion of the merger (other than the excluded shares) will be converted into the right to receive the merger consideration.

CapStar will not issue any fractional shares of CapStar common stock in the merger. Instead, an Athens shareholder who otherwise would have received a fraction of a share of CapStar common stock will receive an amount in cash rounded to the nearest whole cent. This cash amount will be determined by multiplying the fraction of a share of CapStar common stock to which the holder would otherwise be entitled by the CapStar average closing price. For a discussion of the treatment of awards outstanding under Athens’ equity plans outstanding as of the effective time, see the section entitled “The Merger Agreement—Treatment of Athens Equity Awards.”

Athens shareholders and CapStar shareholders are being asked to approve the merger agreement. See the section entitled “The Merger Agreement” for additional and more detailed information regarding the legal documents that govern the merger, including information about the conditions to the completion of the merger and the provisions for terminating or amending the merger agreement.

Background of the Merger

As part of the ongoing oversight and management of their respective companies, the CapStar board of directors and the Athens board of directors have periodically reviewed and assessed their respective companies’ strategic opportunities and challenges, and considered ways to enhance their respective companies’ performance and prospects in light of competitive and other relevant developments, all with the goal of enhancing shareholder value. For each company, these reviews have included periodic discussions with respect to strategic alternatives, including potential business combinations and acquisitions. In evaluating any potential strategic alternatives, each company’s board of directors considered as important the cultural alignment, retention of talent and operational continuity of the surviving entity. The Athens board of directors also considered the prospects of Athens’ continued independence and profitable growth under current economic and competitive conditions and the increasing costs that disproportionately burden smaller community banks like Athens.

Periodically, Jeffrey L. Cunningham, Athens’ President and Chief Executive Officer, received phone calls from or met with other industry participants expressing an interest in learning more about Athens’ franchise, including with Claire W. Tucker, CapStar’s President and Chief Executive Officer, Mr. Cunningham used these discussions as an opportunity to learn more about the business of each institution. At regularly scheduled meetings of the Athens board of directors, he updated the Athens board of directors on these communications and contacts. During one of their contacts, Ms. Tucker informed Mr. Cunningham that CapStar would be interested in exploring a potential business combination with Athens and asked whether the Athens board of directors would have a mutual interest. Mr. Cunningham informed her that the Athens board of directors was scheduled to hold its annual strategic planning meeting in January 2018 and that the Athens board of directors would consider the interest expressed by CapStar in the context of evaluating and discussing Athens’ strategic alternatives.

In mid-January 2018, the Athens board of directors met to discuss Athens’ strategic opportunities and challenges. Members of senior management and representatives of BSP, an investment banking and financial

 

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advisory firm with experience and expertise in the community banking industry, and Luse Gorman, PC, Athens’ legal counsel, attended. BSP gave a presentation to the Athens board of directors setting forth a financial analysis of strategic alternatives. BSP also compared Athens’ operating results to those of peer financial institutions. BSP also discussed with the Athens board of directors the current mergers and acquisitions environment and identified 15 financial institutions, including CapStar, that BSP considered as potential merger partners for Athens, including their financial ability to acquire Athens at hypothetical prices. Luse Gorman gave a presentation to the Athens board of directors regarding the mergers and acquisitions process and directors’ related fiduciary duties. The Athens board of directors also discussed the potential engagement of BSP to render financial advisory and investment banking services to Athens with respect to a potential business combination. After discussion and deliberations, it was the consensus of the Athens board of directors that it would be in the best interests of Athens and its shareholders to explore a potential business combination involving Athens as seller.

Later that month, at its regular monthly meeting, the Athens board of directors discussed initiating a process to explore a potential business combination involving the merger or sale of Athens. Members of senior management and representatives of BSP and Luse Gorman attended. Following extensive discussion and deliberations, the Athens board of directors unanimously determined that it was in the best interests of Athens and its shareholders to explore the merits and prospects of a business combination involving the merger or sale of Athens. The Athens board of directors also authorized the engagement of BSP to render financial advisory and investment banking services to Athens regarding a potential merger or sale.

In late January 2018, the CapStar board of directors held a regularly scheduled board meeting. During the meeting, the CapStar board of directors received an update from CapStar management on strategic matters, including preliminary discussions with Athens.

Beginning in February 2018, at the instruction of the Athens board of directors, BSP contacted 17 parties that fit the criteria previously discussed by the Athens board of directors, including CapStar, on a no-name basis regarding possible interest in pursuing a strategic transaction. Athens, with the assistance of Luse Gorman, negotiated and executed nondisclosure agreements with eight potentially interested parties, including CapStar, two Tennessee-headquartered financial institutions (which we refer to respectively as “Company A” and “Company B”) and a financial institution headquartered outside of Tennessee (which we refer to as “Company C”). Following the execution of a nondisclosure agreement, the eight parties were made aware that Athens was the subject company and given access to a virtual data room containing a confidential information memorandum and additional information about Athens and its business. BSP initially requested that the parties complete their review of the confidential materials and submit a non-binding indication of interest no later than April 19, 2018.

In early March 2018, the CapStar board of directors held a regularly scheduled board meeting. During the meeting, the CapStar board of directors received an update from CapStar management on the progress made on the potential transaction with Athens.

Throughout March and early April, the potentially interested parties, including CapStar and Companies A, B and C, conducted diligence reviews of Athens.

On April 18, 2018, the CapStar board of directors held a special meeting to discuss and review, among other things, a possible merger with Athens. The CapStar board of directors received an update from CapStar management, KBW and Sandler O’Neill, its outside financial advisors, and Wachtell, Lipton, Rosen & Katz, its outside legal counsel (which we refer to as “Wachtell Lipton”), on the progress made on the potential transaction with Athens. After discussion, the CapStar board of directors authorized CapStar management to proceed with submitting a non-binding indication of interest to acquire Athens.

 

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On April 19, 2018, CapStar, Company A and Company B submitted their non-binding indications of interest letters. On April 20, 2018, Company C submitted its non-binding indication of interest. Each indication of interest was subject to a due diligence review of Athens. No indications of interest from any other parties were received. CapStar initially proposed an implied price range of $50.00 to $51.00 (following subsequent conversations, revised to $51.50) per share of Athens common stock, in all stock consideration at a fixed exchange ratio to be determined based on CapStar’s trading price at the time of signing of a definitive agreement. Company A initially proposed a fixed price of $47.00, in all stock consideration, and following subsequent conversations revised the price to $48.50. Company B proposed an implied price of $50.25, in all stock consideration at a fixed exchange ratio. Company C proposed an implied price range of $46.00 to $50.00 per share of Athens common stock, in all stock consideration at a fixed exchange ratio to be determined based on Company C’s trading price at the time of signing of a definitive agreement.

On April 25, 2018, the Athens board of directors held a special meeting. Members of senior management and representatives of BSP and Luse Gorman attended. BSP reviewed the four non-binding indications of interest that had been received and discussed with the Athens board of directors the pricing of recent mergers and acquisitions involving financial institutions with similar characteristics and financial profiles to Athens. Luse Gorman reviewed again with the Athens board of directors its fiduciary duties. Following discussion and deliberation, the Athens board of directors instructed BSP to invite CapStar, Company A and Company C to conduct further diligence on Athens so that they would update their non-binding indications of interest. The Athens board of directors determined to invite Company C rather than Company B primarily because it was a larger company whose stock would offer significantly more liquidity to Athens’ shareholders and had indicated verbally that it could possibly increase its implied price to approximately $51.00 per share of Athens common stock.

On April 26, 2018, CapStar held a regularly scheduled meeting of the CapStar board of directors. The CapStar board of directors received an update from the CapStar management of the progress made on the potential transaction with Athens.

Thereafter and through on or about May 29, 2018, CapStar, Company A and Company C conducted further due diligence on Athens.

On May 11, 2018, BSP uploaded to the virtual data room a draft of a proposed merger agreement, prepared by Luse Gorman and reviewed with Athens’ senior management, and requested that CapStar, Company A and Company C provide their comments on it when they submit their revised non-binding indications of interest.

Following the completion of its due diligence investigation of Athens, on May 30, 2018, CapStar submitted a revised indication of interest, which included an increased exchange ratio (resulting in an implied price of $57.40 per share of Athens common stock) and the expected commencement of a regular quarterly dividend of $0.04 per share on CapStar common stock in the third quarter of 2018. On that same day, Company A submitted a revised indication of interest that proposed that the merger consideration consist of 95% Company A common stock, at a fixed exchange ratio, as well as 5% cash, consisting of $2.60 per share of Athens common stock, resulting in an increased implied price of $52.00 per share of Athens common stock. Company C did not submit a revised indication of interest but indicated verbally its interest in pursuing a proposed transaction at an implied price of approximately $50.00 per share of Athens common stock.

On May 31, 2018, the Athens board of directors met to discuss the revised indications of interest. Members of senior management and representatives of BSP and Luse Gorman attended. At the invitation of the Athens board of directors, representatives of CapStar and of Company A were present for separate parts of the meeting to present their proposals. An invitation to make a presentation was extended to Company C, but was declined.

Representatives of BSP summarized the conversations between Athens, its advisors and potential merger partners to date, reviewed the indications of interest from each of CapStar, Company A and Company C, presented a financial analysis of each proposed transaction, and compared the pricing metrics of the proposed

 

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transactions to those of selected recent comparable financial institution merger transactions. They also reviewed with the Athens board of directors the implied value of Athens’ franchise based on those comparable transactions.

Representatives of Company A (Chairman of Company A board of directors, the President and Chief Executive Officer of Company A, and the Chief Financial Officer of Company A) and of CapStar (Dennis C. Bottorff, Chairman of the CapStar board of directors, Ms. Tucker, and Robert Anderson, Chief Financial Officer and Chief Administrative Officer of CapStar) then joined the meeting at separate times and gave a presentation about their company, and their views of the perceived merits of a proposed merger between Athens and their respective company. The representatives of each company answered all questions posed by the directors and by Athens’ advisors.

The Athens board of directors discussed CapStar’s, Company A’s and Company C’s respective indications of interest over the course of the meeting. Given that Company C proposed the lowest implied pricing compared to CapStar and Company A, the Athens board of directors determined not to pursue further negotiations with Company C. The Athens board of directors discussed the strengths of CapStar and of Company A and the potential synergies that could be achieved by a combination with each party, among other matters. The Athens board of directors also discussed the perceived risks and challenges associated with pursuing a merger with each party.

On the following day, the Athens board of directors reconvened and continued its deliberations regarding CapStar’s and Company A’s revised indications of interest. Representatives of Luse Gorman reviewed with the Athens board of directors the comments received from CapStar and Company A on the draft merger agreement. Luse Gorman also reviewed again with the Athens board of directors its fiduciary duties in the context of evaluating a potential merger with CapStar or Company A. Following discussion and deliberations, the Athens board of directors instructed Mr. Cunningham and representatives of BSP to present a counteroffer to CapStar, including requests that CapStar increase its offer to an implied price of $58.50 per share and agree to make a $1.5 million contribution to the Athens Federal Foundation given the importance of community to Athens. Mr. Cunningham and representatives of BSP left the meeting to deliver the counteroffer. Later in the day, after further discussions between CapStar and Athens regarding the strategic value of the potential merger, as well as the importance of cultural alignment, retention of talent and operational continuity to both companies, CapStar agreed orally to increase the proposed exchange ratio (resulting in an implied price of $58.00 per share of Athens common stock) and the other terms of the counteroffer. Also later in the day, Company A had agreed orally to an increased implied price of $55.00 per share.

Thereafter, Mr. Cunningham informed each of Ms. Tucker and Company A’s President and Chief Executive Officer that they should submit their final and best offer in writing, because the Athens board intended to reconvene in the afternoon of June 4, 2018 to select the party with whom to proceed to negotiate a definitive merger agreement.

On June 4, 2018, the Athens board of directors continued its deliberations. On that day, each of CapStar and Company A provided a revised non-binding indication of interest outlining the revised terms communicated orally on June 1, 2018, which the Athens board of directors reviewed and discussed. CapStar’s revised indication of interest included the increased exchange ratio (resulting in an implied price of $58.00 per share of Athens common stock), offered a second CapStar board seat to a current member of the Athens board of directors and proposed a $1.5 million contribution to the Athens Federal Foundation. CapStar’s revised indication of interest also included a provision requiring Athens to negotiate exclusively with CapStar until June 15, 2018. CapStar also provided proposals of employment for Mr. Cunningham, Michael Hutsell, Athens’ Chief Operating and Financial Officer, and Jay Leggett, Jr., Athens’ Cleveland City President, and Luse Gorman reviewed and discussed them with the Athens board of directors. Company A’s revised indication of interest included the implied price of $55.00 and offered one Company A board seat to a current member of the Athens board of directors. Company A’s revised indication of interest also proposed a one-time grant of Company A common stock to all Athens employees who continued to be employed with Company A following the merger, valued at

 

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approximately $300,000 in the aggregate. Company A also proposed to make a $1.0 million contribution to the Athens Federal Foundation. Company A’s revised letter did not include an exclusivity provision.

Representatives of BSP reviewed with the Athens board the financial terms of each of CapStar’s and Company A’s revised offers and updated transaction multiples for each proposed transaction. The Athens board of directors also discussed the perceived merits and risks associated with pursuing a merger with each of CapStar and Company A. The Athens board of directors also discussed the prices offered by CapStar and Company A, analyst projections for each party’s stock, the historical performance of each party’s stock, and the pro forma financial impact of Athens on each potential acquirer, among other financial metrics. The Athens board of directors noted that, given that Athens would constitute a larger percentage of the resulting company following a merger with CapStar, Athens would have a greater capability to contribute to CapStar’s earnings and growth. The Athens board of directors also noted that CapStar would likely make a better effort to retain as many Athens’ employees as possible after the merger given that it had no existing presence in Athens’ market area.

Following further discussion and deliberation, a motion to accept CapStar’s revised non-binding indication of interest letter and engage in exclusive negotiations with CapStar was unanimously approved by the Athens board of directors, and the Athens board of directors authorized Mr. Cunningham to execute and deliver the letter on behalf of Athens. The Athens board of directors also authorized management, in consultation with BSP and Luse Gorman, to negotiate a definitive merger agreement with CapStar and to conduct reverse due diligence on CapStar.

During the ensuing days, Luse Gorman and Wachtell Lipton negotiated the terms of the proposed definitive merger agreement and related documents. On June 7 and 8, 2018, Athens’ senior management and representatives of BSP and Luse Gorman conducted on-site reverse due diligence on CapStar in Chattanooga and Nashville, Tennessee.

On June 11, 2018, the CapStar board of directors held a special meeting to review the terms of the proposed merger agreement with Athens. At this meeting, representatives of KBW and representatives of Sandler O’Neill reviewed the financial aspects of the proposed merger and rendered to the CapStar board of directors their respective opinions (which were initially rendered verbally and confirmed in written opinions, dated as of June 11, 2018) to the effect that, as of that date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW and Sandler O’Neill as set forth in such opinions, the exchange ratio in the proposed merger was fair, from a financial point of view, to CapStar. Representatives of Wachtell Lipton then reviewed the fiduciary duties of the directors in the context of the strategic transaction, and summarized and discussed the material terms and conditions set forth in the draft merger agreement. After considering the proposed terms of the merger agreement and the various presentations of its financial and legal advisors, and taking into consideration the matters discussed during the meeting, including factors described under “—CapStar’s Reasons for the Merger; Recommendation of the CapStar Board of Directors,” the CapStar board of directors unanimously voted to (1) adopt and approve the merger agreement, (2) recommend that CapStar’s shareholders vote to approve the merger agreement and the merger and (3) authorize members of CapStar management to execute and deliver the merger agreement, and all related documents, on behalf of CapStar.

On June 11, 2018, the Athens board of directors held a special meeting. All directors attended. Senior management and representatives of BSP and Luse Gorman also attended. Representatives of BSP then reviewed with the Athens board of directors a written presentation containing a financial analysis of the proposed merger and delivered to the Athens board of directors the oral opinion of BSP to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by BSP as set forth in its written fairness opinion, the merger consideration to be received by Athens shareholders in the proposed merger with CapStar was fair, from a financial point of view, to Athens shareholders. BSP informed the Athens board of directors that their oral fairness opinion would be confirmed in a written fairness opinion addressed to the Athens board of directors, dated as of June 11, 2018. Representatives of BSP also confirmed that BSP did not have any conflicts of interest relating to its representation of Athens with

 

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respect to a proposed merger between CapStar and Athens. Mr. Cunningham then summarized the results of legal and regulatory reverse due diligence conducted on CapStar. Luse Gorman reviewed the proposed merger agreement between Athens and CapStar, a copy of which was previously distributed to the Athens board of directors. Luse Gorman also reviewed the proposed voting agreement that all directors would be required to sign concurrently with the signing of the merger agreement, as well as the terms of the employment offers made by CapStar to Messrs. Cunningham, Hutsell and Leggett, Jr. Luse Gorman then reviewed again Athens directors’ fiduciary duties in the context of their consideration of the proposed merger with CapStar, including the fiduciary duties of care and loyalty, and related matters.

After considering the proposed terms of the merger agreement and the various presentations of its financial and legal advisors, and taking into consideration the matters discussed during the meeting, including factors described under “ – Recommendation of Athens’ Board of Directors and Athens’ Reasons for the Merger,” the Athens board of directors voted unanimously to (1) adopt and approve the merger agreement, (2) recommend that Athens’ shareholders vote to approve the merger agreement and the merger and (3) authorize Mr. Cunningham to execute and deliver the merger agreement, and all related documents, on behalf of Athens.

On June 11, 2018, following approval by the boards of directors of CapStar and Athens, CapStar and Athens executed the definitive merger agreement and issued a joint press release after the close of the financial markets to publicly announce the execution of the definitive merger agreement.

Recommendation of the CapStar Board of Directors and CapStar’s Reasons for the Merger

After careful consideration, the CapStar board of directors, at a meeting held on June 11, 2018, unanimously determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of CapStar and its shareholders.

Accordingly, the CapStar board of directors unanimously adopted and approved the merger agreement and unanimously recommends that CapStar shareholders vote (1) “FOR” the proposal to approve the merger agreement and the transactions contemplated thereby and (2) “FOR” the proposal to adjourn the CapStar special meeting, if necessary or appropriate, to solicit additional proxies in favor of the CapStar merger proposal.

In reaching its decision to adopt and approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, and to recommend that CapStar shareholders approve the merger, the CapStar board of directors evaluated the merger agreement and the merger in consultation with CapStar management, as well as with CapStar’s outside financial and legal advisors, and considered a number of factors, including the following material factors:

 

    each of CapStar’s, Athens’ and the combined company’s businesses, operations, financial condition, asset quality, earnings and prospects. In reviewing these factors, the CapStar board of directors considered its view that Athens’ financial condition and asset quality are sound, that Athens’ business and operations complement those of CapStar, and that the merger and the other transactions contemplated by the merger agreement would result in a combined company with a larger and more diversified market presence and a more attractive funding base, than CapStar on a stand-alone basis. The CapStar board of directors further considered that Athens’ earnings and prospects, and the synergies potentially available in the proposed merger, create the opportunity for the combined company to have superior future earnings and prospects compared to CapStar’s earnings and prospects on a stand-alone basis. In particular, the CapStar board of directors considered the following:

 

    the strategic rationale for the merger, given its potential of extending CapStar’s footprint to the growth markets of Eastern Tennessee and the close proximity of Athens to CapStar’s existing franchise;

 

    its belief that the merger will combine two strong and growing banking institutions to create a leading regional banking franchise with enhanced commercial and community banking expertise and complementary product sets, bolstering CapStar’s lending presence with full service banking in the highly attractive Tennessee market;

 

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    the potential for bringing together seasoned bank operators built on a common vision with similar values, with talented, motivated workforces and compatible corporate cultures;

 

    the expanded possibilities, including organic growth and future acquisitions, that would be available to the combined company given its larger size, asset base, capital, and footprint; and

 

    Athens’ proven organic growth capabilities;

 

    the anticipated pro forma impact of the merger on the combined company, including the expected positive impact on certain financial metrics;

 

    its understanding of the current and prospective environment in which CapStar and Athens operate, the competitive environment for financial institutions generally and the likely effect of these factors on CapStar both with and without the merger;

 

    its review and discussions with CapStar management concerning the due diligence examination of Athens’ business;

 

    CapStar management’s expectation that CapStar will retain its strong capital position and asset quality upon completion of the transaction;

 

    the continued employment of three of Athens’ senior executive officers and the participation of two of Athens’ directors in the combined company, which the CapStar board of directors believed would enhance the likelihood of realizing the strategic benefits that CapStar expects to derive from the merger;

 

    the opinions, each dated June 11, 2018, of KBW and Sandler O’Neill, CapStar’s financial advisors, to the CapStar board of directors, to the effect that, as of that date and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by KBW and Sandler O’Neill as set forth in such opinions, the exchange ratio in the proposed merger was fair, from a financial point of view, to CapStar, as more fully described below in “—Opinions of CapStar’s Financial Advisors”;

 

    its review with its outside legal advisor, Wachtell, Lipton, Rosen & Katz, of the terms of the merger agreement, including the tax treatment, deal protection and termination provisions; and

 

    the fact that CapStar’s shareholders would have an opportunity to approve the merger.

The CapStar board of directors also considered potential risks relating to the merger, including the following:

 

    CapStar may not realize all of the anticipated benefits of the merger, including the possibility of encountering difficulties in achieving anticipated cost synergies and savings in the amounts estimated or in the time frame contemplated;

 

    the possibility of encountering difficulties in successfully integrating Athens’ business, operations and workforce with those of CapStar;

 

    the regulatory and other approvals required in connection with the merger and the bank merger and the risk that such regulatory approvals will not be received in a timely manner or may impose unacceptable conditions;

 

    the substantial costs that CapStar will incur in connection with the merger even if it is not consummated; and

 

    the diversion of management attention and resources from the operation of CapStar’s business and toward the completion of the merger.

While the CapStar board of directors considered the foregoing potentially positive and potentially negative factors, the CapStar board of directors concluded that, overall, the potentially positive factors outweighed the potentially negative factors. Accordingly, the CapStar board of directors unanimously determined the merger agreement to be fair, advisable and in the best interests of CapStar and its shareholders, as well as CapStar’s other constituencies.

 

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The foregoing discussion of the information and factors considered by the CapStar board of directors is not intended to be exhaustive, but includes the material factors considered by the CapStar board of directors. In view of the wide variety of the factors considered in connection with its evaluation of the merger and the complexity of these matters, the CapStar board of directors did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, the individual members of the CapStar board of directors may have given different weight to different factors. The CapStar board of directors considered all these factors as a whole and considered the factors overall to be favorable to, and to support, its determination.

The foregoing explanation of the CapStar board of directors’ reasoning and all other information presented in this section contains information that is forward-looking in nature, and therefore should be read in light of the factors discussed in “Cautionary Statement Regarding Forward-Looking Statements.”

Opinions of CapStar’s Financial Advisors

Opinion of Keefe, Bruyette & Woods, Inc.

CapStar engaged KBW to render financial advisory and investment banking services to CapStar in connection with CapStar’s consideration of a possible business combination with Athens, including an opinion to the CapStar board of directors as to the fairness, from a financial point of view, to CapStar of the exchange ratio in the merger. CapStar selected KBW because KBW is a nationally recognized investment banking firm with substantial experience in transactions similar to the merger. As part of its investment banking business, KBW is continually engaged in the valuation of financial services businesses and their securities in connection with mergers and acquisitions.

As part of its engagement, representatives of KBW attended the meeting of the CapStar board of directors held on June 11, 2018 at which the CapStar board of directors evaluated the merger. At this meeting, KBW reviewed the financial aspects of the merger and rendered an opinion (which was initially rendered verbally and confirmed in a written opinion, dated June 11, 2018) to the CapStar board of directors to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in such opinion, the exchange ratio in the merger was fair, from a financial point of view, to CapStar. The CapStar board of directors approved the merger agreement at this meeting.

The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion, which is attached as Appendix B to this joint proxy statement/prospectus and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion.

KBW’s opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to, the CapStar board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion addressed only the fairness, from a financial point of view, of the exchange ratio in the merger to CapStar. It did not address the underlying business decision of CapStar to engage in the merger or enter into the merger agreement or constitute a recommendation to the CapStar board of directors in connection with the merger, and it does not constitute a recommendation to any holder of CapStar common stock or any stockholder of any other entity as to how to vote in connection with the merger or any other matter.

KBW’s opinion was reviewed and approved by KBW’s Fairness Opinion Committee in conformity with its policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.

 

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In connection with the opinion, KBW reviewed, analyzed and relied upon material bearing upon the financial and operating condition of CapStar and Athens and bearing upon the merger, including, among other things:

 

    a draft of the merger agreement, dated June 5, 2018 (the most recent draft then made available to KBW);

 

    the audited financial statements and the Annual Reports on Form 10-K for the two fiscal years ended December 31, 2017 of CapStar and the audited financial statements for the fiscal year ended December 31, 2015 of CapStar;

 

    the unaudited quarterly financial statements and Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 of CapStar;

 

    the audited financial statements for the three fiscal years ended December 31, 2017 of Athens;

 

    the unaudited interim consolidated financial statements for the fiscal quarter ended March 31, 2018 of Athens;

 

    certain regulatory filings of CapStar, CapStar Bank, Athens and Athens Bank, including, as applicable, the quarterly reports on Form FRY-9C and quarterly call reports that were filed with respect to each quarter during the three year period ended December 31, 2017 as well as the quarter ended March 31, 2018;

 

    certain other interim reports and other communications of CapStar and Athens to their respective stockholders; and

 

    other financial information concerning the respective businesses and operations of CapStar and Athens that was furnished to KBW by CapStar and Athens or which KBW was otherwise directed to use for purposes of its analysis.

KBW’s consideration of financial information and other factors that it deemed appropriate under the circumstances or relevant to its analyses included, among others, the following:

 

    the historical and current financial position and results of operations of CapStar and Athens;

 

    the assets and liabilities of CapStar and Athens;

 

    the nature and terms of certain other merger transactions and business combinations in the banking industry;

 

    a comparison of certain financial and stock market information of CapStar and Athens with similar information for certain other companies, the securities of which are publicly-traded;

 

    financial and operating forecasts of Athens with respect to fiscal years 2018 and 2019 that were prepared by Athens management, provided to and discussed with KBW by such management, and used and relied upon by KBW, based on such discussions, at the direction of CapStar management and with the consent of the CapStar board of directors;

 

    assumed Athens long-term growth rates that were provided to and discussed with KBW by CapStar management and used and relied upon by KBW at the direction of such management and with the consent of the CapStar board of directors;

 

    publicly available consensus “street estimates” of CapStar, as well as assumed CapStar long term growth rates that were provided to KBW by CapStar management, all of which information was discussed with KBW by such management and used and relied upon by KBW at the direction of such management and with the consent of the CapStar board of directors; and

 

    estimates regarding certain pro forma financial effects of the merger on CapStar (including without limitation the potential cost savings and related expenses expected to result or be derived from the merger) that were prepared by CapStar management, provided to and discussed with KBW by such management, and used and relied upon by KBW at the direction of such management and with the consent of the CapStar board of directors.

 

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KBW also performed such other studies and analyses as it considered appropriate and took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as well as its experience in securities valuation and knowledge of the banking industry generally. KBW also participated in discussions that were held by the managements of CapStar and Athens regarding the past and current business operations, regulatory relations, financial condition and future prospects of their respective companies and such other matters as KBW deemed relevant to its inquiry.

In conducting its review and arriving at its opinion, KBW relied upon and assumed the accuracy and completeness of all of the financial and other information provided to it or that was publicly available and KBW did not independently verify the accuracy or completeness of any such information or assume any responsibility or liability for such verification, accuracy or completeness. KBW relied upon the management of Athens, with the consent of CapStar, as to the reasonableness and achievability of the financial and operating forecasts of Athens with respect to fiscal years 2018 and 2019 (and the assumptions and bases therefor) referred to above, and KBW assumed that such forecasts were reasonably prepared and represented the best currently available estimates and judgments of such management and that such forecasts would be realized in the amounts and in the time periods estimated by such management. KBW further relied upon CapStar management as to the reasonableness and achievability of the publicly available consensus “street estimates” of CapStar, the assumed long-term growth rates of Athens and CapStar, and the estimates regarding certain pro forma financial effects of the merger on CapStar, all as referred to above (and the assumptions and bases for all such information, including, without limitation, the potential cost savings and related expenses expected to result or be derived from the merger), and KBW assumed that all such information was reasonably prepared and represented, or in the case of the publicly available consensus “street estimates” of CapStar referred to above that such estimates were consistent with, the best currently available estimates and judgments of CapStar management and that the forecasts and estimates reflected in such information would be realized in the amounts and in the time periods estimated.

It is understood that the portion of the foregoing financial information of CapStar and Athens that was provided to and discussed with KBW was not prepared with the expectation of public disclosure, that all of the foregoing financial information, including the publicly available consensus “street estimates” of CapStar referred to above, was based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions and that, accordingly, actual results could vary significantly from those set forth in such information. KBW assumed, based on discussions with the respective managements of CapStar and Athens, that all such information provided a reasonable basis upon which KBW could form its opinion and KBW expressed no view as to any such information or the assumptions or bases therefor. KBW relied on all such information without independent verification or analysis and did not in any respect assume any responsibility or liability for the accuracy or completeness thereof.

KBW also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either CapStar or Athens since the date of the last financial statements of each such entity that were made available to KBW and that KBW was directed to use. KBW is not an expert in the independent verification of the adequacy of allowances for loan and lease losses and KBW assumed, without independent verification and with CapStar’s consent, that the aggregate allowances for loan and lease losses for each of CapStar and Athens are adequate to cover such losses. In rendering its opinion, KBW did not make or obtain any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of CapStar or Athens, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor did KBW examine any individual loan or credit files, nor did it evaluate the solvency, financial capability or fair value of CapStar or Athens under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, KBW assumed no responsibility or liability for their accuracy.

 

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KBW assumed, in all respects material to its analyses, the following:

 

    the merger would be completed substantially in accordance with the terms set forth in the merger agreement (the final terms of which KBW assumed would not differ in any respect material to its analyses from the draft version of the merger agreement that had been reviewed by KBW and referred to above) with no adjustments to the exchange ratio and with no other consideration or payments in respect of Athens common stock;

 

    any related transactions (including the bank merger) would be completed substantially in accordance with the terms set forth in the merger agreement or as otherwise described to KBW by representatives of CapStar;

 

    the representations and warranties of each party in the merger agreement and in all related documents and instruments referred to in the merger agreement were true and correct;

 

    each party to the merger agreement or any of the related documents would perform all of the covenants and agreements required to be performed by such party under such documents;

 

    all conditions to the completion of the merger and any related transactions (including the bank merger) would be satisfied without any waivers or modifications to the merger agreement or any of the related documents; and

 

    in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the merger and any related transactions (including the bank merger), no delay, limitation, restriction or condition, including any divestiture requirements, termination or other payments or amendments or modifications, would be imposed that would have a material adverse effect on the future results of operations or financial condition of CapStar, Athens or the pro forma entity, or the contemplated benefits and effects of the merger, including without limitation the cost savings and related expenses expected to result or be derived from the merger.

KBW assumed that the merger will be consummated in a manner that complies with the applicable provisions of the Securities Act, the Exchange Act, and all other applicable federal and state statutes, rules and regulations. KBW was further advised by representatives of CapStar that CapStar relied upon advice from its advisors (other than KBW) or other appropriate sources as to all legal, financial reporting, tax, accounting and regulatory matters with respect to CapStar, Athens, the merger and any related transaction (including the bank merger), and the merger agreement. KBW did not provide advice with respect to any such matters.

KBW’s opinion addressed only the fairness, from a financial point of view, as of the date of such opinion, of the exchange ratio in the merger to CapStar. KBW expressed no view or opinion as to any other terms or aspects of the merger or any term or aspect of any related transaction (including the bank merger and the charitable contribution to be made by CapStar following the consummation of the merger as provided for in the merger agreement), including without limitation, the form or structure of the merger or any such related transaction, any consequences of the merger to CapStar, its stockholders, creditors or otherwise, or any terms, aspects, merits or implications of any employment, retention, consulting, voting, support, escrow, cooperation, stockholder or other agreements, arrangements or understandings contemplated or entered into in connection with the merger, any such related transaction, or otherwise. KBW’s opinion was necessarily based upon conditions as they existed and could be evaluated on the date of such opinion and the information made available to KBW through such date. Developments subsequent to the date of KBW’s opinion may have affected, and may affect, the conclusion reached in KBW’s opinion and KBW did not and does not have an obligation to update, revise or reaffirm its opinion. KBW’s opinion did not address, and KBW expressed no view or opinion with respect to:

 

    the underlying business decision of CapStar to engage in the merger or enter into the merger agreement;

 

    the relative merits of the merger as compared to any strategic alternatives that are, have been or may be available to or contemplated by CapStar or the CapStar board of directors;

 

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    any business, operational or other plans with respect to Athens or the pro forma entity that may be currently contemplated by CapStar or the CapStar board of directors or that may be implemented subsequent to the closing of the merger;

 

    the fairness of the amount or nature of any compensation to any of CapStar’s officers, directors or employees, or any class of such persons, relative to any compensation to the holders of CapStar common stock or relative to the exchange ratio;

 

    the effect of the merger or any related transaction (including the bank merger) on, or the fairness of the consideration to be received by, holders of any class of securities of CapStar, Athens or any other party to any transaction contemplated by the merger agreement;

 

    any adjustment (as provided in the merger agreement) to the exchange ratio assumed for purposes of KBW’s opinion;

 

    the actual value of CapStar common stock to be issued in connection with the merger;

 

    the prices, trading range or volume at which CapStar common stock or Athens common stock would trade following the public announcement of the merger or the prices, trading range or volume at which CapStar common stock would trade following the consummation of the merger;

 

    any advice or opinions provided by any other advisor to any of the parties to the merger or any other transaction contemplated by the merger agreement; or

 

    any legal, regulatory, accounting, tax or similar matters relating to CapStar, Athens, any of their respective stockholders, or relating to or arising out of or as a consequence of the merger or any other related transaction (including the bank merger), including whether or not the merger would qualify as a tax-free reorganization for U.S. federal income tax purposes.

In performing its analyses, KBW made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of KBW, CapStar and Athens. Any estimates contained in the analyses performed by KBW are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the KBW opinion was among several factors taken into consideration by the CapStar board of directors in making its determination to approve the merger agreement and the merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the CapStar board of directors with respect to the fairness of the exchange ratio. The type and amount of consideration payable in the merger were determined through negotiation between CapStar and Athens and the decision of CapStar to enter into the merger agreement was solely that of the CapStar board of directors.

Summary of Analysis by KBW

The following is a summary of the material financial analyses presented by KBW to the CapStar board of directors in connection with its opinion. The summary is not a complete description of the financial analyses underlying the opinion or the presentation made by KBW to the CapStar board of directors, but summarizes the material analyses performed and presented in connection with such opinion. The financial analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex analytic process involving various determinations as to appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, KBW did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each

 

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analysis and factor. Accordingly, KBW believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion.

For purposes of the financial analyses described below, KBW utilized an implied transaction value for the merger of $114.4 million (inclusive of the implied value of in-the-money Athens stock options), or $58.00 per outstanding share of Athens common stock, based on the exchange ratio of 2.864 in the merger and the closing price of CapStar common stock on June 7, 2018.

CapStar Selected Companies Analysis. Using publicly available information, KBW compared the financial performance, financial condition and market performance of CapStar to 17 selected major exchange-traded banks that were headquartered in the Southeastern United States with total assets between $1.0 billion and $2.5 billion. Merger targets and mutual holding companies were excluded from the selected companies.

The selected companies were as follows:

 

American National Bankshares, Inc.

   National Bankshares, Inc.

C&F Financial Corporation

   Peoples Bancorp of North Carolina, Inc.

Colony Bankcorp, Inc.

   Premier Financial Bancorp, Inc.

Community Bankers Trust Corporation

   Reliant Bancorp, Inc.

Entegra Financial Corp.

   Select Bancorp, Inc.

First Bancshares, Inc.

   SmartFinancial, Inc.

First Community Bancshares, Inc.

   Southern First Bancshares, Inc.

First Community Corporation

   Summit Financial Group, Inc.

MVB Financial Corp.

  

To perform this analysis, KBW used profitability data and other financial information as of, or for the most recent available completed fiscal quarter (which we refer to as “MRQ”) ended, March 31, 2018 and market price information as of June 7, 2018. KBW also used 2018 and 2019 earnings per share (which we refer to as “EPS”) estimates taken from consensus “street estimates” for CapStar and, to the extent available, the selected companies. Where consolidated holding company level financial data was unreported, subsidiary bank level data was utilized to calculate ratios. Certain financial data prepared by KBW, as referenced in the tables presented below, may not correspond to the data presented in CapStar’s historical financial statements, or the data prepared by Sandler O’Neill or BSP presented under the sections “—Opinions of CapStar’s Financial Advisors—Opinion of Sandler O’Neill” or “—Opinion of Athens’ Financial Advisor,” respectively, as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.

KBW’s analysis showed the following concerning the financial performance of CapStar and the selected companies:

 

            Selected Companies  
     CapStar      25th
Percentile
     Average      Median      75th
Percentile
 

MRQ Core Return on Average Assets (%)(1)

     0.95        1.01        1.13        1.11        1.27  

MRQ Core Return on Average Tangible Common Equity (%)(1)

     9.63        9.87        12.04        12.57        14.07  

MRQ Net Interest Margin (%)

     3.34        3.53        3.88        3.62        4.24  

MRQ Fee Income / Revenue(2)

     22.2        12.4        18.4        17.8        22.4  

MRQ Efficiency Ratio

     68.4        68.7        64.2        63.1        57.8  

 

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(1) Core Income excluded extraordinary items, non-recurring items, realized gains / (losses) on sale of securities and amortization of intangibles, as calculated by SNL Financial.
(2) Excluded gains/losses on sale of securities.

KBW’s analysis also showed the following concerning the financial condition of CapStar and the selected companies:

 

           Selected Companies  
     CapStar     25th
Percentile
     Average      Median      75th
Percentile
 

Tangible Common Equity / Tangible Assets (%)

     9.70       8.40        9.28        9.23        9.53  

Tangible Equity / Tangible Assets (%)

     10.35       8.40        9.31        9.23        9.53  

Total Risk Based Capital Ratio (%)

     12.22       13.01        14.65        14.57        15.04  

Loans / Deposits (%)

     91.5       78.9        85.4        85.9        91.8  

Loan Loss Reserve / Gross Loans (%)

     1.33       0.83        1.06        0.92        1.08  

Nonperforming Assets / Loans + OREO (%)

     0.23       1.89        1.58        1.20        0.93  

MRQ Net Charge-Offs / Average Loans (%)

     (0.06     0.06        0.12        0.04        0.01  

In addition, KBW’s analysis showed the following concerning the market performance of CapStar and, to the publicly extent available, the selected companies:

 

           Selected Companies  
     CapStar     25th
Percentile
     Average      Median      75th
Percentile
 

One-Year Stock Price Change (%)

     10.0       15.8        23.1        21.6        26.7  

One-Year Total Return (%)

     10.0       18.5        24.8        21.6        29.1  

YTD Price Change (%)

     (2.5     4.6        8.4        5.6        15.2  

Stock Price / Tangible Book Value per Share (%)

     179       169        188        177        208  

Stock Price / 2018 EPS Estimate (x)(1)

     17.7       16.0        16.2        16.5        17.5  

Stock Price / 2019 EPS Estimate (x)(1)

     16.0       13.6        14.5        14.6        15.8  

Dividend Yield (%)(2)

     0.8 (3)      0.0        1.2        1.3        2.0  

2018 Dividend Payout Ratio (%)(2)

     14.0 (3)      0.0        16.4        16.3        26.4  

 

(1) Consensus “street estimates” were not available for seven of the selected companies.
(2) Dividend yield and 2018 dividend payout ratio reflected most recent quarterly dividend annualized as a percentage of stock price and 2018 estimated EPS, respectively. Five of the selected companies did not pay dividends in their most recent completed quarter.
(3) Based on CapStar quarterly dividend for the third quarter of 2018 announced by CapStar concurrently with the announcement of the merger.

No company used as a comparison in the above selected companies analysis is identical to CapStar. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

Athens Selected Companies Analysis. Using publicly available information, KBW compared the financial performance, financial condition and market performance of Athens to 11 selected major exchange-traded banks that were headquartered in the Southeastern United States with total assets between $100 million and $1.0 billion. Merger targets and mutual holding companies were excluded from the selected companies.

 

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The selected companies were as follows:

 

Auburn National Bancorporation, Inc.    First US Bancshares, Inc.
Bank of South Carolina Corporation    HomeTown Bankshares Corporation
Bank of the James Financial Group, Inc.    Old Point Financial Corporation
Carolina Trust BancShares, Inc.    Southwest Georgia Financial Corporation
Citizens Holding Company    Village Bank and Trust Financial Corp.
Fauquier Bankshares, Inc.   

To perform this analysis, KBW used profitability data and other financial information as of, or for the latest 12 months (which we refer to as “LTM”) or the most recent available completed fiscal quarter ended, March 31, 2018 and market price information as of June 7, 2018. Where consolidated holding company level financial data was unreported, subsidiary bank level data was utilized to calculate ratios. Certain financial data prepared by KBW, as referenced in the tables presented below, may not correspond to the data presented in Athens’ historical financial statements, or the data prepared by Sandler O’Neill or BSP presented under the sections “—Opinions of CapStar’s Financial Advisors—Opinion of Sandler O’Neill” or “—Opinion of Athens’ Financial Advisor,” respectively, as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.

KBW’s analysis showed the following concerning the financial performance of Athens and the selected companies:

 

            Selected Companies  
     Athens      25th
Percentile
     Average      Median      75th
Percentile
 

MRQ Core Return on Average Assets (%)(1)

     1.34        0.47        0.70        0.71        0.87  

MRQ Core Return on Average Tangible Common Equity (%)(1)

     12.76        5.32        7.94        8.30        9.38  

MRQ Net Interest Margin (%)

     4.18        3.50        3.74        3.69        3.81  

MRQ Fee Income / Revenue (%)(2)

     25.8        12.6        17.2        18.2        21.2  

MRQ Efficiency Ratio (%)

     65.2        82.0        76.3        77.5        73.7  

 

(1) Core Income excluded extraordinary items, non-recurring items, realized gains / (losses) on sale of securities and amortization of intangibles, as calculated by SNL Financial.
(2) Excluded gains/losses on sale of securities.

KBW’s analysis also showed the following concerning the financial condition of Athens and the selected companies:

 

           Selected Companies  
     Athens     25th
Percentile
     Average      Median      75th
Percentile
 

Tangible Common Equity / Tangible Assets (%)

     10.44       8.00        8.80        8.31        9.65  

Total Risk Based Capital Ratio (%)

     14.12 (1)      12.36        14.56        12.78        17.59  

Loans / Deposits (%)

     79.0       68.4        80.2        86.7        92.5  

Loan Loss Reserve / Gross Loans (%)

     1.19       0.88        1.04        1.03        1.20  

Nonperforming Assets / Loans + OREO (%)

     1.29       2.25        1.69        1.74        0.98  

MRQ Net Charge-Offs / Average Loans (%)

     0.02       0.13        0.12        0.08        0.04  

 

(1) Per bank level regulatory filings as of March 31, 2018

 

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In addition, KBW’s analysis showed the following concerning the market performance of Athens and the selected companies (excluding the impact of the LTM Core EPS multiples for four of the selected companies, which multiples were considered to be not meaningful because they were greater than 30.0x):

 

            Selected Companies  
     Athens      25th
Percentile
    Average      Median     75th
Percentile
 

One-Year Stock Price Change (%)

     12.7        3.1       10.4        13.9       15.9  

One-Year Total Return (%)

     13.2        4.2       12.2        14.9       18.3  

YTD Price Change (%)

     15.6        (7.8     1.0        (1.7     10.6  

Stock Price / Tangible Book Value per Share (%)

     162        133       151        140       144  

Stock Price / LTM Core EPS (x)(1)

     16.0        16.3       18.0        17.4       19.5  

Dividend Yield (%)(2)

     0.4        1.0       1.7        1.6       2.2  

LTM Dividend Payout Ratio (%)(2)

     7.2        26.1       35.6        38.6       46.5  

 

(1) EPS adjusted for corporate tax reform in the fourth quarter of 2017; core income excluded extraordinary items, realized gains/losses on sale of securities and amortization of intangibles as per SNL Financial.
(2) Dividend yield and LTM dividend payout ratio reflected most recent quarterly dividend annualized as a percentage of stock price and annualized LTM EPS, respectively. Two of the selected companies did not pay dividends in their most recent completed quarter.

No company used as a comparison in the above selected companies analysis is identical to Athens. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

Selected Transactions Analysis. KBW reviewed publicly available information related to 17 selected U.S. whole bank transactions announced since January 1, 2018 with announced deal values between $75 million and $200 million. Merger-of-equals transactions and terminated transactions were excluded from the selected transactions. The selected transactions were as follows:

 

Acquiror

  

Acquired Company

German American Bancorp, Inc.    First Security, Inc.
Hanmi Financial Corporation    SWNB Bancorp, Inc.
Stifel Financial Corp.    Business Bancshares, Inc.
First Interstate BancSystem, Inc.    Northwest Bancorporation, Inc.
National Commerce Corporation    Landmark Bancshares, Inc.
RBB Bancorp    First American International Corp.
BancorpSouth Bank    Icon Capital Corporation
QCR Holdings, Inc.    Springfield Bancshares, Inc.
Triumph Bancorp, Inc.    First Bancorp of Durango, Inc.
HarborOne Bancorp, Inc.    Coastway Bancorp, Inc.
Civista Bancshares, Inc.    United Community Bancorp
Heritage Financial Corporation    Premier Commercial Bancorp
First Choice Bancorp    Pacific Commerce Bancorp
Hilltop Holdings Inc.    Bank of River Oaks
Mechanics Bank    Learner Financial Corporation
Park National Corporation    New Dominion Bank
Mid Penn Bancorp, Inc.    First Priority Financial Corp.

For each selected transaction, KBW derived the following implied transaction statistics, in each case based on the transaction consideration value paid for the acquired company and using financial data based on the

 

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acquired company’s then latest publicly available financial statements prior to the announcement of the acquisition:

 

    Total transaction consideration to tangible book value of the acquired company;

 

    Tangible equity premium to core deposits (total deposits less time deposits greater than $100,000) of the acquired company, referred to as core deposit premium; and

 

    Total transaction consideration to LTM earnings of the acquired company.

KBW also reviewed the price per common share paid for the acquired company in the nine selected transactions involving publicly-traded acquired companies as a premium to the closing price of the acquired company one day prior to the announcement of the acquisition (expressed as a percentage and referred to as the one-day market premium).The above transaction statistics for the selected transactions were compared with the corresponding transaction statistics for the merger based on the implied transaction value for the merger of $114.4 million and using historical financial information for Athens as of or for the 12 months ended March 31, 2018 and the closing price of CapStar common stock on June 7, 2018.

The results of the analysis are set forth in the following table:

 

            Selected Transactions  

Transaction Price to

   CapStar /
Athens
Merger
     25th
Percentile
     Average      Median      75th
Percentile
 

Tangible Book Value (%)

     229        174        193        185        218  

Core Deposit Premium (%)

     18.1        12.1        14.3        13.3        16.0  

LTM Earnings (x)(1)

     23.4        19.3        26.4        23.5        30.2  

One-Day Market Premium (%)

     30.3        27.0        37.9        34.5        49.1  

 

(1) Adjusted for deferred tax assets revaluations due to corporate tax reform in the fourth quarter of 2017.

No company or transaction used as a comparison in the above selected transaction analysis is identical to Athens or the merger. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

 

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Relative Contribution Analysis. KBW analyzed the relative stand-alone contribution of CapStar and Athens to various pro forma balance sheet and income statement items and the pro forma market capitalization of the combined entity. This analysis did not include purchase accounting adjustments or cost savings. To perform this analysis, KBW used (i) historical balance sheet data for CapStar and Athens as of March 31, 2018, (ii) publicly available EPS consensus “street estimates” of CapStar for 2018 and 2019 and financial forecasts relating to the net income of Athens for 2018 and 2019 provided by Athens management, and (iii) market price data as of June 7, 2018. The results of KBW’s analysis are set forth in the following table, which also compares the results of KBW’s analysis with the implied pro forma ownership percentages of CapStar and Athens shareholders in the combined company based on the exchange ratio of 2.864 in the merger:

 

     CapStar
as a % of
Total
    Athens
as a % of
Total
 

Ownership

    

Pro Forma Ownership(1)

     71     29

Balance Sheet

    

Total Assets

     74     26

Gross Loans Held for Investment

     76     24

Total Deposits

     73     27

Tangible Common Equity(2)

     74     26

Income Statement

    

2018 Estimated Net Income

     72     28

2019 Estimated Net Income

     71     29

Market Capitalization

    

Pre-Deal Market Capitalization(1)

     76     24

 

(1) Outstanding shares of CapStar convertible preferred stock assumed, at the direction of CapStar, to be converted into common stock.
(2) CapStar tangible common equity included aggregate liquidation preference of outstanding CapStar convertible preferred stock.

Pro Forma Financial Impact Analysis. KBW performed a pro forma financial impact analysis that combined projected income statement and balance sheet information of CapStar and Athens. Using (i) closing balance sheet estimates as of December 31, 2018 for CapStar and Athens provided by CapStar and Athens management, respectively, (ii) financial forecasts relating to the EPS of Athens for 2018 and 2019 provided by Athens management and an assumed long-term EPS growth rate for Athens provided by CapStar management, (iii) publicly available EPS consensus “street estimates” of CapStar for 2018 and 2019 and an assumed long-term EPS growth rate for CapStar provided by CapStar management, and (iv) pro forma assumptions (including, without limitation, the cost savings and related expenses expected to result from the merger and certain accounting adjustments and restructuring charges assumed with respect thereto) provided by CapStar management, KBW analyzed the estimated financial impact of the merger on certain projected financial results. This analysis indicated that the merger could be accretive to CapStar’s 2019 and 2019 estimated EPS and dilutive to CapStar’s estimated tangible book value per share at closing. Furthermore, the analysis indicated that, pro forma for the merger, each of CapStar’s tangible common equity to tangible assets ratio and leverage ratio at closing could be lower and each of CapStar’s Common Equity Tier 1 Ratio, Leverage Ratio, Tier 1 Capital Ratio and Total Risk-based Capital Ratio at closing could be higher. For all of the above analysis, the actual results achieved by CapStar following the merger may vary from the projected results, and the variations may be material.

CapStar Discounted Cash Flow Analysis. KBW performed a discounted cash flow analysis to estimate a range for the implied equity value of CapStar. In this analysis, KBW used publicly available consensus “street estimates” of CapStar and assumed long-term growth rates for CapStar provided by CapStar management and KBW assumed discount rates ranging from 10.0% to 15.0%. A range of values was derived by adding (i) the

 

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present value of the estimated excess cash flows that CapStar could generate over the six-year period from 2018 to 2023 and (ii) the present value of CapStar’s implied terminal value at the end of such period. KBW assumed that CapStar would maintain a tangible common equity to tangible assets ratio of 9.00% and CapStar would retain sufficient earnings to maintain that level. In calculating the terminal value of CapStar, KBW applied a range of 14.0x to 18.0x CapStar’s estimated 2024 earnings. This discounted cash flow analysis resulted in a range of implied values per share of CapStar common stock of $17.57 per share to $26.58 per share.

The discounted cash flow analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including asset and earnings growth rates, terminal values, dividend payout rates, and discount rates. The above analysis did not purport to be indicative of the actual values or expected values of CapStar or the combined company.

Athens Discounted Cash Flow Analysis. KBW performed a discounted cash flow analysis to estimate a range for the implied equity value of Athens, taking into account the cost savings and related expenses expected to result from the merger as well as certain accounting adjustments and restructuring charges assumed with respect thereto. In this analysis, KBW used financial forecasts relating to the earnings and assets of Athens with respect to the period from 2018 and 2019 provided by Athens management, assumed Athens long term growth rates provided by CapStar management and estimated cost savings and related expenses and accounting adjustments and restructuring charges provided by CapStar management, and KBW assumed discount rates ranging from 15.0% to 19.0%. A range of values was derived by adding (i) the present value of the estimated excess cash flows that Athens could generate over the six-year period from 2018 to 2023 and (ii) the present value of Athens’ implied terminal value at the end of such period, in each case applying estimated cost savings and related expenses and accounting adjustments and restructuring charges. KBW assumed that Athens would maintain a tangible common equity to tangible assets ratio of 9.00% and Athens would retain sufficient earnings to maintain that level. In calculating the terminal value of Athens, KBW applied a range of 13.0x to 18.0x Athens’ estimated 2024 earnings. This discounted cash flow analysis resulted in a range of implied values per share of Athens common stock, taking into account the cost savings and related expenses expected to result from the merger as well as certain accounting adjustments and restructuring charges assumed with respect thereto, of $56.25 per share to $84.03 per share.

The discounted cash flow analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including asset and earnings growth rates, terminal values, dividend payout rates, and discount rates. The above analysis did not purport to be indicative of the actual values or expected values of Athens.

Miscellaneous. KBW acted as financial advisor to CapStar in connection with the merger and did not act as an advisor to or agent of any other person. As part of its investment banking business, KBW is continually engaged in the valuation of bank and bank holding company securities in connection with acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. As specialists in the securities of banking companies, KBW has experience in, and knowledge of, the valuation of banking enterprises. KBW and its affiliates, in the ordinary course of its and their broker-dealer businesses (and in the case of CapStar, further to an existing sales and trading relationship with a KBW broker-dealer affiliate), may from time to time purchase securities from, and sell securities to, CapStar and Athens. In addition, as a market maker in securities, KBW and its affiliates may from time to time have a long or short position in, and buy or sell, debt or equity securities of CapStar or Athens for its and their own accounts and for the accounts of its and their respective customers and clients.

Pursuant to the KBW engagement agreement, CapStar has agreed to pay KBW a total cash fee equal to 0.50% of the aggregate merger consideration, $150,000 of which became payable with the rendering of KBW’s opinion and the balance of which is contingent upon the consummation of the merger. At the time of announcement, based on the closing price of CapStar’s common stock of $20.09 as of June 11, 2018, KBW’s cash fee was approximately $567,000. CapStar also agreed to reimburse KBW for certain reasonable

 

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out-of-pocket expenses and disbursements incurred in connection with its engagement and to indemnify KBW against certain liabilities relating to or arising out of KBW’s engagement or KBW’s role in connection therewith. In addition to this present engagement, in the two years preceding the date of KBW’s opinion, KBW provided investment banking and financial advisory services to CapStar for such services. KBW acted as an underwriter in connection with CapStar’s September 2016 initial public offering of CapStar common stock. In connection with the foregoing offering, KBW received fees (including underwriting discounts) of approximately $1.0 million in the aggregate from CapStar. In the two years preceding the date of KBW’s opinion, KBW did not provide investment banking or financial advisory services to Athens. KBW may in the future provide investment banking and financial advisory services to CapStar and receive compensation for such services.

Opinion of Sandler O’Neill

CapStar engaged Sandler O’Neill to act as financial advisor to CapStar’s board of directors in connection with CapStar’s consideration of a possible business combination with Athens. Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Sandler O’Neill is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

Sandler O’Neill acted as financial advisor in connection with the proposed transaction and participated in certain of the negotiations leading to the execution of the merger agreement. At the June 11, 2018 meeting at which CapStar’s board of directors considered and discussed the terms of the merger agreement and the merger, Sandler O’Neill delivered to CapStar’s board of directors its oral opinion, which was subsequently confirmed in writing on June 11, 2018, to the effect that, as of such date, the exchange ratio in the merger was fair to the holders of CapStar common stock, from a financial point of view. The full text of Sandler O’Neill’s opinion is attached as Appendix C to this joint proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the full text of the opinion. Holders of CapStar common stock are urged to read the entire opinion carefully in connection with their consideration of the merger.

Sandler O’Neill’s opinion speaks only as of the date of the opinion. The opinion was directed to CapStar’s board of directors in connection with its consideration of the merger agreement and the merger and does not constitute a recommendation to any shareholder of CapStar as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the merger agreement and the merger. Sandler O’Neill’s opinion was directed only to the fairness, from a financial point of view, of the exchange ratio to the holders of CapStar common stock and did not address the underlying business decision of CapStar to engage in the merger, the form or structure of the merger or any other transactions contemplated in the merger agreement, the relative merits of the merger as compared to any other alternative transactions or business strategies that might exist for CapStar or the effect of any other transaction in which CapStar might engage. Sandler O’Neill did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by any officer, director or employee of CapStar or Athens, or any class of such persons, if any, relative to the consideration to be received in the merger by any other shareholder. Sandler O’Neill’s opinion was approved by Sandler O’Neill’s fairness opinion committee.

In connection with its opinion, Sandler O’Neill reviewed and considered, among other things:

 

    An execution copy of the merger agreement, dated June 10, 2018;

 

    certain publicly available financial statements and other historical financial information of CapStar that Sandler O’Neill deemed relevant;

 

    certain publicly available financial statements and other historical financial information of Athens that Sandler O’Neill deemed relevant;

 

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    publicly available consensus mean analyst earnings per share and dividends per share estimates for CapStar for the years ending December 31, 2018 and December 31, 2019, as well as long-term earnings growth rate and dividends per share for the years thereafter, as provided by the senior management of CapStar;

 

    certain internal financial projections for Athens for the years ending December 31, 2018 and December 31, 2019, as provided by the senior management of Athens and confirmed with the senior management of CapStar, as well as a long-term earnings per share growth rate for the years thereafter, as provided by the senior management of CapStar;

 

    the pro forma financial impact of the merger on CapStar based on certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior management of CapStar (which we refer to as the “pro forma assumptions”);

 

    the publicly reported historical price and trading activity for CapStar common stock and Athens common stock, including a comparison of certain stock market information for CapStar common stock and Athens common stock and certain stock indices, as well as publicly available information for certain other similar companies, the securities of which are publicly traded;

 

    a comparison of certain financial information for CapStar and Athens with similar financial institutions for which information was publicly available;

 

    the financial terms of certain recent business combinations in the bank and thrift industry (on a regional and nationwide basis), to the extent publicly available;

 

    the current market environment generally and the banking environment in particular; and

 

    such other information, financial studies, analyses and investigations and financial, economic and market criteria as Sandler O’Neill considered relevant.

Sandler O’Neill also discussed with certain members of the senior management of CapStar the business, financial condition, results of operations and prospects of CapStar and held similar discussions with certain members of the senior management of Athens and its representatives regarding the business, financial condition, results of operations and prospects of Athens.

In performing its review, Sandler O’Neill relied upon the accuracy and completeness of all of the financial and other information that was available to and reviewed by Sandler O’Neill from public sources, that was provided to Sandler O’Neill by CapStar or Athens or their respective representatives or that was otherwise reviewed by Sandler O’Neill, and Sandler O’Neill assumed such accuracy and completeness for purposes of rendering its opinion without any independent verification or investigation. Sandler O’Neill relied on the assurances of the respective senior managements of CapStar and Athens that they were not aware of any facts or circumstances that would have made any of such information inaccurate or misleading in any material respect. Sandler O’Neill was not asked to and did not undertake an independent verification of any of such information and Sandler O’Neill did not assume any responsibility or liability for the accuracy or completeness thereof. Sandler O’Neill did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of CapStar or Athens or any of their respective subsidiaries. Sandler O’Neill rendered no opinion or evaluation on the collectability of any assets or the future performance of any loans of CapStar or Athens. Sandler O’Neill did not make an independent evaluation of the adequacy of the allowance for loan losses of CapStar or Athens, or of the combined entity after the merger, and Sandler O’Neill did not review any individual credit files relating to CapStar or Athens. Sandler O’Neill assumed, with CapStar’s consent, that the respective allowances for loan losses for both CapStar and Athens were adequate to cover such losses and would be adequate on a pro forma basis for the combined entity.

In preparing its analyses, Sandler O’Neill used certain publicly available consensus mean analyst earnings per share and dividends per share estimates for CapStar for the years ending December 31, 2018 and

 

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December 31, 2019, as well as an estimated long-term earnings growth rate and dividends per share for the years thereafter, as provided by the senior management of CapStar. In addition, Sandler O’Neill used certain internal financial projections for Athens for the years ending December 31, 2018 and December 31, 2019, as provided by the senior management of Athens and confirmed with the senior management of CapStar, as well as a long-term earnings per share growth rate for the years thereafter, as provided by the senior management of CapStar. Sandler O’Neill also received and used in its pro forma analyses the pro forma assumptions, as provided by the senior management of CapStar. With respect to the foregoing information, the respective senior managements of CapStar and Athens confirmed to Sandler O’Neill that such information reflected (or, in the case of the publicly available consensus mean analyst estimates referred to above, were consistent with) the best currently available projections, estimates and judgments of those respective senior managements as to the future financial performance of CapStar and Athens, respectively, and the other matters covered thereby, and Sandler O’Neill assumed that the future financial performance reflected in such information would be achieved. Sandler O’Neill expressed no opinion as to such information, or the assumptions on which such information was based. Sandler O’Neill also assumed that there had been no material change in the respective assets, financial condition, results of operations, business or prospects of CapStar or Athens since the date of the most recent financial statements made available to Sandler O’Neill. Sandler O’Neill assumed in all respects material to its analysis that CapStar and Athens would remain as going concerns for all periods relevant to its analysis.

Sandler O’Neill assumed, with CapStar’s consent, that (i) each of the parties to the merger agreement would comply in all material respects with all material terms and conditions of the merger agreement and all related agreements, that all of the representations and warranties contained in such agreements were true and correct in all material respects, that each of the parties to such agreements would perform in all material respects all of the covenants and other obligations required to be performed by such party under such agreements and that the conditions precedent in such agreements were not and would not be waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on CapStar, Athens or the merger or any related transactions and (iii) the merger and any related transactions would be consummated in accordance with the terms of the merger agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements. Finally, with CapStar’s consent, Sandler O’Neill relied upon the advice that CapStar received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the merger and the other transactions contemplated by the merger agreement. Sandler O’Neill expressed no opinion as to any such matters.

Sandler O’Neill’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Sandler O’Neill as of, the date of the opinion. Events occurring after the date of Sandler O’Neill’s opinion could materially affect the opinion. Sandler O’Neill has not undertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date of its opinion. Sandler O’Neill expressed no opinion as to the trading value of CapStar common stock or Athens common stock at any time or what the value of CapStar common stock would be once it is actually received by the holders of Athens common shares.

In rendering its opinion, Sandler O’Neill performed a variety of financial analyses. The summary below is not a complete description of the analyses underlying Sandler O’Neill’s opinion or the presentation made by Sandler O’Neill to CapStar’s board of directors, but is a summary of all material analyses performed and presented by Sandler O’Neill. The summary includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Sandler O’Neill believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without

 

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considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in Sandler O’Neill’s comparative analyses described below is identical to CapStar or Athens and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or merger transaction values, as the case may be, of CapStar and Athens and the companies to which they are being compared. In arriving at its opinion, Sandler O’Neill did not attribute any particular weight to any analysis or factor that it considered. Rather, Sandler O’Neill made qualitative judgments as to the significance and relevance of each analysis and factor. Sandler O’Neill did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion, rather, Sandler O’Neill made its determination as to the fairness of exchange ratio on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole.

In performing its analyses, Sandler O’Neill also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which are beyond the control of CapStar, Athens and Sandler O’Neill. The analyses performed by Sandler O’Neill are not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. Sandler O’Neill prepared its analyses solely for purposes of rendering its opinion and provided such analyses to CapStar’s board of directors at its June 11, 2018 meeting. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, Sandler O’Neill’s analyses do not necessarily reflect the value of CapStar common stock or the prices at which CapStar common stock or Athens common stock may be sold at any time. The analyses of Sandler O’Neill and its opinion were among a number of factors taken into consideration by CapStar’s board of directors in making its determination to approve the merger agreement and should not be viewed as determinative of the merger consideration or the decision of CapStar’s board of directors or management with respect to the fairness of the merger. The type and amount of consideration payable in the merger were determined through negotiations between CapStar and Athens.

 

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Summary of Aggregate Merger Consideration and Implied Transaction Metrics. Sandler O’Neill reviewed the financial terms of the merger. Pursuant to the terms of the merger agreement, each share of Athens common stock outstanding immediately prior to the effective time will be converted into the right to receive 2.864 shares of CapStar common stock. Sandler O’Neill calculated an aggregate implied transaction value of $114.4 million based on the closing price of CapStar common stock on June 7, 2018 of $20.25 per share and based upon 1,816,845 Athens common shares outstanding and 206,263 options outstanding with a weighted average exercise price of $14.26. Based upon historical financial information for Athens as of or for the last 12 months (which we refer to as “LTM”) ended March 31, 2018, historical financial information for the LTM period adjusted to remove the one-time $0.3 million deferred tax asset write-down in Q4 2017 related to tax reform, internal earnings projections for Athens for the year ending December 31, 2018 as provided by the senior management of Athens and confirmed with the senior management of CapStar, and the closing price of Athens common stock on June 7, 2018 of $44.50 per share, Sandler O’Neill calculated the following implied transaction metrics:

 

Transaction Value / Athens LTM Earnings:

     24.8x  

Transaction Value / Athens Adjusted LTM Earnings(1):

     23.4x  

Transaction Value / Athens March 31, 2018 Quarterly Earnings Annualized

     18.7x  

Transaction Value / Athens 2018E Earnings:

     19.5x  

Transaction Value / Athens March 31, 2018 Book Value:

     215.9%  

Transaction Value / Athens March 31, 2018 Tangible Book Value:

     228.6%  

Tangible Book Premium(2) / Core Deposits(3):

     15.9%  

Tangible Book Premium(2) / Core Deposits(4):

     18.1%  

Market Premium(5):

     30.3%  

 

(1) LTM earnings adjusted to exclude the $0.3 million deferred tax asset write-down in Q4 2017 due to corporate tax reform.
(2) Defined as aggregate merger consideration less Athens reported tangible common equity at March 31, 2018.
(3) Core deposits defined as total deposits less time deposits greater than $250,000.
(4) Core deposits defined as total deposits less time deposits greater than $100,000.
(5) Based on Athens’ closing stock price of $44.50 as of June 7, 2018.

Stock Trading History. Sandler O’Neill reviewed the historical stock price performance of CapStar common stock for the one-year period ended June 7, 2018 and for the period beginning with CapStar’s initial public offering date of September 21, 2018 and ended June 7, 2018. Sandler O’Neill then compared the relationship between the stock price performance of CapStar’s shares to movements in the CapStar Peer Group (as described below) as well as certain stock indices.

 

CapStar One-Year Stock Price Performance

    
     June 7,
2017
    June 7,
2018
 

CapStar

     100     110.0

CapStar Peer Group

     100     117.8

NASDAQ Bank Index

     100     122.4

S&P 500 Index

     100     113.9

 

CapStar Stock Price Performance Since IPO

    
     September 21,
2016
    June 7,
2018
 

CapStar

     100     135.0

CapStar Peer Group

     100     148.7

NASDAQ Bank Index

     100     147.3

S&P 500 Index

     100     128.1

 

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Sandler O’Neill reviewed the historical stock price performance of Athens common stock for the one-year period ended and the three-year period ended June 7, 2018. Sandler O’Neill then compared the relationship between the stock price performance of Athens’ shares to movements in the Athens Peer Group (as described below) as well as certain stock indices.

 

Athens One-Year Stock Price Performance

 

     June 7,
2017
    June 7,
2018
 

Athens

     100     112.7

Athens Peer Group

     100     114.6

NASDAQ Bank Index

     100     122.4

S&P 500 Index

     100     113.9

 

Athens Three-Year Stock Price Performance

    
     April 12,
2017
    May 10,
2018
 

Athens

     100     179.5

Athens Peer Group

     100     140.1

NASDAQ Bank Index

     100     155.8

S&P 500 Index

     100     138.1

Comparable Company Analyses. Sandler O’Neill used publicly available information to compare selected financial information for CapStar with a group of financial institutions selected by Sandler O’Neill (which we refer to as the “CapStar Peer Group”). The CapStar Peer Group consisted of exchange traded banks and thrifts headquartered in the Southeast region of the United States with total assets between $1.0 billion and $4.0 billion, return on average assets for the most recent quarter greater than 0.75% and nonperforming assets / total assets less than 1.50%, excluding announced merger targets.(1) The CapStar Peer Group consisted of the following companies:

 

HomeTrust Bancshares, Inc.    Southern First Bancshares Inc.
National Commerce Corp.    Entegra Financial
Capital City Bank Group Inc.    Reliant Bancorp Inc.
Access National Corp.    C&F Financial Corp.
Southern National Bncp of VA    Community Bankers Trust Corp
First Community Bancshares Inc.    National Bankshares Inc.
First Bancshares Inc.    Peoples Bancorp of NC Inc.
American National Bankshares    First Community Corp.
SmartFinancial Inc.   

 

(1) Live Oak Bancshares, Inc. was excluded from the CapStar peer group due to its non-traditional community banking model.

 

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The analysis compared publicly available financial information for CapStar and the CapStar Peer Group as of or for the 12 months ended March 31, 2018, or for the most recent quarter (which we refer to as “MRQ”), with pricing data as of June 7, 2018. The table below sets forth the data for CapStar and the high, low, median and mean data for the CapStar Peer Group.

 

     CapStar      CapStar
Peer
Group
Median
     CapStar
Peer
Group
Mean
     CapStar
Peer
Group
High
     CapStar
Peer
Group
Low
 

Market Capitalization ($mm)

     239        353        382        812        183  

Price / Tangible Book Value (%)

     179        198        199        252        144  

Price / Last Quarter Annualized Earnings per Share (x)

     20.3        17.8        18.6        25.8        12.7  

Price / 2018E Earnings per Share (x)

     17.7        16.8        16.9        20.6        12.5  

Total Assets ($mm)

     1,383        1,760        2,022        3,271        1,071  

Loans / Deposits (%)

     91.5        86.7        87.0        112.2        61.4  

Tangible Common Equity / Tangible Assets (%)

     9.70        9.24        9.55        14.21        7.17  

Tier 1 Leverage Ratio (%)

     10.86        10.36        10.67        15.58        8.87  

Total Tier 1 Ratio (%)

     11.11        12.94        13.69        23.97        10.84  

Total Risk-based Capital Ratio (%)

     12.22        13.92        14.71        24.88        11.27  

MRQ Return on Average Assets (%)

     0.95        1.04        1.04        1.50        0.76  

MRQ Return on Average Equity (%)

     8.62        8.30        8.91        13.69        6.16  

MRQ Net Interest Margin (%)

     3.34        3.65        3.88        5.77        3.33  

MRQ Efficiency Ratio (%)

     68.4        62.9        63.5        79.2        50.4  

Non-performing Assets / Total Assets (%)(1)

     0.18        0.76        0.77        1.44        0.12  

Loan Loss Reserve / Loans (%)

     1.33        0.88        0.99        3.33        0.47  

 

(1) Nonperforming assets are defined as nonaccrual loans and leases, renegotiated loans and leases and real estate owned.

Sandler O’Neill used publicly available information to perform a similar analysis for Athens and a group of financial institutions selected by Sandler O’Neill (which we refer to as the “Athens Peer Group”). The Athens Peer Group consisted of exchange traded banks and thrifts headquartered in the United States with total assets between $250 million and $750 million, return on average assets for the most recent quarter greater than 0.75%, excluding announced merger targets. The Athens Peer Group consisted of the following companies.

 

Plumas Bancorp    Esquire Financial Holdings, Inc.
Union Bankshares Inc.    HomeTown Bankshares Corp.
American River Bankshares    Southwest Georgia Financial
Fauquier Bankshares Inc.    United Bancorp Inc.
Sound Financial Bancorp Inc.    Citizens First Corp.
Summit State Bank    Bank of South Carolina Corp.

 

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The analysis compared publicly available financial information for Athens and the Athens Peer Group as of or for the 12 months ended March 31, 2018, or for the MRQ, with pricing data as of June 7, 2018. The table below sets forth the data for Athens and the high, low, median and mean data for the Athens Peer Group.

 

     Athens      Athens
Peer
Group
Median
     Athens
Peer
Group
Mean
     Athens
Peer
Group
High
     Athens
Peer
Group
Low
 

Market Capitalization ($mm)

     81        96        110        238        57  

Price / Tangible Book Value (%)

     162        174        201        421        138  

Price / Last Quarter Annualized Earnings per Share (x)

     13.4        15.6        16.2        24.3        11.2  

Price / 2018E Earnings per Share (x)

     —          19.4        19.4        20.2        18.7  

Total Assets ($mm)

     482        573        593        737        435  

Loans / Deposits (%)

     79.0        89.4        84.8        105.8        50.6  

Tangible Common Equity / Tangible Assets (%)

     10.44        8.91        9.30        14.88        7.77  

Tier 1 Leverage Ratio (%)

     10.82        10.05        9.93        13.00        8.63  

Total Tier 1 Ratio (%)

     15.86        12.43        13.23        17.66        11.32  

Total Risk-based Capital Ratio (%)

     17.10        13.58        14.31        18.81        12.35  

MRQ Return on Average Assets (%)

     1.29        1.00        1.16        1.79        0.79  

MRQ Return on Average Equity (%)

     11.60        10.83        12.28        23.23        7.29  

MRQ Net Interest Margin (%)

     4.18        3.85        3.92        4.61        3.24  

MRQ Efficiency Ratio (%)

     65.2        68.0        67.1        77.5        55.0  

Non-performing Assets / Total Assets (%)(1)

     0.90        0.49        0.69        1.63        0.00  

Loan Loss Reserve / Loans (%)

     1.19        1.14        1.10        1.48        0.57  

 

(1) Nonperforming assets are defined as nonaccrual loans and leases, renegotiated loans and leases and real estate owned.

Analysis of Selected Merger Transactions. Sandler O’Neill reviewed a select group of recent merger and acquisition transactions consisting of bank and thrift transactions where targets were headquartered in the Southeast region and announced between January 1, 2016 and June 6, 2018 with disclosed deal values and target total assets between $400 million and $1.0 billion, target LTM return on average assets greater than 0.75%, and target non-performing assets / total assets less than 1.50%(1) (which we refer to as the “Regional Precedent Transactions”). Sandler O’Neill also reviewed a national group of recent merger and acquisition transactions consisting of bank and thrift transactions announced between January 1, 2017 and June 6, 2018 with disclosed deal values and target total assets between $400 million and $1.0 billion, target LTM return on average assets greater than 0.75%, and target non-performing assets / total assets less than 1.50%(1) (which we refer to as the “Nationwide Precedent Transactions”).

The Regional Precedent Transactions group was composed of the following transactions:

 

Buyer

  

Target

National Commerce Corporation    Landmark Bancshares, Inc.
First Citizens BancShares, Inc.    HomeBancorp, Inc.
WesBanco, Inc.    First Sentry Bancshares, Inc.
First Federal Bancorp, MHC    Coastal Banking Company, Inc.
Reliant Bancorp Inc.    Community First, Inc.
National Commerce Corporation    FirstAtlantic Financial Holdings, Inc.
United Community Banks, Inc.    Four Oaks Fincorp, Inc.
SmartFinancial, Inc.    Capstone Bancshares, Inc.
Simmons First National Corporation    Hardeman County Investment Company, Inc.
CenterState Banks, Inc.    Platinum Bank Holding Company
State Bank Financial Corporation    NBG Bancorp, Inc.

 

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(1) Nonperforming assets are defined as nonaccrual loans and leases, renegotiated loans and leases and real estate owned.

Using the latest publicly available information prior to the announcement of the relevant transaction, Sandler O’Neill reviewed the following transaction metrics: transaction price to LTM earnings, transaction price to book value, transaction price to tangible book value, core deposit premium and one-day market premium. Sandler O’Neill compared the indicated transaction multiples for the merger to the high, low, mean and median multiples of the Regional Precedent Transactions group.

 

     CapStar /
Athens
    Regional
Precedent
Transactions
Median
    Regional
Precedent
Transactions
Mean
    Regional
Precedent
Transactions
High
    Regional
Precedent
Transactions
Low
 

Transaction Price / LTM Earnings:

     24.8     16.4     17.6     28.4     10.8

Transaction Price / Book Value:

     216     168     161     197     96

Transaction Price / Tangible Book Value:

     229     179     172     222     98

Core Deposit Premium:

     15.9%(1) / 18.1 %(2)      8.9     9.6     15.9     6.1

1-Day Market Premium / (Discount):

     30.3     23.4     30.2     64.4     9.4

 

(1) Core deposits defined as total deposits less time deposits greater than $250,000.
(2) Core deposits defined as total deposits less time deposits greater than $100,000.

The Nationwide Precedent Transactions group was composed of the following transactions:

 

Buyer

  

Target

Hanmi Financial Corporation    SWNB Bancorp, Inc.
Stifel Financial Corp.    Business Bancshares, Inc.
National Commerce Corporation    Landmark Bancshares, Inc.
RBB Bancorp    First American International Corp.
QCR Holdings, Inc.    Springfield Bancshares, Inc.
Triumph Bancorp, Inc.    First Bancorp of Durango, Inc.
Heritage Financial Corporation    Premier Commercial Bancorp
First Choice Bancorp    Pacific Commerce Bancorp
First Foundation Inc.    PBB Bancorp
First Citizens BancShares, Inc.    HomeBancorp, Inc.
Heartland Financial USA, Inc.    First Bank Lubbock Bancshares, Inc.
Independent Bank Group, Inc.    Integrity Bancshares, Inc.
WesBanco, Inc.    First Sentry Bancshares, Inc.
First Federal Bancorp, MHC    Coastal Banking Company, Inc.
Susser Bank Holdings, LLC    BancAffiliated, Inc.
Reliant Bancorp Inc.    Community First, Inc.
National Commerce Corporation    FirstAtlantic Financial Holdings, Inc.
Veritex Holdings, Inc.    Liberty Bancshares, Inc.
Heritage Financial Corporation    Puget Sound Bancorp, Inc.
United Community Banks, Inc.    Four Oaks Fincorp, Inc.
National Bank Holdings Corporation    Peoples, Inc.
Glacier Bancorp, Inc.    Columbine Capital Corporation
SmartFinancial, Inc.    Capstone Bancshares, Inc.
Bryn Mawr Bank Corporation    Royal Bancshares of Pennsylvania, Inc.

Using the latest publicly available information prior to the announcement of each transaction, Sandler O’Neill reviewed the following transaction metrics: transaction price to LTM earnings, transaction price to book value, transaction price to tangible book value, core deposit premium and one-day market premium. Sandler

 

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O’Neill compared the indicated transaction multiples for the merger to the high, low, mean and median multiples of the Nationwide Precedent Transactions group.

 

       CapStar /
Athens
    Nationwide
Precedent
Transactions
Median
    Nationwide
Precedent
Transactions
Mean
    Nationwide
Precedent
Transactions
High
    Nationwide
Precedent
Transactions
Low
 

Transaction Price / LTM Earnings:

       24.8     18.3     19.8     36.4     10.8

Transaction Price / Book Value:

       216     183     182     241     96

Transaction Price / Tangible Book Value:

       229     194     192     244     98

Core Deposit Premium:

       15.9%(1) /18.1 %(2)      10.8     11.2     15.9     6.1

1-Day Market Premium / (Discount):

       30.3     27.8     38.3     76.5     7.4

 

(1) Core deposits defined as total deposits less time deposits greater than $250,000.
(2) Core deposits defined as total deposits less time deposits greater than $100,000.

Net Present Value Analyses. Sandler O’Neill performed an analysis that estimated the per share net present value of CapStar common stock assuming CapStar performed in accordance with publicly available consensus mean analyst earnings per share and dividends per share estimates for CapStar for the years ending December 31, 2018 and December 31, 2019, as well as a long-term earnings growth rate and dividends per share for the years thereafter, as provided by the senior management of CapStar. For purposes of the analysis, any CapStar capital in excess of 9.0% of tangible common equity / tangible assets is paid out as a dividend throughout the forward projection. To approximate the terminal value per share of CapStar common stock at December 31, 2022, Sandler O’Neill applied price to 2022 earnings per share multiples ranging from 14.0x to 19.0x and price to December 31, 2022 tangible book value per share multiples ranging from 140% to 240%. The terminal values were then discounted to present values using different discount rates ranging from 11.0% to 15.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of CapStar common stock. The analysis indicated an imputed range of per share values of CapStar common stock of $13.93 to $21.33 when applying multiples of earnings and $13.78 to $25.86 when applying multiples of tangible book value.

Sandler O’Neill also considered and discussed with the CapStar board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming CapStar’s net income varied from 20% above estimates to 20% below estimates. This analysis resulted in a range of values per CapStar common share of $12.18 to $22.72, applying the price to 2022 earnings per share multiples range of 14.0x to 19.0x referred above and a discount rate of 13.55%.

Sandler O’Neill also performed an analysis that estimated the net present value per share of Athens common stock assuming that Athens performed in accordance with internal financial projections for Athens for the years ending December 31, 2018 and December 31, 2019, as provided by the senior management of Athens and confirmed with the senior management of CapStar, as well as a long-term earnings per share growth rate for the years thereafter, as provided by the senior management of CapStar, and taking into account the cost savings projected to be realized as a result of the merger as provided by the senior management of CapStar. For purposes of the analysis, any Athens capital in excess of 9.0% tangible common equity / tangible assets was assumed to be paid out as a dividend throughout the forward projection. Sandler O’Neill performed the analyses with and without applying the pro forma assumptions set forth below:

 

    Cost savings of approximately 25% of Athens’ non-interest expense base; and

 

    Cost savings realization phased in at approximately 60% in 2019, and at 100% annually thereafter.

To approximate the per share terminal value of Athens common stock at December 31, 2022, Sandler O’Neill applied price to 2022 earnings per share multiples ranging from 12.0x to 22.0x and price to

 

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December 31, 2022 tangible book value per share multiples ranging from 130% to 230%. The terminal values were then discounted to present values using different discount rates ranging from 11.0% to 15.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Athens common stock. The analysis indicated an imputed range of values per share of Athens common stock of $53.78 to $106.25 when applying multiples of earnings per share and $38.87 to $70.91 when applying multiples of tangible book value per share. Sandler O’Neill also performed the same analysis without applying the pro forma assumptions. The analysis indicated an imputed range of values per share of Athens common stock of $39.27 to $74.77 when applying multiples of earnings per share and $35.26 to $63.36 when applying multiples of tangible book value per share.

Sandler O’Neill also considered and discussed with the CapStar’s board of directors how these analyses would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming Athens’ net income varied from 20% above estimates to 20% below estimates. This analysis resulted in a range of values per Athens common share of $47.38 to $113.19 (applying the pro forma assumptions) and $35.05 to $79.28 (without applying the pro forma assumptions), applying the price to 2022 earnings per share multiples range of 12.0x to 22.0x referred to above and a discount rate of 13.55%.

Sandler O’Neill noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

Pro Forma Merger Analysis. Sandler O’Neill analyzed certain potential pro forma effects of the merger, assuming the merger closes at the end of the fourth calendar quarter of 2018. In performing this analysis, Sandler O’Neill utilized the pro forma assumptions, as provided by the senior management of CapStar. The analysis indicated that the merger could be accretive to CapStar’s estimated earnings per share (excluding one-time transaction costs and expenses) in the year ending December 31, 2019, December 31, 2020, December 31, 2021 and December 31, 2022; dilutive to CapStar’s estimated tangible book value per share at closing, December 31, 2019, December 31, 2020, and December 31, 2021, and neutral to CapStar’s estimated tangible book value per share at December 31, 2022.

In connection with this analysis, Sandler O’Neill considered and discussed with the CapStar board of directors how the analysis would be affected by changes in the underlying assumptions, including the impact of final purchase accounting adjustments determined at the closing of the transaction, and noted that the actual results achieved by the combined company may vary from projected results and the variations may be material.

Sandler O’Neill’s Relationship. Sandler O’Neill acted as financial advisor to CapStar in connection with the merger. CapStar has agreed to pay Sandler O’Neill a transaction fee in an amount equal to 0.50% of the aggregate merger consideration, which transaction fee is contingent upon the closing of the merger. At the time of announcement, based on the closing price of CapStar’s common stock of $20.09 as of June 11, 2018, Sandler O’Neill’s transaction fee was approximately $567,000. Sandler O’Neill also received a $150,000 fee upon rendering its fairness opinion to the CapStar board of directors, which opinion fee will be credited in full towards the transaction fee which will become payable to Sandler O’Neill on the day of closing of the merger. CapStar has also agreed to indemnify Sandler O’Neill against certain claims and liabilities arising out of its engagement and to reimburse Sandler O’Neill for reasonable out-of-pocket expenses of up to $30,000 (or as otherwise approved by CapStar) incurred in connection with its engagement.

Sandler O’Neill has provided other investment banking services to CapStar and received fees for such services in the two years preceding the date of its opinion. Most recently, Sandler O’Neill acted as joint bookrunner in CapStar’s initial public offering of common stock which closed in September, 2016, and received underwriting fees of approximately $1.1 million. Sandler O’Neill did not provide any investment banking services to Athens in the two years preceding the date of its opinion. In the ordinary course of Sandler O’Neill’s

 

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business as a broker-dealer, Sandler O’Neill may purchase securities from and sell securities to CapStar and its affiliates. Sandler O’Neill may also actively trade the equity and debt securities of CapStar and its affiliates for its own account and for the accounts of its customers.

Recommendation of the Athens Board of Directors and Athens’ Reasons for the Merger

The Athens board of directors unanimously determined that the proposed merger is in the best interests of Athens and its shareholders. In reaching its determination, the Athens board of directors considered several factors affecting the business, operations, financial condition, earnings and future prospects of Athens. The material factors considered by the Athens board of directors included:

 

    the business strategy and strategic plan of Athens, its prospects for the future, and its projected financial results;

 

    a review of the risks and prospects of Athens remaining independent, including the challenges of the current financial, operating and regulatory environment;

 

    Athens’ stand-alone financial projections, which estimated that, even if fully executed, Athens would not achieve through organic growth a comparable level of shareholder value that the merger is expected to offer;

 

    Athens management’s assessment of the execution risks involved in attaining the performance levels assumed by the financial projections;

 

    conditions and activity in the mergers and acquisition market providing a unique window of opportunity with respect to a merger of Athens and delivering accelerated and enhanced shareholder value, as compared to organic growth;

 

    the anticipated costs and necessary investments associated with continuing to develop and enhance Athens’ business capabilities;

 

    the purchase price per share to be paid by CapStar and the resulting valuation multiples;

 

    the employment prospects for Athens’ employees within the larger combined company;

 

    the favorable results of Athens’ due diligence investigation of CapStar;

 

    Athens’ and CapStar’s shared corporate values and commitment to serve their customers and communities;

 

    CapStar’s agreement to contribute $1.5 million to the Athens Federal Foundation;

 

    CapStar’s historically strong financial condition and results of operations;

 

    the ability of CapStar to complete the merger from a business, financial and regulatory perspective;

 

    the merger would combine two established banking franchises to create a well-positioned community bank with nearly $2.0 billion in assets;

 

    the scale, scope, strength and diversity of operations, product lines and delivery systems that could be achieved by the combined company;

 

    the likelihood of successful integration and operation of the combined company;

 

    the likelihood of obtaining the shareholder and regulatory approvals needed to complete the transaction;

 

    the results of the solicitation process conducted by Athens, with the advice and assistance of its advisors;

 

    Certain structural protections included in the merger agreement, including:

 

   

that it does not preclude a third party from making an unsolicited acquisition proposal to Athens and that, under certain circumstances, Athens may furnish non-public information to

 

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and engage in discussions with such a third party regarding an acquisition proposal, as more fully described under the section entitled “The Merger Agreement—Agreement Not to Solicit Other Offers”;

 

    the ability of the Athens board of directors to submit the merger agreement to shareholders without a favorable recommendation or any recommendation, as more fully described under the section entitled “The Merger Agreement—Covenants and Agreements—Athens Shareholder Meeting and Recommendation of the Athens Board of Directors”;

 

    Athens’ ability to terminate the merger agreement if the trading price of CapStar common stock declines under circumstances provided for in the merger agreement, as more fully described under the section entitled “The Merger Agreement—Termination of the Merger Agreement”;

 

    CapStar’s obligation to pay Athens a $4.0 million termination fee if the merger agreement is terminated under certain circumstances, as more fully described under the section entitled “The Merger Agreement—Termination Fee”; and

 

    CapStar’s agreement to use its reasonable best efforts to obtain shareholder and regulatory approval.

 

    The financial presentation, dated June 11, 2018, of BSP to the Athens board of directors and the opinion, dated June 11, 2018, of BSP to the Athens board of directors as to the fairness, from a financial point of view, as of the date of the opinion, of the merger consideration to the holders of Athens’ common stock, as more fully described below under “—Opinion of Athens’ Financial Advisor”;

The Athens board of directors also considered several potential risks and uncertainties with respect to the merger, and factors unique to certain shareholders of Athens, including, without limitation, the following:

 

    The challenges of integrating Athens’ business, operations and employees with those of CapStar;

 

    The need to and likelihood of obtaining requisite shareholder and regulatory approvals to complete the merger;

 

    The risks and costs associated with entering into the merger agreement and restrictions on the conduct of Athens’ business before the merger is completed;

 

    The form and amount of the merger consideration, including the increased volatility associated with all-stock consideration and the risk that the consideration to be paid to Athens shareholders could be adversely affected by a decrease in the trading price of CapStar common stock during the pendency of the merger;

 

    The fact that a termination fee of $5.0 million would have to be paid to CapStar under certain circumstances described in the merger agreement and discussed further under the section entitled The Merger Agreement—Termination Fee”;

 

    The impact that provisions of the merger agreement relating to payment of a termination fee by Athens may have on Athens receiving an alternative acquisition proposal;

 

    The potential costs associated with executing the merger agreement, including change in control payments and related costs, as well as estimated advisor fees;

 

    The potential for diversion of Athens management and employee attention, and for employee attrition, during the pendency of the merger, and the potential effect on Athens’ business and its relations with customers, service providers and other stakeholders, regardless whether the merger is completed;

 

    The possibility of litigation relating to the merger; and

 

    The interests of Athens’ directors and executive officers in the merger that are different from or in addition to those of its shareholders generally, as more fully described under the section entitled “—Interests of Athens’ Directors and Executive Officers in the Merger.”

 

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The foregoing discussion of the material information and factors considered by the Athens board of directors is not intended to be exhaustive. The Athens board of directors evaluated the above factors and unanimously determined that the merger was in the best interests of Athens and its shareholders. In reaching its determination to approve the merger and recommend that Athens’ shareholders approve the merger, the Athens board of directors considered the totality of the information presented to it and did not assign any relative or specific weights to any of the individual factors considered, although individual directors may have given different weights to different factors. The Athens board of directors considered these factors, including the potential risks, uncertainties and disadvantages associated with the merger, in the aggregate rather than separately and determined the benefits of the merger to be favorable to and outweigh the potential risks, uncertainties and disadvantages of the merger. This explanation of the Athens board of directors’ reasoning and certain other information presented in this section are forward-looking in nature and, therefore, should be read in the context of the factors discussed under “Cautionary Statement Concerning Forward-Looking Statements.”

The Athens board of directors determined that the merger, the merger agreement and the transactions contemplated thereby are advisable and in the best interests of Athens and its shareholders. The Athens board also unanimously determined that the merger agreement and the transactions contemplated thereby are consistent with, and in furtherance of, Athens’ business strategies. Accordingly, the Athens board of directors unanimously approved and adopted the merger agreement and approved the merger and unanimously recommends that Athens shareholders vote “FOR” approval of the merger agreement and the merger. The terms of the merger agreement were the product of arm’s-length negotiations between representatives of Athens and CapStar.

Opinion of Athens’ Financial Advisor

BSP was retained by the Athens board of directors on an exclusive basis to render financial advisory and investment banking services and to render a written opinion to the board of directors of Athens as to the fairness, from a financial point of view, of the merger consideration to be paid to Athens shareholders under the terms of the merger agreement. BSP is an investment banking firm that specializes in providing financial advisory and investment banking services to financial institutions. BSP has been involved in many bank-related business combinations. No limitations were imposed by Athens upon BSP with respect to rendering its opinion.

The full text of BSP’s written opinion, dated June 11, 2018, is attached as Appendix D to this joint proxy statement/prospectus and is incorporated herein by reference. The description of the opinion set forth herein is qualified in its entirety by reference to the full text of such opinion. Athens’ stockholders are urged to read the opinion in its entirety.

The opinion speaks only as of the date of the opinion. The opinion was directed to the Athens board of directors and is directed only to the fairness, from a financial point of view, of the merger consideration to be paid to Athens shareholders under the terms of the merger agreement. It does not address the underlying business decision to engage in the merger or any other aspect of the merger and is not a recommendation to any shareholder as to how such shareholder should vote with respect to the merger or any other matter.

For purposes of this Opinion and in connection with our review of the merger, BSP has, among other things:

 

  1. Reviewed the terms of the merger agreement;

 

  2. Participated in discussions with Athens management concerning Athens’ financial condition, asset quality, regulatory standing, capital position, historical and current earnings, management succession and Athens’ and CapStar’s future financial performance;

 

  3. Reviewed Athens’ audited consolidated financial statements for the years ended December 31, 2015, 2016 and 2017, and unaudited consolidated financial statements for the quarter ended March 31, 2018;

 

  4. Reviewed CapStar’s audited consolidated financial statements for the years ended December 31, 2015, 2016 and 2017, and unaudited consolidated financial statements for the quarter ended March 31, 2018;

 

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  5. Reviewed certain financial forecasts and projections of Athens, prepared by its management, as well as the estimated cost savings and related estimated transaction expenses expected to result from the merger;

 

  6. Analyzed certain aspects of Athens’ financial performance and condition and compared such financial performance and condition with similar data of publicly traded companies we deemed similar to Athens;

 

  7. Reviewed historical trading activity of CapStar and management’s projections for future financial performance;

 

  8. Compared the proposed financial terms of the merger with the financial terms of certain other recent merger and acquisition transactions involving acquired companies that we deemed to be relevant to Athens; and

 

  9. Performed such other analyses and considered such other information, financial studies, and investigations and financial, economic and market criteria as we deemed relevant.

BSP assumed and relied, without independent verification, upon the accuracy and completeness of all of the financial and other information provided to it by Athens, CapStar and each company’s respective representatives and of the publicly available information for Athens and CapStar that we have reviewed. BSP is not an expert in the evaluation of allowances for loan losses and has not independently verified such allowances, and relied on and assumed that such allowances of Athens and CapStar at March 31, 2018 were adequate to cover such losses and complied fully with applicable law, regulatory policy and sound banking practice as of the date of such financial statements. BSP was not retained to, and did not, conduct a physical inspection of any of the properties or facilities of Athens. BSP also did not make any independent evaluation or appraisal of the assets, liabilities or prospects of Athens, was not furnished with any such evaluation or appraisal, and did not review any individual credit files. The opinion of BSP was necessarily based on economic, market and other conditions as in effect on, and the information made available to it as of, the date thereof. BSP expressed no opinion on matters of a legal, regulatory, tax or accounting nature or the ability of the merger, as set forth in the merger agreement, to be consummated. No opinion was expressed as to whether any alternative transaction might be more favorable to Athens than the merger.

BSP, as part of its investment banking business, is regularly engaged in the valuation of banks and bank holding companies and various other financial services companies in connection with mergers and acquisitions, private placements of securities, and valuations for other purposes. In rendering its fairness opinion, BSP acted on behalf of the Athens board of directors.

BSP’s opinion is limited to the fairness, from a financial point of view, of the merger consideration to be paid to Athens shareholders under the terms of the merger agreement and does not address the ability of the merger to be consummated, the satisfaction of the conditions precedent contained in the merger agreement, or the likelihood of the merger receiving regulatory approval. Although BSP was retained on behalf of the Athens board of directors, BSP’s opinion does not constitute a recommendation to any director of Athens as to how such director or any shareholder should vote with respect to the merger agreement.

Based upon and subject to the foregoing and based on BSP’s experience as investment bankers, BSP’s activities as described above, and other factors deemed relevant, BSP rendered its opinion that, as of June 11, 2018, the merger consideration to be paid under the terms of the merger agreement is fair, from a financial point of view, to the holders of Athens common stock.

The following is a summary of material analyses performed by BSP in connection with its opinion to the Athens board of directors on June 11, 2018. The summary does not purport to be a complete description of the analyses performed by BSP but summarizes the material analyses performed and presented in connection with such opinion.

 

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Financial Analysis

In rendering its opinion, BSP performed a variety of financial analyses. The summary below is not a complete description of all the analyses underlying BSP’s opinion or the presentation made by BSP to the Athens board of directors, but is a summary of the material analyses performed and presented by BSP. The summary includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. BSP believes that its analysis must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. No company included in the comparative analyses described below is identical to Athens or CapStar and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or merger transaction values, as the case may be, of Athens and CapStar and the companies to which they are being compared.

In arriving at its opinion, BSP did not attribute any particular weight to any analysis or factor that it considered. Rather, BSP made qualitative judgments as to the significance and relevance of each analysis and factor. BSP did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion; rather, BSP made its determination as to the fairness of the merger consideration on the basis of its experience and professional judgment after considering the results of all of the analyses taken as a whole.

In performing its analysis, BSP also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which are beyond the control of Athens, CapStar and BSP. The analyses performed by BSP are not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. BSP prepared its analyses solely for purposes of rendering its opinion and presented such analyses to the Athens board of directors at its June 11, 2018 meeting. Estimates of the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty, and actual values may be materially different. Accordingly, BSP’s analysis does not necessarily reflect the value of Athens or CapStar common stock or the prices at which Athens common stock or CapStar common stock may be sold at any time. BSP’s analysis was among a number of factors taken into consideration by Athens’ board of directors in making its determination to approve the merger agreement and should not be viewed as determinative of the merger consideration or the decision of the Athens board of directors or management with respect to the fairness of the merger.

Summary of Merger Consideration and Implied Transaction Metrics

In accordance with the terms of the merger agreement, each share of Athens common stock issued and outstanding immediately prior to the completion of the merger (other than excluded shares) will be converted into the right to receive the merger consideration.

CapStar Comparable Companies Analysis

As part of its analysis, BSP reviewed publicly available information to compare selected financial and market trading information for CapStar and a group of 14 financial institutions selected by BSP which (i) were banks with common stock listed on the NASDAQ and over-the-counter exchanges; (ii) were headquartered in the Southeast U.S. (Southeast is defined as AL, AR, FL, GA, KY, LA, MS, NC, SC, TN, VA and WV), (iii) had

 

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total assets between $1.0 billion and $2.0 billion; and (iv) whose common stock is covered by at least one research analyst with a 2018 EPS projection. These 14 financial institutions are as follows:

 

American National Bankshares

   FVCBankcorp Inc.

Business First Bancshares

   Investar Holding Corp.

Community Bankers Trust Corp.

   National Bankshares Inc.

Entegra Financial

   Reliant Bancorp

Farmers Capital Bank Corp.

   Select Bancorp Inc.

First Community Corp.

   SmartFinancial Inc.

First Guaranty Bancshares

   Southern First Bancshares

The analysis compared publicly available financial and market trading information for CapStar and the data for 14 financial institutions identified above as of and for the last 12 months period ended March 31, 2018. The table below compares the data for CapStar and the data for the comparable companies, with pricing data as of June 8, 2018.

 

          Financial and Performance Figures     Trading Data  
                                                                      Price/        
Company Name   Ticker     Total
Assets
($000)
    NPAs/
Assets
(%)
    TCE
Ratio
(%)
    LTM
ROAA
(%)
    LTM
ROAE
(%)
    LTM
NIM
(%)
    Eff’ncy
Ratio
(%)
    Closing
Price
($)
    Market
Cap.
($mm)
    ADV
(shares)
    2018
Mean EPS
Estimate
(x)
    TBV
(%)
    Assets
(%)
    Current
Dividend
Yield
(%)
 

CapStar Financial Holdings, Inc.

    CSTR       1,382,745       0.18       9.70       0.32       3.01       3.29       63.4       20.05       236.5       18,761       17.7       176.9       17.2       0.80  
                             

Median

            1,618,535       0.78       9.25       0.69       6.52       3.57       64.2               276.6       13,842       16.6       183.9       16.8       0.70  

25th Percentile

      1,291,204       0.64       9.01       0.51       4.39       3.46       60.0         200.0       9,051       15.9       177.0       15.7       0.00  

75th Percentile

            1,718,471       1.04       9.41       0.84       7.94       3.74       68.5               328.9       21,984       17.5       207.1       19.6       1.59  

American National Bankshares

    AMNB       1,817,574       0.23       9.30       0.95       8.12       3.50       59.4       41.35       359.2       9,051       15.9       217.6       19.7       2.42  

Business First Bancshares

    BFST       1,587,713       1.28       9.21       0.45       3.99       3.99       71.4       24.53       278.6       NM       17.1       176.4       15.9       1.30  

Community Bankers Trust Corp.

    ESXB       1,353,232       1.37       9.24       0.56       5.89       3.75       68.4       9.55       210.9       38,597       17.2       168.7       15.6       0.00  

Entegra Financial

    ENFC       1,625,444       0.96       7.75       0.33       3.33       3.45       61.7       28.50       196.3       8,908       12.5       158.5       12.1       0.00  

Farmers Capital Bank Corp.

    FFKT       1,685,987       1.20       11.51       0.84       7.20       3.72       65.5       54.45       409.5       45,059       18.6       211.0       24.3       0.92  

First Community Corp.

    FCCO       1,070,539       0.64       8.40       0.70       7.15       3.56       68.9       23.75       180.6       21,984       16.3       204.0       16.9       1.68  

First Guaranty Bancshares

    FGBI       1,731,776       0.98       7.73       0.72       8.65       3.34       62.7       27.78       244.7       9,168       15.7       183.4       14.1       2.30  

FVCBankcorp Inc.

    FVCB       1,078,697       0.57       9.32       0.84       8.94       3.45       57.3       17.10       188.6       1,878       15.9       186.9       17.4       0.00  

Investar Holding Corp.

    ISTR       1,644,188       0.69       9.44       0.60       5.50       3.50       64.5       28.75       274.6       15,973       17.0       178.5       16.6       0.49  

National Bankshares Inc.

    NKSH       1,270,528       1.05       14.21       1.11       7.40       3.43       52.4       47.60       331.2       8,631       17.8       184.4       26.1       2.44  

Reliant Bancorp

    RBNC       1,611,625       0.65       9.53       0.68       5.57       3.65       71.9       26.93       309.0       10,378       19.4       208.1       19.2       1.19  

Select Bancorp Inc.

    SLCT       1,222,551       0.81       9.23       0.30       2.52       4.24       63.9       13.05       182.9       15,996       14.0       165.9       15.0       0.00  

SmartFinancial Inc.

    SMBK       1,760,425       0.26       9.26       0.50       4.02       4.32       68.6       25.35       321.8       29,074       15.9       179.9       16.2       0.00  

Southern First Bancshares

    SFST       1,729,299       0.76       8.95       0.96       10.45       3.57       55.6       47.45       350.3       13,842       17.6       226.4       20.3       0.00  

Precedent Transactions Analysis

BSP reviewed five sets of comparable merger and acquisition transactions. The sets of mergers and acquisitions included: (1) “TN Transactions,” (2) “Asset Quality Transactions,” (3) “Capital Transactions,” (4) “Profitability Transactions,” and (5) “Geographic Transactions.”

“TN Transactions” included 14 transactions where:

 

    The transaction was announced on or after January 1, 2015; and

 

    The transaction involved selling banks and thrifts headquartered in Tennessee.

 

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“Asset Quality Transactions” included 14 transactions where:

 

    The transaction was announced on or after January 1, 2017;

 

    The transaction involved banks and thrifts headquartered nationwide;

 

    The selling company’s total assets were between $250.0 million and $750.0 million as of the announcement; and

 

    The selling company’s NPAs/Total Assets were between 0.75% and 1.25% as of the announcement.

“Capital Transactions” included 24 transactions where:

 

    The transaction was announced on or after January 1, 2017;

 

    The transaction involved banks and thrifts headquartered nationwide;

 

    The selling company’s total assets were between $250.0 million and $750.0 million as of the announcement; and

 

    The selling company’s Tangible Common Equity/Tangible Assets (which we refer to as “TCE”) ratio was between 9.5% and 11.5% as of the announcement.

“Profitability Transactions” included 18 transactions where:

 

    The transaction was announced on or after January 1, 2017;

 

    The transaction involved banks and thrifts headquartered nationwide;

 

    The selling company’s total assets were between $250.0 million and $750.0 million as of the announcement; and

 

    The selling company’s last 12 months’ return on average assets (which we refer to as “LTM ROAA”) was between 0.75% and 1.25% as of the announcement.

“Geographic Transactions” included 14 transactions where:

 

    The transaction was announced on or after January 1, 2017;

 

    The transaction involved banks and thrifts headquartered in the Southeast; and

 

    The selling company’s total assets were between $250.0 million and $750.0 million as of the announcement.

 

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The following tables set forth the transactions included in (1) “TN Transactions,” (2) “Asset Quality Transactions,” (3) “Capital Transactions,” (4) “Profitability Transactions,” and (5) “Geographic Transactions.” Using the latest publicly available information prior to the announcement of the relevant transaction, BSP reviewed the transaction metrics for the selected merger transaction groups: transaction price to last-12-months earnings (which we refer to for the purposes of this section as, “LTM Earnings”), transaction price to tangible book value, transaction price to total assets and tangible book premium to core deposits. BSP compared the indicated transaction multiples for the merger to the median multiples of the merger transaction groups. Transactions involving investors, investor groups and troubled bank sellers were excluded from the precedent transaction analysis.

TN Transactions(1)

 

           Announcement Price/    

Premium/

Core

Deposits

(%)

 
Buyer Name/ Target Name   

Announce

Date

   

LTM

Earnings

(x)

   

TBY

(%)

   

Assets

(%)

   

CapStar Financial Holdings, Inc./ Athens Bancshares Corp.

             24.5       226.1       23.5       15.7  
          

Group Median

             16.2       156.4       14.0       8.7  

SmartFinancial Inc./ Tennessee Bancshares

     12/12/17       14.8       153.2       13.0       8.9  

Reliant Bancorp/ Community First

     08/23/17       15.7       185.1       12.3       7.6  

FNS Bancshares/ Commerce Bancshares

     03/28/17       4.0       116.2       13.7       2.7  

FB Financial Corp./ American City Bank and Clayton Bank & Trust

     02/08/17       9.8       191.8       21.5       13.7  

Simmons First National Corp./ Hardeman County Investment Co.

     11/17/16       18.4       179.4       16.2       10.4  

HomeTrust Bancshares/ TriSummit Bancorp

     09/21/16       19.5       147.3       9.0       5.2  

Citco Community Bancshares/ American Trust Bank of East TN

     07/22/16       14.2       111.1       14.0       2.4  

Simmons First National Corp./ Citizens National Bank

     05/18/16       16.2       127.3       14.0       4.3  

Pinnacle Financial Partners/ Avenue Financial Holdings

     01/28/16       29.0       231.1       18.1       13.2  

Franklin Financial Network/ Civic Bank & Trust

     12/14/15       22.0       136.5       20.3       15.6  

Pinnacle Financial Partners/ Magna Bank

     04/28/15       14.9       159.5       14.0       8.4  

Pinnacle Financial Partners/ CapitalMark Bank & Trust

     04/07/15       23.4       232.3       19.3       16.1  

Atlantic Capital Bancshares/ First Security Group

     03/25/15       NM       175.4       15.0       9.9  

United Community Banks/ MoneyTree Corp.

     01/27/15       20.2       136.6       12.5       4.8  

 

(1) Price/LTM Earnings multiples greater than 40x are considered not meaningful and are denoted with “NM” in the table.

 

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Asset Quality Transactions(1)

 

           Transaction Price/    

Premium/

Core

Deposits

(%)

 
Buyer Name/ Target Name   

Announce

Date

   

LTM

Earnings

(x)

   

TBV

(%)

   

Assets

(%)

   

CapStar Financial Holdings, Inc./ Athens Bancshares Corp.

             24.5       226.1       23.5       15.7  
          

Group Median

             15.8       169.8       16.6       9.7  

Stifel Financial Corp./ Business Bancshares, Inc.

     05/10/18       28.7       182.1       20.6       18.3  

National Commerce Corporation/ Landmark Bancshares, Inc.

     04/24/18       16.0       222.0       19.4       17.7  

Mechanics Bank/ Learner Financial Corporation

     02/12/18       NM       170.1       18.1       9.3  

Park National Corporation/ NewDominion Bank

     01/23/18       NM       235.3       26.0       23.6  

CNB Bank Shares, Inc./ Jacksonville Bancorp, Inc.

     01/18/18       NM       131.8       18.3       6.1  

First Mid-Illinois Bancshares, Inc./ First BancTrust Corporation

     12/11/17       22.6       160.5       15.9       9.8  

Heartland Financial USA, Inc./ Signature Bancshares, Inc.

     11/13/17       15.6       206.6       13.7       10.9  

Business First Bancshares, Inc./ Minden Bancorp, Inc.

     10/06/17       10.7       196.6       18.6       13.5  

MutualFirst Financial, Inc./ Universal Bancorp

     10/04/17       23.0       158.5       16.5       9.1  

Susser Bank Holdings, LLC/ BancAffiliated, Inc.

     09/21/17       15.8       193.7       19.5       28.3  

First American Bank Corporation/ Southport Financial Corporation

     09/18/17       11.3       184.9       15.4       9.6  

United Community Banks, Inc./ Four Oaks Fincorp, Inc.

     06/27/17       16.4       179.2       16.9       12.2  

QCR Holdings, Inc./ Guaranty Bank and Trust Company

     06/08/17       27.4       144.2       16.6       6.7  

Riverview Financial Corporation/ CBT Financial Corporation

     04/20/17       15.8       126.7       10.1       2.8  

 

(1) Price/LTM Earnings multiples greater than 40x are considered not meaningful and are denoted with “NM” in the table.

 

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Capital Transactions(1)

 

            Transaction Price/     

Premium/

Core

Deposits

(%)

 
Buyer Name/ Target Name   

Announce

Date

    

LTM

Earnings

(x)

    

TBV

(%)

    

Assets

(%)

    

CapStar Financial Holdings, Inc./ Athens Bancshares Corp.

              24.5        226.1        23.5        15.7  
              

Group Median

              18.5        161.5        16.5        10.5  

National Commerce Corporation/ Landmark Bancshares, Inc.

     04/24/18        16.0        222.0        19.4        17.7  

Heritage Financial Corporation/ Premier Commercial Bancorp

     03/08/18        NM        223.5        22.3        17.7  

Hilltop Holdings Inc./ Bank of River Oaks

     02/13/18        33.0        184.1        18.7        12.6  

Mechanics Bank/ Learner Financial Corporation

     02/12/18        37.6        170.1        18.1        9.3  

Park National Corporation/ NewDominion Bank

     01/23/18        NM        235.3        26.0        23.6  

Mackinac Financial Corporation/ First Federal of Northern Michigan Bancorp, Inc.

     01/16/18        18.3        132.0        10.4        3.2  

LCNB Corp./ Columbus First Bancorp, Inc.

     12/21/17        27.5        216.1        20.1        21.2  

Equity Bancshares, Inc./ Kansas Bank Corporation

     12/18/17        NM        143.2        14.7        6.6  

First Mid-Illinois Bancshares, Inc./ First BancTrust Corporation

     12/11/17        22.6        160.5        15.9        9.8  

Suncrest Bank/ CBBC Bancorp

     11/07/17        18.6        207.2        20.7        17.3  

First Bancshares, Inc./ Southwest Banc Shares, Inc.

     10/24/17        23.1        165.9        15.0        8.3  

MutualFirst Financial, Inc./ Universal Bancorp

     10/04/17        23.0        158.5        16.5        9.1  

Old Line Bancshares, Inc./ Bay Bancorp, Inc.

     09/27/17        39.3        191.5        19.8        12.6  

Susser Bank Holdings, LLC/ BancAffiliated, Inc.

     09/21/17        15.8        193.7        19.5        28.3  

Brookline Bancorp, Inc./ First Commons Bank, National Association

     09/21/17        22.1        158.3        17.2        11.5  

First American Bank Corporation/ Southport Financial Corporation

     09/18/17        11.3        184.9        15.4        9.6  

Equity Bancshares, Inc./ Eastman National Bancshares, Inc.

     07/17/17        10.8        192.4        18.4        12.4  

Equity Bancshares, Inc./ Cache Holdings, Inc.

     07/17/17        12.5        160.8        15.0        38.0  

QCR Holdings, Inc./ Guaranty Bank and Trust Company

     06/08/17        27.4        144.2        16.6        6.7  

Glacier Bancorp, Inc./ Columbine Capital Corporation

     06/06/17        15.8        204.5        15.8