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Wachtell, Lipton, Rosen & Katz
MARTIN LIPTON
HERBERT M. WACHTELL
PAUL VIZCARRONDO, JR.
PETER C. HEIN
HAROLD S. NOVIKOFF
THEODORE N. MIRVIS
EDWARD D. HERLIHY
DANIEL A. NEFF
ANDREW R. BROWNSTEIN
MARC WOLINSKY
STEVEN A. ROSENBLUM
JOHN F. SAVARESE
SCOTT K. CHARLES
JODI J. SCHWARTZ
ADAM O. EMMERICH
GEORGE T. CONWAY II I
RALPH M. LEVENE
RICHARD G. MASON
MICHAEL J. SEGAL
DAVID M. SILK
ROBIN PANOVKA
DAVID A. KATZ
ILENE KNABLE GOTTS
JEFFREY M. WINTNER
TREVOR S. NORWITZ
BEN M. GERMANA
ANDREW J. NUSSBAUM
RACHELLE SILVERBERG
STEVEN A. COHEN
DEBORAH L. PAUL
DAVID C. KARP
RICHARD K. KIM
JOSHUA R. CAMMAKER
MARK GORDON
JOSEPH D. LARSON
LAWRENCE S. MAKOW
JEANNEMARIE O’BRIEN
WAYNE M. CARLIN
STEPHEN R. DiPRIMA
NICHOLAS G. DEMMO
IGOR KIRMAN
JONATHAN M. MOSES
51 WES T 52ND STREET
NE W YORK , N. Y . 10019-6150
TELEPHONE: (212) 403 - 1000
FA CS IM ILE: (212) 403 - 2000
GEORGE A. KATZ (1965-1989 )
JAMES H. FOGELSON (1967-1991)
LEONARD M. ROSEN (1965-2014 )
OF COUNSEL
WILLIAM T. ALLEN DAVID S. NEILL
MARTIN J.E. ARMS BERNARD W. NUSSBAUM
MICHAEL H. BYOWITZ LAWRENCE B. PEDOWITZ
PETER C. CANELLOS ERIC S. ROBINSON
DAVID M. EINHORN PATRICIA A. ROBINSON*
KENNETH B. FORREST ERIC M. ROTH
THEODORE GEWERTZ PAUL K. ROWE
RICHARD D. KATCHER DAVID A. SCHWARTZ
MEYER G. KOPLOW MICHAEL W. SCHWARTZ
DOUGLAS K. MAYER STEPHANIE J. SELIGMAN
ROBERT B. MAZUR ELLIOTT V. STEIN
MARSHALL L. MILLER WARREN R. STERN
PHILIP MINDLIN PATRICIA A. VLAHAKIS
ROBERT M. MORGENTHAU AMY R. WOLF
* ADMITTED IN THE DISTRICT OF COLUMBIA
COUNSEL
DAVID M. ADLERSTEIN PAULA N. GORDON
AMANDA K. ALLEXON NANCY B. GREENBAUM
LOUIS J. BARASH MARK A. KOENIG
FRANCO CASTELLI LAUREN M. KOFKE
DIANNA CHEN J. AUSTIN LYONS
ANDREW J.H. CHEUNG ALICIA C. McCARTHY
PAMELA EHRENKRANZ S. CHRISTOPHER SZCZERBAN
KATHRYN GETTLES-ATWA JEFFREY A. WATIKER
ADAM M. GOGOLAK
December 5, 2017
T. EIKO STANGE
JOHN F. LYNCH
WILLIAM SAVITT
ERIC M. ROSOF
GREGORY E. OSTLING
DAVID B. ANDERS
ANDREA K. WAHLQUIST
ADAM J. SHAPIRO
NELSON O. FITTS
JOSHUA M. HOLMES
DAVID E. SHAPIRO
DAMIAN G. DIDDEN
IAN BOCZKO
MATTHEW M. GUEST
DAVID E. KAHAN
DAVID K. LAM
BENJAMIN M. ROTH
JOSHUA A. FELTMAN
ELAINE P. GOLIN
EMIL A. KLEINHAUS
KARESSA L. CAIN
RONALD C. CHEN
GORDON S. MOODIE
DONGJU SONG
BRADLEY R. WILSON
GRAHAM W. MELI
GREGORY E. PESSIN
CARRIE M. REILLY
MARK F. VEBLEN
VICTOR GOLDFELD
EDWARD J. LEE
BRANDON C. PRICE
KEVIN S. SCHWARTZ
MICHAEL S. BENN
SABASTIAN V. NILES
ALISON ZIESKE PREISS
TIJANA J. DVORNIC
JENNA E. LEVINE
RYAN A. McLEOD
W/3043610
Direct Dial: (212) 403-1354
Direct Fax: (212) 403-2354
Ms. Kathryn E. Haney Director of Applications Risk Federal Reserve Bank of Atlanta 1000 Peachtree Street, N.E. Atlanta, Georgia 30309-4470
Re: Notice by Gaylon M. Lawrence to retain 10.2 % and to Acquire Up to 15 % of the Shares of CapStar Financial Holdings, Inc.
Dear Ms. Haney:
On behalf of our client, CapStar Financial Holdings, Inc. (“CapStar”), we are writing to supplement our letter, dated November 20, 2017, opposing the notice filed by Gaylon M. Lawrence under the Change in Bank Control Act (the “CBCA”) to retain 10% or more of the outstanding shares of CapStar and to acquire up to 15% of the company’s stock. Subsequent events underscore the need for the Federal Reserve to:
x reject Mr. Lawrence’s filing outright;
x direct Mr. Lawrence to immediately divest all illegally acquired CapStar shares and
Ms. Kathryn E. Haney December 5, 2017 Page 2
x issue a cease-and-desist order against Mr. Lawrence and order that he pay civil monetary penalties for his flagrant and continuing violations of law.
First, we received a copy of the Federal Reserve’s letter, dated November 22, 2017, to Mr. Lawrence’s counsel stating that on October 11th, the Federal Reserve advised them that a notice must be filed under the CBCA prior to Mr. Lawrence acquiring 10% or more of CapStar. As the Federal Reserve is aware, on October 11th through the 16th, Mr. Lawrence purchased additional shares of CapStar up to an aggregate of 10.2% in direct contravention of the Federal Reserve’s direction. But he did not file a notice under the CBCA until October 30th — two weeks after crossing the 10% threshold. In its letter, the Federal Reserve also requested a description of the “steps that [Mr. Lawrence] will take to prevent future violations of the Change in Bank Control Act.” Accordingly, the record is clear that Mr. Lawrence not only violated and is in continuing violation of the CBCA, but that he also deliberately disobeyed a specific directive from the Federal Reserve.
Second, the response to the Federal Reserve’s letter by Mr. Lawrence’s counsel, dated November 30th — a rambling attempt at an explanation for what are serial violations of the CBCA — makes a number of problematic assertions:
1. Mr. Lawrence’s counsel concedes that Mr. Lawrence “referred to all of his businesses as ‘The Lawrence Group’.”
As we noted in our letter, dated November 20, 2017, an entity such as The Lawrence Group that holds itself out to the public, does business as a distinct entity and otherwise fulfills the requirements to be deemed a partnership or an association under state or common law is a “company” for purposes of the Bank Holding Company Act. Mr. Lawrence’s counsel is flat wrong that “there was no such legal entity.” As such, The Lawrence Group must register with the Federal Reserve as a bank holding company, divest its nonfinancial businesses and reduce its investment in CapStar to five percent.
2. “I mentioned that there was another reported shareholder, Corsair, that owned almost 15% already, and with the animosity that had been shown by management and the Board the previous year when Mr. Lawrence inquired as to acquiring a much larger interest, we did not see any real opportunity for Mr. Lawrence to have any actual ‘control’ of the policies, management, or even a board seat, and so Mr. Lawrence’s interest at this time to [sic] was remain a passive investor while he accumulated shares in an institution that he believed was a good investment for him.”
The CBCA notice eventually filed by Mr. Lawrence makes clear that he has no intention of being a passive investor. To the contrary, he states in his notice that he intends to “engage in discussions with members of management and the board of directors of CapStar . . . regarding a variety of matters related to CapStar, which may include, among other things,
Ms. Kathryn E. Haney December 5, 2017 Page 3
CapStar’s business, management, capital structure and allocation, corporate governance, Board composition and strategic alternatives.” Either Mr. Lawrence’s notice or his counsel’s more recent letter to the Federal Reserve is false –they cannot both be true. We believe that the record demonstrates that Mr. Lawrence intends to assert control over CapStar:
x only a year ago, Mr. Lawrence made two unsuccessful attempts to acquire control of CapStar;
x Jason West of The Lawrence Group has made repeated statements to the press revealing their control intentions and desire to accumulate more CapStar stock; and
x The Lawrence Group has mounted at least one hostile acquisition in the past.
In this regard, on December 1, Mr. Lawrence’s counsel sent to CapStar a demand letter to review CapStar’s books and records, a tactic commonly used by activist investors and hostile acquirers to attempt to intimidate their targets. The demand directs that Mr. Lawrence be permitted to examine in person, or by agent or attorney, the following books and records of CapStar:
x Minutes of all shareholders’ meetings and records of all actions taken by shareholders without a meeting for the past three years;
x All written communications to shareholders generally within the past three years, including any financial statements prepared for the past three years;
x A list of the names and business addresses of its current directors and officers;
x Minutes of all meetings of the Board of Directors and records of all actions taken by the Board of Directors without a meeting for the past three years;
x Records of all actions taken by any committees of the Board of Directors in place of the Board of Directors for the past three years;
x The accounting records of the corporation for the past three years; and
x The record of shareholders.
Ironically, the demand notes that Mr. Lawrence, who has demonstrated no ability to comply with the Federal securities laws and, as his counsel admits, is in continuing violation of the banking laws, “feels a responsibility to himself as well as other shareholders of the corporation to make sure that the Board of Directors is acting in the best interests of all
Ms. Kathryn E. Haney December 5, 2017 Page 4
shareholders in its exercise of its fiduciary duties.” As his prior statements to the Federal Reserve and his more recent demand prove, Mr. Lawrence has no intention of being a passive investor. Mr. Lawrence, in fact, states that the purpose of his demand is “to monitor the activities of the Board of Directors, monitor the operations of the corporation, and monitor the direction of the institution.”
Moreover, it is irrelevant that another investor, Corsair, holds a larger stake. As Mr. Lawrence is well aware from his failed attempts to acquire CapStar, Corsair is subject to a passivity agreement with the Federal Reserve. As Mr. Lawrence is also aware, according to CapStar’s most recent proxy, more than 1.1 million of Corsair’s reported beneficial ownership stake is in the form of series A preferred stock and warrants that are convertible to or exercisable for, as applicable, common stock, and thus do not currently have voting rights. Therefore, Mr. Lawrence’s voting stake of 1,156,675 shares of common stock is more than twice the size of Corsair’s voting stake of 532,752 shares of common stock.
Lastly, whether Mr. Lawrence has “a real opportunity at actual control” over CapStar demonstrates that he and his counsel still do not grasp the requirements of the CBCA. The test under the CBCA is whether Mr. Lawrence exceeds 10% and not whether he has actual control over CapStar. The existence of actual control is not and never has been a criteria for determining whether a filing is required under the CBCA.
3. Mr. Lawrence’s counsel notes that he “did not understand [my discussion] with the Federal Reserve to mean that Mr. Lawrence could not exceed 10% in the meantime” prior to filing a notice under the CBCA and obtaining approval.
The attempt by Mr. Lawrence’s counsel to blame the Federal Reserve for a lack of clarity to justify his client’s violation of the CBCA should not be tolerated. The law is clear and Mr. Lawrence’s counsel, who notes in his letter that he has 35 years of experience in filing applications with the Federal Reserve, surely was aware of it. Under the CBCA, “[n]o person . . . shall acquire control of any insured depository institution . . . unless the [Federal Reserve] has been given sixty days’ prior written notice of such proposed acquisition and within that time period the agency has not issued a notice disapproving the proposed acquisition or, in the discretion of the agency, extending for an additional 30 days the period during which such a disapproval may issue.”1 The Federal Reserve’s Regulation Y plainly states that a proposed acquisition of “10 percent or more of any class of voting securities of” a publicly traded bank, such as CapStar, gives rise to a presumption of control, requiring prior notice to the Federal Reserve.2 There is no exception under the CBCA or Regulation Y that is remotely applicable and, as Mr. Lawrence’s counsel concedes later in this letter, the statute does not empower Federal Reserve staff to grant an exemption on the spot.
1 12 U.S.C. § 1817(j)(1) (emphasis added). 2 12 C.F.R. § 225.41(c)(2).
Ms. Kathryn E. Haney December 5, 2017 Page 5
“It is now clear to Mr. Lawrence’s outside legal counsel, Mr. Lawrence, and his staff that no investments of 10% or more of public companies should occur without first filing and receiving approval of a Notice of Change in Bank Control, and in the event there are any questions about exceptions or other interpretations of such Act, more detailed communications with Federal Reserve staff will occur prior to taking any action that might remotely involve a required filing or other action or inaction.”
4. “As disclosed in his Schedule 13D filed with the SEC on October 17, 2017, this increased his total shares to 1,156,675, which he understood to represent 10.2% of the outstanding shares, although based upon the 8-K filing of CapStar on October 17, 2017, these shares only represented 9.1% of the CapStar shares on a fully diluted basis.
Despite having been told directly by the Federal Reserve that Mr. Lawrence is above the 10% filing threshold, his counsel is apparently advancing a theory that the 10% should be measured on a fully diluted basis. That is not the test and the above statement is yet another demonstration that Mr. Lawrence and his counsel do not grasp the requirements of the CBCA.
* * *
For these reasons, the Federal Reserve should reject Mr. Lawrence’s filing, direct Mr. Lawrence to immediately divest his illegally acquired CapStar shares, issue a cease-and-desist order against Mr. Lawrence and order that he pay civil monetary penalties for his willful violations of the banking laws.
Sincerely,
Richard K. Kim
cc: Board of Governors of the Federal Reserve System
Division of Banking Supervision and Regulation BS&R Clearing Unit – Mail Stop 408 20th Street & Constitution Avenue, NW Washington, DC 20551
Ms. Kathryn E. Haney December 5, 2017 Page 6
Gaylon Lawrence c/o Steven J. Eisen Baker Donelson Baker Donelson Center Suite 800 211 Commerce Street Nashville, Tennessee 37201
State of Tennessee Department of Financial Institutions Tennessee Tower, 26th Floor Nashville, Tennessee 37243
Office of the Comptroller of the Currency Southern District 500 North Akard Street Suite 1600 Dallas, Texas 75201-3342
Federal Deposit Insurance Corporation Memphis Area Office 6060 Primacy Parkway Suite 300 Memphis, Tennessee 38119
BAKER,DONELSONBEARMAN, CALDWELL BERKOWIIZ, PC
CHRISTOPHER E. THORSEN, SHAREHOLDERDirect Dial: 615.726.5586Direct Fax: 615.744.5586E-Mail Address: [email protected]
December 1, 2017
VIA HAND-DELIVERY
CapStar Financial Holdings, Inc.Attn: Corporate Secretary1201 Demonbreun StreetNashville, TN 37203
BAKER DONELSON CENTER, SUITE 800
21 1 COMMERCE STREET
NASHVILLE, TENNESSEE 37201
MAILING ADDRESS:
POST OFFICE BOX 190613
NASHVILLE, TENNESSEE 37219
PHONE: 615.726.5600
FAX: 615.726.0464
www.bakerdonelson.com
Re: CapStar Financial Holdings, Inc. - Shareholder Request for Records
Dear Ladies and Gentlemen:
This law firm represents Gaylon M. Lawrence, Jr. in connection with his stock holdingsin CapStar Financial Holdings, Inc. ("CapStar"). Mr. Lawrence, as a shareholder of CapStar, hasauthorized us to demand inspection of the books and records of CapStar pursuant to ArticleSeven of CapStar's Bylaws and Sections 48-26-101, et seq. of the Tennessee BusinessCorporations Act (the "Act").
Mr. Lawrence makes this demand in good faith and for a proper purpose under both theBylaws and the Act. As you know, Mr. Lawrence is one of the largest shareholders of thecorporation, and as such, he wants to inform himself of the details regarding management andoperations of the corporation and its underlying bank. Mr. Lawrence feels the responsibility tohimself as well as the other shareholders of the corporation to make sure that the Board ofDirectors is acting in the best interests of all shareholders in its exercise of its fiduciary duties.He requests these records in order to monitor the activities of the Board of Directors, monitor theoperations of the corporation, and monitor the direction of the institution.
In accordance with the Bylaws and the Act, the records requested herein are: 1)reasonably relevant to Mr. Lawrence's interests as a shareholder of the corporation; 2) describedwith reasonable particularity; and 3) directly connected with Mr. Lawrence's above-statedpurpose for inspection of the records. Mr. Lawrence intends to use the requested records onlyfor the purposes stated herein.
ALABAMA FLORIDA GEORGIA LOUISIANA MISSISSIPPI TENNESSEE TEXAS WASHINGTON, D.C.
CapStarDecember 1, 2017Page 2
Therefore, pursuant to CapStar's Bylaws and the Act, Mr. Lawrence hereby requests toexamine in person, or by agent or attorney, including without limitation attorneys and staff ofthis law firm, the following books and records of the corporation:
1. Minutes of all shareholders' meetings, and records of all action taken byshareholders without a meeting, for the past three (3) years (T.C.A. § 48-26-102(a), (b));
2. All written communications to shareholders generally within the past three (3)years, including any financial statements prepared for the past three (3) years under Tenn. CodeAnn. § 48-26-201 (T.C.A. § 48-26-102(a));
3. A list of the names and business addresses of its current directors and officers(T.C.A. § 48-26-102(a));
4. Minutes of all meetings of the Board of Directors, and records of all action takenby the Board of Directors without a meeting, for the past three (3) years (T.C.A. § 48-26-102(b)(1));
5. Records of all actions taken by any committees of the Board of Directors in placeof the Board of Directors, for the past three (3) years (T.C.A. § 48-26-102(b)(1));
6. The accounting records for the corporation for the past three (3) years (T.C.A. §48-26-102(b)(2)); and
7. The record of shareholders (T.C.A. § 48-26-102(b)(3)).
Pursuant to Section 48-26-102 of the Act, we hereby provide this five (5) business dayrequest to inspect these books and records at 9:00 a.m. on Friday, December 8, 2017 at CapStar'sprincipal office located at .1201 Demonbreun Street, Nashville, TN 37203. Thank you for yourprompt attention to this matter. If you have any questions, please do not hesitate to contact me.
Best regards,
Christopher E. Thorsen
cc: Steve Riley, Esq.John S. Hicks, Esq.Steven J. Eisen, Esq.
