SMARTFINANCIAL, INC. (NASDAQ:SMBK) Files An 8-K Entry into a Material Definitive Agreement

Item1.01

On May22, 2017, SmartFinancial, Inc. (SmartFinancial)
entered into an Agreement and Plan of Merger (the Merger
Agreement), with SmartBank, a Tennessee-chartered commercial
bank and wholly owned subsidiary of SmartFinancial
(SmartBank), Capstone Bancshares, Inc., an Alabama
corporation (Bancshares), and Capstone Bank, an
Alabama-chartered commercial bank and wholly owned subsidiary of
Bancshares (Capstone), to which, on the terms and subject
to the conditions set forth therein, Bancshares will merge with
and into SmartFinancial (the Merger), with SmartFinancial
to survive the Merger. As soon as reasonably practicable
following the Merger and as a part of a single integrated
transaction, Capstone will merge with and into SmartBank, with
SmartBank to be the surviving banking corporation.

Under the terms of the Merger Agreement, each outstanding share
of Bancshares stock will be converted into the right to receive
either (a) $18.50 in cash, without interest, (ii) 0.85 shares of
SmartFinancial common stock, or (iii)a combination of stock and
cash. Bancshares shareholders will be asked to complete election
forms requesting to receive all cash consideration, all stock
consideration, or a mixture of both stock and cash consideration.
The Merger Agreement provides that 80% of the aggregate number of
Bancshares stock outstanding prior to the Merger shall be
cancelled and converted into SmartFinancial common stock. If
there is a shortfall in the number of Bancshares shares elected
to be converted into SmartFinancial common stock, SmartFinancial
will allocate consideration to those shareholders
proportionately, in accordance with procedures set out in the
Merger Agreement.

The Merger Agreement contains customary representations,
warranties and covenants by all parties. Conditions to each
partys obligation to consummate the Merger include the following,
as well as other customary conditions: (1)approval of the Merger
Agreement by shareholders of SmartFinancial and Bancshares,
(2)approval of the Merger by regulatory authorities,
(3)effectiveness of a registration statement for the shares
issued as stock consideration to Bancshares shareholders, and
(4)authorization to list the shares issued as stock consideration
to Bancshares shareholders on Nasdaq. Conditions to
SmartFinancials obligation to consummate the Merger include the
following: (1)holders of not more than 10% of the outstanding
shares of Bancshares stock shall have perfected and not withdrawn
or lost their rights to dissent from the Merger, (2)receipt of
the resignations of all those directors of Bancshares and
Capstone not joining the SmartFinancial or SmartBank board of
directors, (3)termination of the change in control agreements of
certain Bancshares executive officers, and (4)evidence of the
fact that all Alabama use tax due and payable by Bancshares and
Capstone shall not exceed $150,000.

In connection with the Merger, SmartFinancial has entered into
employment agreements with certain Capstone and Bancshares
executives that will become effective as of the effective time of
the Merger. Capstone directors, Steven B. Tucker and J. Beau
Wicks will join the SmartFinancial and SmartBank boards. As an
inducement to SmartFinancial and SmartBank to enter into the
Merger Agreement, each Capstone and Bancshares director and
certain Bancshares shareholders have signed voting agreements,
dated as of the date of the Merger Agreement, to which such
persons have agreed, among other things, to vote their shares of
Bancshares stock in favor of approval of the Merger Agreement.

The Merger Agreement provides certain termination rights for both
SmartFinancial and Bancshares and further provides that, upon
termination of the Merger Agreement under certain circumstances,
Bancshares or SmartFinancial, as applicable, will be obligated to
pay the other party a termination fee of $2,800,000 plus
expenses.

The foregoing description of the Merger Agreement does not
purport to be complete and is qualified in its entirety by
reference to the full text of the Merger Agreement, which is
attached hereto as Exhibit 2.1 and incorporated herein by
reference.

The representations, warranties and covenants of each party set
forth in the Merger Agreement have been made only for purposes
of, and were and are solely for the benefit of, the parties to
the Merger Agreement, may be subject to limitations agreed upon
by the contracting parties, including being qualified by
confidential disclosures made for the purposes of allocating
contractual risk between the parties to the Merger Agreement
instead of establishing these matters as facts, and may be
subject to standards of materiality applicable to the contracting
parties that differ from those applicable to investors.
Accordingly, the representations and warranties may not describe
the actual state of affairs at the date they were made or at any
other time, and investors should not rely on them as statements
of fact. In addition, such representations and warranties (1)
will not survive consummation of the Merger, and (2) were made
only as of the date of the Merger Agreement or such other date as
is specified in the Merger Agreement. Moreover, information
concerning the subject matter of the representations and
warranties may change after the date of the Merger Agreement,
which subsequent information may or may not be fully reflected in
the parties public disclosures. Accordingly, the Merger Agreement
is included with this filing only to provide investors with
information regarding the terms of the Merger Agreement, and not
to provide investors with any other factual information regarding
the parties, their respective affiliates or their respective
businesses. The Merger Agreement should not be read alone, but
should instead be read in conjunction with the other information
regarding SmartFinancial and its affiliates and businesses, the
Merger Agreement and the Merger that will be contained in, or
incorporated by reference into, the registration statement on
Form S-4 that will include a joint proxy statement of
SmartFinancial and Bancshares and a prospectus of SmartFinancial,
as well as in the Forms 10-K, Forms 10-Q and other filings that
SmartFinancial makes with the Securities and Exchange Commission
(SEC).

Important Information for Shareholders

This report shall not constitute an offer to sell, the
solicitation of an offer to sell, or the solicitation of an offer
to buy any securities or the solicitation of any vote or
approval, nor shall there be any sale of 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.In connection with the
proposed Merger, SmartFinancial will file a registration
statement on Form S-4 with the SEC, which will contain the joint
proxy statement/prospectus of SmartFinancial and Bancshares.
Shareholders of Bancshares and SmartFinancial are encouraged to
read the registration statement, including the joint proxy
statement/prospectus that will be part of the registration
statement, because it will contain important information about
the Merger, Bancshares and SmartFinancial. After the registration
statement is filed with the SEC, the joint proxy
statement/prospectus and other relevant documents will be mailed
to all Bancshares and SmartFinancial shareholders and will be
available for free on the SECs website

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(www.sec.gov). The joint proxy statement/prospectus will
also be made available for free by contacting the President and
CEO of SmartFinancial at (865) 868-0613.No offer of securities
shall be made except by means of a prospectus meeting the
requirements of Section10 of the Securities Act of 1933, as
amended.

Forward-Looking Statements

Certain of the statements made in this report may constitute
forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such forward-looking statements, including
statements regarding the intent, belief or current expectations
of SmartFinancial, SmartFinancial and their respective management
regarding the companies strategic directions, prospects, future
results and benefits of the Merger, are subject to numerous risks
and uncertainties. Certain factors may cause actual results to
differ materially from those contained in the forward-looking
statements, including economic and other conditions in the
markets in which Bancshares and SmartFinancial operate,
governmental regulations, the ability to obtain regulatory and
shareholder approvals, the possibility that conditions to
completion of the Merger will not be satisfied, the ability to
complete the Merger in the expected timeframe, the companies
competitive environment, cyclical and seasonal fluctuations in
their operating results, and other risks.

Bancshares and SmartFinancial issued a press release announcing
the execution of the Merger Agreement on May22, 2017. A copy of
this press release is included here as Exhibit 99.1 to this
Current Report on Form 8-K and is incorporated by reference.

SmartFinancial used the presentation materials furnished herewith
to present the Merger Agreement and the Merger to investors, on
or after May22, 2017. Such materials are attached hereto as
Exhibit 99.2. SmartFinancial does not undertake to update these
materials after the date of this report, nor will this report be
deemed a determination or admission as to the materiality of any
information contained herein (including the information in
Exhibit 99.2).

The information set forth in this Item 7.01 (including the
information in Exhibits 99.1 and 99.2) is being furnished to the
Securities and Exchange Commission and is not deemed to be filed
for purposes of Section18 of the Securities Exchange Act of 1934,
as amended (the Exchange Act), or otherwise subject to liability
under the Exchange Act. Such information shall not be
incorporated by reference into any registration statement or
other document filed under the Securities Act of 1933, as
amended, or the Exchange Act, except as shall be expressly set
forth by specific reference in such filing.

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to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.

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EXHIBIT INDEX

About SMARTFINANCIAL, INC. (NASDAQ:SMBK)

SmartFinancial, Inc., formerly Cornerstone Bancshares, Inc., is a bank holding company. The Company operates through its SmartBank subsidiary (The Bank). The principal business of the Bank consists of attracting deposits from the public and investing those funds, together with funds generated from operations and from principal and interest payments on loans. It offers commercial real estate-mortgage, consumer real estate-mortgage, construction and land development, commercial and industrial, and consumer and other loans. The Bank’s investment portfolio consists of Federal agency bonds, mortgage-backed securities, and state and municipal securities. The Bank provides a range of deposit services to businesses and individuals, including non-interest bearing checking accounts, interest bearing checking accounts, savings accounts, money market accounts, individual retirement accounts (IRAs) and certificates of deposit (CDs). SmartBank operates in approximately seven banking offices.

SMARTFINANCIAL, INC. (NASDAQ:SMBK) Recent Trading Information

SMARTFINANCIAL, INC. (NASDAQ:SMBK) closed its last trading session down -0.11 at 22.85 with shares trading hands.