SEC Form 425 filed by Capital Bancorp Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)  July 25, 2024

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 Securities registered pursuant to Section 12(b) of the Act:

 

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b–2 of the Securities Exchange Act of 1934 (§ 240.12b–2 of this chapter).

 

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 13(a) of the Exchange Act.  ☐

 

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As previously announced, on March 27, 2024, Capital Bancorp, Inc., a Maryland corporation (“CBNK”), and Integrated Financial Holdings, Inc., a North Carolina corporation (“IFH”), entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”). The Merger Agreement provides that, upon the terms and conditions therein, IFH will merge with and into CBNK (the “Merger”), with CBNK continuing as the surviving corporation in the Merger. Following the Merger, West Town Bank & Trust (“West Town Bank”), a state bank chartered under the laws of Illinois and wholly owned subsidiary of IFH, will merge with and into Capital Bank, N.A. (“Capital Bank”), a national banking  association and wholly owned subsidiary of CBNK, with Capital Bank as the surviving bank. The Merger Agreement was unanimously approved by the board of directors of CBNK and IFH. The Merger is described in the joint proxy statement/prospectus, which forms a part of a registration statement on Form S-4 that was filed by CBNK with the Securities and Exchange Commission (the “SEC”) on May 31, 2024, and amended on June 21, 2024 (the “joint proxy statement/prospectus”). On or about June 28, 2024, CBNK mailed the joint proxy statement/prospectus to CBNK’s shareholders in connection with the special meeting of its shareholders scheduled to be held on August 15, 2024, at which its shareholders will consider and vote upon, among other things, a proposal to approve the Merger Agreement and the transactions contemplated therein, including the Merger. Similarly, on or about June 28, 2024, IFH mailed the joint proxy statement/prospectus to IFH’s shareholders in connection with the annual meeting of its shareholders scheduled to be held on August 15, 2024, at which its shareholders will consider and vote upon, among other things, a proposal to approve the Merger Agreement and the transactions contemplated thereby, including the Merger. This Current Report on Form 8-K provides certain additional information regarding the Merger.

On June 20, 2024, a law firm representing a purported IFH shareholder sent a demand letter (the “First IFH Demand Letter”) to Wyrick Robbins Yates & Ponton LLP (“Wyrick”) and Squire Patton Boggs LLP (“SPB”), legal counsel for IFH and CBNK, respectively. The First IFH Demand Letter alleges that the joint proxy statement/prospectus omitted material information with respect to the Merger and seeks corrective disclosures in an amendment or supplement to the joint proxy statement/prospectus.

On June 21, 2024, a law firm representing another purported IFH shareholder sent a demand letter (the “Second IFH Demand Letter” and, together with the First IFH Demand Letter, the “IFH Demand Letters”) to Wyrick alleging that the joint proxy statement/prospectus failed to disclose material information regarding the Merger and seeking additional disclosures in an amendment or supplement to the joint proxy statement/prospectus.

On July 11, 2024, a law firm representing a purported CBNK shareholder sent a demand letter (the “First CBNK Demand Letter”) to SPB alleging that the joint proxy statement/prospectus failed to disclose material information regarding the Merger and seeking additional disclosures in an amendment or supplement to the joint proxy statement/prospectus.

On July 15, 2024, a law firm representing another purported CBNK shareholder sent a demand letter (the “Second CBNK Demand Letter” and together with the First CBNK Demand Letter, the “CBNK Demand Letters”) to SPB alleging that the joint proxy statement/prospectus failed to disclose material information regarding the Merger and seeking additional disclosures in an amendment or supplement to the joint proxy statement/prospectus.

The IFH Demand Letters and the CBNK Demand Letters are hereinafter collectively referred to as the “Demand Letters.”

The parties to the Merger continue to believe that the demands for supplemental corrective and/or additional disclosure are entirely without merit and that no further disclosure is required by applicable rule, statute, regulation or law beyond that already contained in the joint proxy statement/prospectus. However, to avoid the risk that the Demand Letters and the demands therein may delay or otherwise adversely affect the consummation of the Merger and to minimize the expense of defending any potential lawsuit that may arise as a result of the Demand Letters, the parties to the Merger have determined that they will voluntarily make certain supplemental disclosures in the joint proxy statement/prospectus related to the proposed Merger set forth below (the “Supplemental Disclosures”). Nothing in this Current Report shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the Supplemental Disclosures set forth herein.

The information contained herein and in the Supplemental Disclosures supplement and should be read in conjunction with the joint proxy statement/prospectus, which should be read in its entirety, along with periodic reports and other information CBNK has filed with the SEC. To the extent that the information set forth herein differs from or updates information contained in the joint proxy statement/prospectus, the information set forth herein shall supersede or supplement the information in the joint proxy statement/prospectus. All page references below are to pages in the joint proxy statement/prospectus, and terms used below, unless otherwise defined herein, have the meanings given to such terms in the joint proxy statement/prospectus.

 

SUPPLEMENTAL DISCLOSURES TO THE JOINT PROXY STATEMENT/PROSPECTUS

1.          The disclosure under the heading “The Merger–Opinion of IFH’s Financial Advisor–Material Financial Analyses” and the subheading “Selected Companies Analysis.” is hereby amended by deleting the table of companies following the first paragraph of this subsection on page 101 of the joint proxy statement/prospectus and replacing it with the following:

 

2.          The disclosure under the heading “The Merger–Opinion of IFH’s Financial Advisor–Material Financial Analyses” and the subheading “Selected Transaction Analysis.” is hereby amended by deleting the list of transactions following the first paragraph of this subsection on page 102 of the joint proxy statement/prospectus and replacing it with the following:

 

3.          The disclosure under the heading “The Merger–Opinion of IFH’s Financial Advisor–Material Financial Analyses” and the subheading “Discounted Cash Flow Analysis.” is hereby amended by deleting the first full paragraph of this subsection on page 103 of the joint proxy statement/prospectus and replacing it with the following:

Raymond James performed a discounted cash flow analysis of IFH to estimate an illustrative range for the implied equity value of IFH, on a standalone basis.  In this analysis, Raymond James used projections for IFH on a standalone basis, which projections were provided by IFH management and approved for the use of Raymond James.  The range of values was derived by adding (i) the present value of the estimated excess cash flows that IFH could generate over the period from December 31, 2023 through December 31, 2028 and (ii) the present value of the implied terminal value at the end of such period.  Raymond James assumed that IFH, on a standalone basis, would maintain a tangible common equity to tangible assets ratio of 10.00% and would retain sufficient earnings to maintain that level.  Raymond James applied multiples, ranging from 8.0x to 10.0x, to calendar year 2028 adjusted earnings in order to derive a range of terminal values for IFH in 2028.  Raymond James arrived at this range by using the median of the selected companies’ price to last-twelve-months earnings per share and the median of selected transactions price to last twelve months net income of 7.5x and 10.6x respectively.

4.          The disclosure under the heading “The Merger–Opinion of IFH’s Financial Advisor–Material Financial Analyses” and the subheading “Discounted Cash Flow Analysis.” is hereby amended by deleting the first three sentences of the second full paragraph of this subsection on page 103 of the joint proxy statement/prospectus and replacing it with the following:

For IFH, Raymond James used discount rates ranging from 17.0% to 19.0%. Raymond James arrived at its discount rate range by using the 2022 Duff & Phelps Valuation Handbook to estimate IFH’s discount rate at approximately 18.1% and then added 0.9% to get the high of that range and subtracted 1.1% to get the low of that range of estimated discount rates.

5.       The disclosure under the heading “Description of the Merger–Opinion of IFH’s Financial Advisor–Material Financial Analyses” and the subheading “Additional Considerations.” is hereby amended by deleting the fourth paragraph on page 104 of the joint proxy statement/prospectus and replacing it with the following:

During the two years preceding the date of Raymond James’ written opinion to IFH pertaining to the merger with CBNK, Raymond James provided investment banking advisory services to IFH in connection with its proposed, and subsequently terminated, merger with MVB Financial Corp., for which Raymond James received a fairness opinion fee of $350,000 upon delivery of that opinion. During the two years preceding the date of Raymond James’ written opinion to IFH pertaining to the merger with CBNK, Raymond James provided fixed income related trading services to CBNK, for which Raymond James received fees of approximately $44,000. Furthermore, Raymond James may provide investment banking, financial advisory and other financial services to IFH, CBNK or their subsidiaries or affiliates in the future, for which Raymond James may receive compensation.

6.       The disclosure under the heading “Description of the Merger–Opinion of IFH’s Financial Advisor–Material Financial Analyses” and the subheading “Additional Considerations.” is hereby amended by deleting the fifth paragraph on page 104 of the joint proxy statement/prospectus and replacing it with the following:

For services rendered in connection with the delivery of its opinion dated March 27, 2024, IFH paid Raymond James a customary investment banking fee of $350,000 upon delivery of its opinion.  IFH will also pay Raymond James a fee for advisory services in connection with the merger, a substantial portion of which is contingent upon the closing of the merger.  The $350,000 fee paid upon delivery of the Raymond James opinion will be deducted from and credited against any advisory fee payable upon completion of the transaction. The amount of the advisory fee, prior to crediting the $350,000 fee paid upon delivery of the Raymond James opinion, is equal to the greater of approximately $1.2 million or a percentage of the final transaction value as calculated immediately prior to closing based on the following schedule: one and three-eighths percent (1.375%) of transaction value equal to or less than $105,000,000 (“Tier 1 Fee”); for transactions with transaction value between $105,000,000 and $134,999,999, the amount of the fee is equal to the sum of the Tier 1 Fee plus two and one-quarter percent (2.25%) of the incremental transaction value in excess of $105,000,000 and less than or equal to $134,999,999; for transactions with transaction value greater than $134,999,999, the amount of the fee is equal to the sum of the Tier 1 Fee plus two and one-half percent (2.50%) of incremental transaction value in excess of $105,000,000. IFH also agreed to reimburse Raymond James for its expenses incurred in connection with its services, including the fees and expenses of its counsel, and has agreed to indemnify Raymond James against certain liabilities that could arise out of its engagement.

7.         The disclosure under the heading “The Merger–Opinion of CBNK’s Financial Advisor” and the subheading “Discounted Cash Flow Analysis—Counterparty” is hereby amended by deleting the last sentence of the first full paragraph on page 93 of the joint proxy statement/prospectus and replacing it with the following:

Stephens considered discount rates from 12.0% to 16.0% implied by the comparable public companies of the Company outlined in the section entitled “Relevant Public Company Analysis – Company”. Using the CAPM methodology, Stephens calculated the range of discount rates by applying the KBW Regional Bank Index 2-year levered beta relative to the S&P 500 as of March 26, 2024. Stephens considered the equity risk premium and size-based premium as outlined in the Kroll 2023 Valuation Handbook and the risk-free rate based on the 30-day average U.S. 30-year treasury rate of 4.4% as of March 26, 2024.

8.         The disclosure under the heading “The Merger–Opinion of CBNK’s Financial Advisor” and the subheading “Discounted Cash Flow Analysis—Counterparty” is hereby amended by adding the following after the first full paragraph on page 93 of the joint proxy statement/prospectus:

Discounted Cash Flow Analysis Counterparty: Without Synergies

Source: S&P Global Market Intelligence, CBNK Management Guidance.

 

Discounted Cash Flow Analysis Counterparty: With Synergies

Source: S&P Global Market Intelligence, CBNK Management Guidance.

 

Source: S&P Global Market Intelligence.

Note: Dollars in millions. LTM = Last Twelve Months reported. Market Data as of March 26, 2024.

 

10.          The disclosure under the heading “The Merger–Opinion of CBNK’s Financial Advisor– Relevant Public Company Analysis – Company” is hereby amended by deleting the table on page 92 of the joint proxy statement/prospectus and replacing it with the following:

Source: S&P Global Market Intelligence, FactSet.

Note: Dollars in millions. LTM = Last Twelve Months reported. Market Data as of March 26, 2024.

 

11.          The disclosure under the heading “The Merger–Opinion of CBNK’s Financial Advisor– Relevant Nationwide Transactions Analysis – Counterparty” is hereby amended by deleting the table on page 94 of the joint proxy statement/prospectus and replacing it with the following: