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): May 15, 2016
Realty Finance Trust, Inc.
(Exact Name of Registrant as Specified in Its Charter)
|
Maryland (State or other jurisdiction of incorporation) |
000-55188 (Commission File Number) |
46-1406086 (I.R.S. Employer Identification No.) |
405 Park Avenue, 14th Floor
New York, New York 10022
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (212) 454-6260
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:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
As previously disclosed by Realty Finance Trust, Inc. (the “Company”) in its annual meeting proxy statement filed on April 29, 2016, Dr. Robert J. Froehlich’s (“Froehlich”) term as a director of the Company was due to expire on June 9, 2016, the date of the Company’s 2016 annual meeting of stockholders (the “2016 annual meeting”), since he was not nominated by the board of directors (the “Board”) for re-election as a director at the 2016 annual meeting. On May 4, 2016, Froehlich notified the Board of his intention to resign early from the Board effective May 11, 2016, absent compliance with certain demands outside of the Board’s prescribed governance processes.
The two demands he identified in his notice (the “Original Notice”) were: (i) that the special committee of independent directors previously formed by the Board immediately engage the services of the particular financial advisor named by Froehlich, notwithstanding that such financial advisor has not yet been approved by a majority vote of the special committee as prescribed by the Company’s bylaws, and (ii) that the Company’s chief financial officer, Nicholas Radesca (the “CFO”), temporarily step down from his position, due to a perceived conflict of interest by Froehlich, until such time as the Board decides whether to engage in discussions regarding a possible strategic transaction with another company for which the CFO serves in a similar capacity. The Board considered and rejected these demands for the reasons noted below.
On May 9, 2016, Froehlich rescinded his conditional resignation and indicated that he intended to resign after the Audit Committee and Board meetings called for the purpose of approving the Company’s Form 10-Q, which originally had been scheduled for May 10, 2016. These meetings were postponed one day until May 11, 2016 in order to permit the Company to consider additional disclosures on the Form 10-Q related to the pending conclusion of an extension agreement on a line of credit from one of the Company’s lenders. This reason for the delay was communicated to Froehlich. During these meetings, Froehlich requested that the Company repeat certain disclosures that the Company had previously disclosed on Forms 8-K into the Form 10-Q being filed. The Company confirmed it was already in the process of revising the Company’s Form 10-Q to repeat certain of this information and the Audit Committee and the Board unanimously approved the filing of the Company’s Form 10-Q, which was filed on May 13, 2016.
On May 15, 2016, Froehlich notified the Board (the “Second Notice”) that he was resigning effective immediately citing the Company’s failure to address the demands in the Original Notice. The Board accepted his resignation. Froehlich’s Board position will remain vacant until the 2016 annual meeting.
The foregoing descriptions of the Original Notice and the Second Notice are qualified in their entirety by reference to the full text of Froehlich’s communications to the Board which are attached to this Current Report on Form 8-K as Exhibit 17.
Reasons for the Board’s Refusal to Accede to Froehlich’s Demands
In February 2016, the Company’s independent directors were contacted by the board of a related party inquiring as to their interest in preliminary discussions about a potential strategic transaction. On February 26, 2016, the Board unanimously voted to create a special committee of the Board (the “Committee”) consisting exclusively of all of the Company’s independent directors, including Froehlich. The Board granted the Committee the authority to consider, review, evaluate and, if appropriate, negotiate a strategic transaction with the related party on behalf of the Company and, in considering such a strategic transaction, granted the Committee the authority to solicit expressions of interest or other proposals for, and to consider, any alternative transactions. The Committee, pursuant to authority granted by the Board, unanimously appointed special counsel. Froehlich’s successor will be appointed to the Committee upon election by the stockholders at the 2016 annual meeting.
The Committee also has authority to retain an independent financial advisor and is currently in the process of evaluating independent financial advisors and considering the engagement terms proposed by those independent financial advisors. A majority vote of the members of the Committee is required to appoint an independent financial advisor. The process of independent financial advisor evaluations has not been completed by the Committee and therefore the Company is not currently prepared to accede to Froehlich’s demand that the Committee appoint his chosen independent financial advisor.
Contrary to the statements made by Froehlich in the Original Notice, to date, the Company and the Committee have not received any substantive proposal from the related party with respect to a strategic transaction, and the Committee has not engaged in any substantive discussions or negotiations related to a transaction with such related party or any other transaction. There are no assurances that the consideration of any strategic alternative will result in a transaction. The Company does not intend to comment on or disclose developments regarding the process unless it deems further disclosure is appropriate or required.
On April 28, 2016, the Board convened to discuss whether the CFO should temporarily step down from his position based on Froehlich’s belief that the prospect of potential negotiations with the related party created a disqualifying conflict of interest. During this discussion, Froehlich confirmed that his concerns related solely to the possible impact of a potential decision to pursue transaction negotiations with the related party, and not to the qualifications or performance of the CFO or the integrity of the Company’s financial statements. After consulting with its external legal advisors and external auditor, the Board strongly disagreed with Froehlich’s suggestion. In fact, not only did the Board conclude that the temporary removal of the CFO was unnecessary, but also that such an action would be highly detrimental to the Company and its shareholders due to the importance of the continuity of the CFO as the most senior financial executive in the Company in financial reporting and relationships with auditors and lenders. This decision was based on a number of factors, including the absence of any substantive discussions or negotiations related to such a transaction and the protections against potential conflicts of interest afforded by the Board’s prior decision to create the Committee and the delegation to the Committee of the exclusive authority to solicit, evaluate and, if appropriate, negotiate a strategic transaction on behalf of the Company and the authority to appoint legal and financial advisors. In addition, the Board undertook to continue to monitor potential conflicts related to a potential strategic transaction and to consider additional protections against any conflicts as deemed necessary by the Committee and its advisors.
In accordance with the requirements of Item 5.02 of Current Report on Form 8-K, the Company has provided Froehlich a copy of the disclosures it is making in this report no later than the day of filing this Current Report on Form 8-K with the Securities and Exchange Commission.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
|
Exhibit |
Description | |
| 17 |
Email from Dr. Robert J. Froehlich* | |
* Confidential Information has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been requested with respect to this omitted information.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Realty Finance Trust, Inc. |
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| By: | /s/ Peter M. Budko | ||
| Name: | Peter M. Budko | ||
| Title: | Chief Executive Officer and Interim President | ||
Date: May 19, 2016
EXHIBIT INDEX
|
Exhibit |
Description | |
| 17 |
Email from Dr. Robert J. Froehlich* | |
* Confidential Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to this omitted information.
Exhibit 17
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR REDACTED ITEMS*
Fellow RFT Board Members (and prospective Board Member), Senior Staff & Service Providers~
Nothing is easy or without drama and controversy regarding RFT, even something that on the surface appears so simple, like resigning from the board.
Let me remind you all that on May 4, 2016, I sent the following email.......
**********
Fellow RFT Board Members (and prospective Board Member),
At the recent board meeting of RFT on April 22nd, Nick Radesca, CFO of RFT, excused himself from our potential merger discussions with [***]. That action was a resounding reminder of the inherent conflict of interest shouldered by Mr. Radesca from having to serve as CFO of both RFT and [***] at a time when [***], through a related-party transaction, was then and is currently attempting to acquire RFT.
Mr. Radesca was appointed CFO of RFT in November 2015 and, at that time, it was disclosed to us he was also CFO of [***]. Whereas that potential conflict provided me discomfort at the time, that discomfort became overwhelming once [***] expressed an interest in acquiring RFT. Frankly, sound corporate governance should have compelled Mr. Radesca to resign as CFO from one firm or the other rather than straddle clearly conflicting roles.
I expressed my concern at our board meeting on April 28th that, given we had received a proposal from [***] to acquire RFT on February 16th, Mr. Radesca should have immediately reinforced his clear conflict of interest to the entire board given he was (and still is) the CFO of both the acquirer [***] and the target (RFT). Much to my shock and surprise, the majority of the board did not concur with my assessment, which, in my mind, calls into question the level of independence of the only other independent director and the quality of corporate governance exercised by the balance of the board of directors of RFT.
The fact the CFO of [***] is also the CFO of RFT given the circumstances, is, in my clear estimation, prima facie evidence of a manifest conflict of interest. I find the board’s lack of pro-active (or even reactive for that matter) movement to remove this conflict deplorable. As such, I urge my fellow board members to resolve to require Mr. Radesca to recuse himself from any further discussions with our board and immediately resign as the CFO of RFT at least until such time as the board has determined whether it will proceed with a prospective transaction with [***].
Further, given we are charged with a fiduciary duty to our shareholders to ensure any activity in which we engage is in the best interest of our shareholders, I am not, nor are you, equipped to recommend any course of action until such time as all alternative options have been explored. As such, I implore you to join with me and formally engage [***], as we had previously agreed, to conduct a thorough analysis of our strategic alternatives and recommend a course of action accordingly. As you are aware, I am highly suspect as to whether a merger of RFT into [***] is in the best interest of our shareholders and unless and until we fully analyze our other options, I am concerned about our legal exposure.
Mr. McDonough, given you are currently running for the board of director seat that I did not voluntarily relinquish, it is imperative you have notice of the inherent conflicts of interest in not only the proposed transaction, but the overlapping CFO duties as well. It is equally imperative you enter your prospective new role with your eyes wide open as to, what I consider to be, at best, shoddy corporate governance procedures. Should this activity continue unabated, I believe the shareholders would have a sound case for breach of duty at which trial I am free to testify without repercussion.
If this board does not immediately request the resignation of Mr. Radesca and if the Special Committee does not immediately engage the services of [***] to conduct a full scope analysis of our alternatives in a manner consistent with the basic tenets of sound governance, I am concerned my professional reputation will suffer were I to continue my association with this RFT board. As such, unless these requested actions are not accomplished by the close of business on Tuesday, May 11th, please consider this letter my official resignation from the board of directors of RFT, effective May 11th.
With deepest disappointment,
Dr. Bob Froehlich
**********
I received no response or acknowledgement from anyone regarding my email. ARC then decided to cancel all RFT meetings (Audit Committee, Executive Session and Board Meetings) until after May 11th so I would not be able to participate as they would be rescheduled after my resignation would have been effective. So on May 9, 2016, I sent the following email to Mike McTiernan, outside company counsel for RFT.
**********
Mike-
Thanks for the heads up on this. As a result of these meetings being cancelled (Audit, Executive Session & Board) I am rescinding my resignation that was to take effect at the close of business on May 11th, if certain corporate governance issues were not addressed. The fact that no one even acknowledged my email of May 4th I would assume that you (ARC) have no intention of making any of the improvements that I suggested. I picked that date (May 11th) because it was after our Audit Committee meeting of May 10th where as Audit Chair I would be reviewing and approving the 10-Q. I will not be resigning until after these cancelled meeting are rescheduled and I can participate as Audit Committee Chair for the 10-Q approval process and as Lead Independent Director for both the Executive Session as well as the Board meeting. I have several issues that I want to discuss at both the Executive Session and at the Board meeting as well.
Please let me know as soon as possible when these meeting are rescheduled.
DB~
**********
Finally, the audit committee and board meetings were held on May 11th, and I was successfully able to add the proper disclosure regarding our review of strategic alternatives process. I am deeply disappointed in our internal financial staff that there was no disclosure (or discussion) whatsoever recommended by them regarding our review of strategic alternatives in the draft 10-Q that was presented to the audit committee for approval. Now that our 10-Q has been filed with the appropriate disclosures regarding our strategic review process, and the fact that nothing at all has been done to address any of the corporate governance issues I raised in my May 4th email, you leave me no choice but to resign effective immediately. I fear that both my personal and professional reputation will be damaged beyond repair were I to continue my association with this RFT board. When it is all said and done I simply have too many disagreements with management to continue. This is a very sad day for shareholders and an even sadder day for all the financial advisors who invested on behalf of their clients in our company because they knew (and they were told at all the ARC Forums held around the country over the past 3 years) that I was there to protect their interests and fight for shareholder value as the Lead Independent of RFT.
With deepest disappointment,
Dr. Bob~
[***] Confidential Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to this omitted information.