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As the Republic First Bank saga moves through its post-proxy-fight phase, there has been no slowdown in the back-and-forth as the situation escalates on multiple fronts.

Earlier this month, the parent company of the bank announced it was initiating a strategic review “in light of inquiries by multiple parties expressing interest in one or more potential strategic transactions with the company.”

The situation led the activist investor group at the center of that proxy fight – the Norcross Braca faction – to voice concerns, especially regarding recent actions taken by company management in addition to those about the financial package granted to interim bank CEO Harry Madonna, which the group says say incentivizes a sale.

Late last week, the Norcross Braca group sent a letter to the board reiterating those concerns, while updating a plan for increasing its stake in the bank and injecting $50 million to improve business. The proposal also calls for the installation of Greg Braca as CEO.

“It has been over 77 days since Vernon Hill resigned as CEO of the company and the board appointed Benjamin Duser as a director,” the group wrote to the board. “The only public reported action that has been taken by the company for the benefit of the shareholders during that period is the board has fired Shirley Hill and Brian Tierney. Conversely, during that same time period, Mr. Madonna has taken multiple actions to consolidate his power and secure control over the board and its future by implementing multiple actions designed to entrench and potentially enrich himself at the expense of the shareholders. The actions are an embarrassment and suggest Mr. Madonna’s time at the helm should perhaps end.”

Concerns about Madonna’s employment agreement were also raised by Abbott Cooper of Driver Management Co. — who leads another activist investor group that was involved in the proxy battle. On Sept. 20, Cooper wrote a letter to the board outlining his concerns.

“Mr. Madonna’s employment agreement provides that he is entitled to a payment of $1,590,000 in the event his employment is terminated (including following a change of control of FRBK [Republic First Bancorp Inc.]),” Cooper wrote. “Again, no justification is provided for this payment in the employment agreement and, again, as far as I’m concerned, no such justification exists. Mr. Madonna is 79 years old and his record of leadership at FRBK, which included welcoming Vernon Hill, speaks for itself.”

Changing sides

The move marks a severe escalation and change in posture from the throes of the proxy fight, when the Norcross and Driver groups aligned with the Madonna faction to oust former CEO Vernon Hill from power.

The Norcross Braca group noted that despite an independent review into potential self-dealing and other infractions being complete, there has been no update on the findings. That audit has stalled shareholders meetings and the release of the company’s Form 10-K, leading to continued delinquency notices from the Nasdaq.

“In the interest of all shareholders, we demand that the board immediately release WilmerHale’s findings, the company file its long-delayed Form 10-K and Form 10-Q’s, regain its good standing with Nasdaq, reactivate the company’s investor relations page and hold an annual meeting of shareholders,” the group wrote to the board.

The Norcross Braca group also stressed that in its Sept. 16 letter the contingency initially applauded efforts to move forward after months of delay, but are now concerned there is no real strategy.

The group also criticized attempts to secure a signed NDA.

“The draft NDA shared with us is wildly impractical for what the company actually needs its shareholders to do and prohibits us from recommending board members and injecting additional capital the company sorely needs,” the Norcross Braca group wrote. “We, as well as other shareholders, deserve to be given the full opportunity to nominate candidates and elect directors who will work for all shareholders and not just a few. Put simply, the NDA is designed to stifle and handcuff any constructive engagement.”

They say the company needs a turnaround – not a sale at rock bottom prices that would benefit executives, such as Madonna, with expensive change in control agreements – touting Braca as the best candidate for CEO.

“There cannot be a more qualified individual than Greg, one of the leading bankers in the country today who is intimately familiar with the PA/NJ/NY market area,” the group wrote. “Mr. Madonna is nearly 80 years old and in semi-retirement. In addition, we have previously indicated board representation commensurate with our economic ownership would provide further alignment while adding much needed expertise to this company. The future belongs to those who are ready, willing and able to move the company forward.”

The group’s letter closed by emphasizing an NDA was not needed to fix the company.

“We didn’t six months ago and don’t today. Our making a proposal is not contingent upon entering an NDA, although we may be prepared to increase our offer upon a review of relevant documents to the extent we are provided an opportunity to do so on reasonable terms and such review supports such an increase,” they wrote. “We stand by ready and willing to discuss the above with the board knowing that they will act in the best interests of shareholders without delay.

“Time is ticking and the bank’s position will not improve with age alone. So rest assured we will not go away,” the group wrote.

On Sept. 26, the Republic Bank board of directors responded to the Norcross Braca group while reaffirming its commitment to a comprehensive strategic review process.

“The Strategic Review, which the company announced on Sept. 15, 2022, is in its early stages, and the Strategic Review Committee is in the process of completing non-disclosure agreements (NDAs) with parties that have expressed interest in potential transactions and other alternatives with the company,” the board said. “The company anticipates that it will enter into several NDAs this week.”

The Strategic Review Committee is made up of board members Benjamin Duster, Andrew Cohen, Lisa Jacobs and Harris Wildstein.

The board said it was unfortunate that the Norcross Braca group refused to sign an NDA. “Particularly after it requested an NDA from the company, publicly expressed an interest, just 10 days ago, in participating in the Strategic Review and the board explained multiple times to the Norcross Group that it would receive a form NDA that will be sent to all interested parties,” the board said. “The Strategic Review Committee will, nonetheless, evaluate the proposal, as part of the Strategic Review and consistent with its fiduciary duties.”

The board noted that it instructed Keefe Bruyette & Woods to engage with the Norcross Braca group’s financial advisor.

“Shareholders are not required to take any action at this time. There can be no assurance that the Strategic Review will result in one or more transactions or other strategic change or outcome,” the board said. “The company has set no timetable for the conclusion of the Strategic Review, and it does not intend to comment further unless and until the board has approved a specific course of action of the company has other otherwise determined that further disclosure is appropriate or required by law.”

Hitting back

Brian Tierney, a board member aligned with Hill, submitted his resignation to the board last week. Additionally, Hill and ally and former board member Barry Spevak filed a lawsuit against the bank, as well as Madonna, Wildstein and Jacobs, claiming defamation, false light and breach of contract.

As part of the suit, Hill is seeking $2.5 million stemming from the alleged breach of contract and also wants to be reimbursed for the cost to file the suit. The parties are also seeking unspecified compensatory and punitive damages.

Ironically, the suit references the same concerns as the activist investor groups – who the Hill faction fought bitterly during the proxy fight – regarding Madonna’s employment agreement as well as his close alignment with Jacobs.

“Ms. Jacobs represents Mr. Madonna’s family trust and has remained aligned with him (as she has been at all relevant times) in order to preserve their attorney-client economic relationship. For instance, when FRBK’s Compensation Committee met on Feb. 16, 2022, to determine whether to approve its charter and whether the Madonna Agreement would be allowed to automatically renew, Ms. Jacobs voted not to approve the Compensation’s Committee’s charter, although she had voted to approve the charter in every other prior instance,” the suit claims. “By voting against the approval of the charter, Ms. Jacobs sought to circumvent the Compensation Committee (which would have non-renewed the Madonna Agreement) and force a board vote on the issue of the Madonna agreement during the time when FBRK’s board was deadlocked. Ms. Jacobs voted against non-renewal of the Madonna Agreement even though Mr. Madonna had appeared for work less than five days in the entirety of 2021.”

A March 4 letter from the Madonna faction that claimed alleged self-dealing by Hill and his allies is at the center of the suit. It claims that Madonna initiated a coup in response to the non-renewal of his employment agreement.

“In light of the Plaintiff’s, Mr. Tierney’s and Mr. Flocco’s refusal to entertain a short-term sale or refinancing of FRNK and Mr. Madonna’s anger at the non-renewal of his employment agreement, the Madonna Faction initiated its coup in March of 2022,” the suit alleges. “This coup began with the publication of a defamatory press release likely in violation of federal proxy solicitation laws.”

Those allegations led to the aforementioned review that started the cascade of events delaying the shareholder meeting and filing of forms with the Nasdaq.

“Simply put, each of the public statements and claims made by the Madonna Faction in the March press release were false and misleading at the times made, and they should be viewed only for what they really: improper efforts to sway a forthcoming shareholder vote and undermine the Plaintiffs,” the suit claims.

“The March press release reflected the Madonna Faction’s self-interested attempt to discredit the FRBK’s proposed slate of board of candidates, improperly influence proxy voting, and clear the way to elect directors that will align with the Madonna Faction’s of selling FRBK in the near term for personal financial gain,” it continues. “The Madonna Faction’s conduct after the March press release would solidify any doubt about its motives.”

A representative for Republic First Bank had no comment about the Hill/Spevak lawsuit.