UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D/A
(Amendment No. 3)
Under the Securities Exchange Act of 1934
Federal Trust Corporation
-------------------------
(Name of Issuer)
Common stock, par value $.01 per share
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(Title of Class of Securities)
314012105
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(CUSIP Number)
Frederick W. Dreher, Esquire
Duane Morris LLP
30 South 17th Street
Philadelphia, PA 19103; telephone: 215-979-1234
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(Name, Address, and Telephone Number of Person
Authorized to Receive Notices and Communications)
June 12, 2006
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(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of ss.ss.240.13d-1(e), 240.13d-1(f), or 240.13d-1(g), check the
following box. [X]
Note: Schedules filed in paper format shall include a signed original and five
copies of the Schedule, including all exhibits. See ss.240.13d-7 for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Exchange Act") or otherwise subject to the liabilities of that section of
the Exchange Act but shall be subject to all other provisions of the Exchange
Act (however, see the Notes).
SCHEDULE 13D
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CUSIP No. 314012105
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1 NAME OF REPORTING PERSON/I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
(entities only)
Keefe Managers, LLC
I.R.S. I.D. No. 71-0885390
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions)
(a) [ ]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS (See Instructions)
AF
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM
2(d) or 2(e)
N/A
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
795,835 shares
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NUMBER OF 8 SHARED VOTING POWER
SHARES -0-
BENEFICIALLY ---------------------------------------------------
OWNED BY 9 SOLE DISPOSITIVE POWER
EACH 795,835 shares
REPORTING ---------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
WITH -0-
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
795,835 shares
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(See Instructions)
N/A
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.6%
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14 TYPE OF REPORTING PERSON (See Instructions)
IA, CO
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2
The following constitutes Amendment No. 3 ("Amendment No. 3") to the
Schedule 13D filed by Keefe Managers, LLC ("Keefe") with the Securities and
Exchange Commission (the "SEC") on November 30, 2005, as previously amended by
Amendment No. 1 filed by Keefe with the SEC on March 16, 2006 and Amendment No.
2 filed by Keefe with the SEC on April 21, 2006.
Item 1. Security and Issuer.
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This statement relates to shares of the common stock, $.01 par value
per share ("Shares"), of Federal Trust Corporation (the "Issuer"). The principal
executive offices of the Issuer are located at 312 W. 1st Street, Sanford,
Florida 32771.
Item 4. Purpose of the Transaction.
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Keefe purchased Shares based on its belief that the Shares, when
purchased, were undervalued and represented an attractive investment
opportunity. Depending upon overall market conditions, other investment
opportunities available to Keefe and the availability of Shares at prices that
would make the purchase of additional Shares desirable, Keefe may increase its
position in the Issuer through, among other things, the purchase of Shares on
the open market or in private transactions or otherwise, on such terms and at
such times as Keefe may deem advisable in its sole discretion.
Keefe has no present plan or proposal that would relate to or result in
any of the matters set forth in subparagraphs (a) - (j) of Item 4 of Schedule
13D, except as set forth herein or such as would occur upon completion of any of
the actions discussed herein.
Keefe nominated Robert B. Goldstein for election as a Class I director
of the Issuer's Board of Directors at the Issuer's Annual Meeting of
Shareholders on May 26, 2006 (the "Annual Meeting"). Following the Annual
Meeting, the Issuer reported that Kenneth W. Hill and Eric J. Reinhold, who were
the two nominees of the Issuer's Board of Directors, had been elected as Class I
directors of the Issuer's Board of Directors and, accordingly, Mr. Goldstein was
not so elected.
On June 12, 2006, Keefe filed a complaint (the "Complaint") in the
United States District Court for the Middle District of Florida, Orlando
Division, against the Issuer, James V. Suskiewich, the Issuer's President, Chief
Executive Officer and Chairman of its Board of Directors, and Gregory E. Smith,
the Issuer's Chief Financial Officer. In the Complaint, Keefe alleges that the
defendants willfully and in bad faith violated federal securities laws and rules
and breached their fiduciary duties under Florida law in order to fraudulently
manipulate the election of directors to the Issuer's Board of Directors in favor
of entrenched management's preferred slate of Mr. Hill and Mr. Reinhold at the
Annual Meeting.
In the Complaint, Keefe seeks, among other relief, damages of at least
$250,000 for amounts it expended in the proxy contest, together with an award of
the costs and fees associated with the action, and an Order (i) invalidating the
3
2006 proxy solicitation by the Issuer and the election of Mr. Hill and Mr.
Reinhold as directors of the Issuer, (ii) removing Mr. Hill and Mr. Reinhold as
directors of the Issuer and ordering that an independent director, Mr.
Goldstein, be immediately appointed as a director of the Issuer, or,
alternatively, requiring that new nominations be accepted and a new election be
scheduled at the earliest possible date, (iii) removing Mr. Suskiewich as a
trustee of Employee Stock Ownership Plan of the Issuer and its Subsidiaries
("ESOP") and replacing him with an independent voting trustee, (iv) restraining
the Issuer from conducting certain substantive business until such an election
occurs and (v) requiring that all ESOP participants receive full and fair
disclosure in connection with any proxy solicitation made in connection with any
new election of directors of the Issuer. A copy of the Complaint is filed as
Exhibit 1 to this Amendment No. 3.
Keefe intends to review its investment in the Issuer on a continuing
basis and may engage in discussions with management and the Board of Directors
of the Issuer concerning the business, operations, corporate governance and
future plans of the Issuer. Depending on various factors including, without
limitation, the Issuer's financial position and strategy, the price levels of
Shares, conditions in the securities markets and general economic and industry
conditions, Keefe may in the future take such actions with respect to its
investment in the Issuer as it deems appropriate including, without limitation,
communicating privately or publicly with other shareholders, the Issuer's Board
of Directors or other persons, seeking Board representation, making proposals to
the Issuer concerning the capitalization, corporate governance and operations of
the Issuer, purchasing additional Shares or selling some or all of the Shares it
beneficially owns or changing its intention with respect to any and all matters
referred to in this Item 4.
Item 7. Material To Be Filed As Exhibits.
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Exhibit 1. Complaint filed by Keefe Managers, LLC in the United
States District Court for the Middle District of
Florida, Orlando Division, on June 12, 2006 against
the Issuer, James V. Suskiewich, and Gregory E. Smith
4
SIGNATURE
---------
After reasonable inquiry and to the best of the undersigned's knowledge
and belief, the undersigned certifies that the information set forth in this
Amendment No. 3 is true, complete and correct.
KEEFE MANAGERS, LLC
Date: June 12, 2006 By: /s/ WILLIAM M. KEARNS, JR.
-------------------------------------
William M. Kearns, Jr.,
Chairman
5
Exhibit 1
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IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
KEEFE MANAGERS, LLC, )
)
Plaintiff, )
)
vs. ) CIVIL ACTION NO.
)
) -------------------
FEDERAL TRUST CORPORATION, )
JAMES V. SUSKIEWICH, individually )
and in his capacity as Chairman of the )
Board and President of FEDERAL TRUST )
CORPORATION, and as trustee of the )
Employee Stock Ownership Plan for )
FEDERAL TRUST CORPORATION and )
its subsidiaries, and GREGORY E. SMITH, )
individually and in his capacity as )
Executive Vice President and Chief )
Financial Officer of FEDERAL TRUST )
CORPORATION, )
)
Defendants. )
------------------------------------ )
COMPLAINT FOR DAMAGES, PRELIMINARY AND PERMANENT
INJUNCTIVE RELIEF, AND DEMAND FOR JURY TRIAL
--------------------------------------------
Keefe Managers, LLC ("Plaintiff" or "Keefe Managers") sues Defendants
Federal Trust Corporation, James V. Suskiewich and Gregory E. Smith
(collectively "Defendants" or "Management").
INTRODUCTION
------------
1. Defendant Federal Trust Corporation ("Federal Trust"), by and
at the direction of Federal Trust's entrenched management, James V. Suskiewich
("Suskiewich"), Federal Trust's President, Chief Executive Officer, and Chairman
of its Board of Directors, and Gregory E. Smith ("Smith"), Federal Trust's Chief
Financial Officer, willfully and in bad faith violated federal securities laws
and rules and breached their fiduciary duties under Florida law in order to
fraudulently manipulate the election of board of director positions in favor of
entrenched management's preferred slate of directors at Federal Trust's 2006
Annual Meeting of Shareholders (Suskiewich and Smith may be referred to as
"Management Defendants").
2. Plaintiff Keefe Managers, together with its affiliates, is
Federal Trust's largest outside shareholder, collectively owning more than 8.4%
of Federal Trust's outstanding stock. Since becoming a shareholder over three
years ago, Keefe Managers has pressed Federal Trust to adopt a number of reforms
designed to address Federal Trust's historical performance and to correct
various deficiencies in its corporate governance and its public disclosures
concerning, among other things, conflicts of interest among Federal Trust's
board members, a lack of independence among Federal Trust's board, and excessive
2
board and officer compensation. Federal Trust has consistently failed and
refused to address many of the key governance failures that continue to plague
the company.
3. While Federal Trust and its Board acknowledged the impropriety
of certain deficient corporate governance practices identified by Keefe Managers
by abandoning them, Federal Trust refused to address many of the key governance
failures and conflicts of interest that plagued the company.
4. Following Federal Trust's rejection of Keefe's Management's
suggestion to nominate a truly independent director, Keefe Managers was left
with no choice but to support such a director through a proxy election contest.
Far from engaging in a proper proxy solicitation process and permitting a fair
directors' election, however, Management Defendants repeatedly and willfully
breached their duties under the securities, federal and state law in a desperate
campaign to retain power and elect Management Defendants' preferred directors
through a fraudulent election. Such actions included, but were not limited to:
o diluting Keefe Managers' ownership interest and manipulating
the election of directors by issuing, on the voting record
date, new shares in a private placement offering to parties
who, upon information and belief, were likely to vote in
Management Defendants' favor;
3
o expanding the Board of Directors from 5 to 6 and placing a new
board member, Eric Reinhold, onto the Board shortly before the
election to help improve his chances for election as an
"incumbent" board member:
o usurping and violating the authority placed in the Trustee to
hold certain shares in the company's stock ownership plan for
the benefit of the Federal Trust's employees by voting and
having those shares voted in favor of Management Defendants'
slate of directors, without any prior approval or
authorization;
o employing various wrongful artifices, means and devices during
the proxy solicitation process in order to manipulate the
voting process, including without limitation, failing to issue
or issuing proxy materials which were materially misleading or
material in their omissions, in an effort to mislead
shareholders and ESOP participants to vote in favor of
Management Defendants' favored slate of director candidates;
and
4
o attempting to conceal and ratify their outrageous prior
misconduct of voting the employees' shares without authority
and without revealing to the employees their prior misconduct
or providing them with full and complete information as
required under the law.
5. The shares, and hence votes, that Management Defendants
illegally manipulated were held in trust for company employees participating in
the company's Employee Stock Ownership Plan for Federal Trust and its
Subsidiaries (the "ESOP"). These ESOP participants collectively have beneficial
ownership of 194,588 shares that were eligible to be voted in the director
election at issue.
6. Further, Management Defendants, as trustees for the company's
401(k) plan, which holds 171,035 Federal Trust's shares, may well have engaged
in substantially similar misconduct with respect to the voting of those shares.
7. As a result of Management Defendants' improper conduct which,
among other things, denied ESOP participants the right to vote their shares
freely and with full knowledge, both management-friendly directors were elected
by a margin of approximately 100,000 votes, considerably less than the 194,588
5
votes allotted to participants of the ESOP. Absent the relief requested in this
action, Defendants' fraudulent misconduct will result in a Board controlled by
directors in office as a result of manipulation by Management and in the future
adversely impact shareholder value to the detriment of Plaintiff and other
shareholders.
8. As a remedy for this improper conduct that resulted in a
fraudulent election, Plaintiff seeks, among other relief requested, an Order
from this Court: (1) invalidating the 2006 proxy solicitation by Defendants and
the election of directors Kenneth W. Hill and Eric J. Reinhold; (2) removing
those directors, and ordering that an independent director, Robert Goldstein, be
immediately appointed to the Board, or, alternatively, requiring that new
nominations be accepted and a new election be scheduled at the earliest possible
date; (3) removing Defendant Suskiewich as trustee of the ESOP and replacing him
with an independent voting trustee; (4) restraining the corporation from
conducting certain substantive business until such an election occurs; and (5)
requiring that all ESOP participants receive full and fair disclosure in
connection with any proxy solicitation made in connection with the new director
election.
6
9. Additionally, Keefe Managers seeks an award of damages of at
least $250,000, for amounts it expended in the proxy contest, which were
rendered useless and unlawfully obstructed by Management Defendants' illegal
behavior, and the payment of Keefe Managers' attorneys' fees incurred in
prosecuting this action.
PARTIES
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10. Plaintiff Keefe Managers is a New York limited liability
company, organized and existing under the laws of the State of Delaware. Keefe
Managers' principal place of business is in New York, New York. Keefe Managers
is a shareholder of Federal Trust, and is the owner of approximately 795,385
shares, approximately 8.4% of the outstanding shares. It is Federal Trust's
largest voting shareholder.
11. Defendant Federal Trust is organized and existing under the
laws of the State of Florida. Federal Trust is a Florida-based savings and loan
holding company with its principal place of business in Sanford, Florida.
Federal Trust's primary subsidiary is Federal Trust Bank, a federally chartered
stock savings bank, also based in Florida. Federal Trust Bank has six public
banking locations throughout Central Florida. Federal Trust is a corporation
publicly traded on the American Stock Exchange, with a trading symbol of FDT.
7
12. Management Defendant James V. Suskiewich is an individual
residing within the judicial district. Defendant Suskiewich is the President and
Chief Executive Officer of Federal Trust and the Chief Executive Officer of
Federal Trust Bank. He is the Chairman of the Board for Federal Trust and is the
trustee of the subject ESOP. Defendant Suskiewich is the record holder of
594,780 shares, although he holds 194,588 of those share as trustee of Federal
Trust's ESOP, and 171,035 as a trustee of Federal Trust's 401(k) plan. After
subtracting his options, the ESOP and 401(k) shares, and his wife's IRA shares,
Defendant Suskiewich has only 227,218 shares, or 2.48%, of Federal Trust's
outstanding shares.
13. Management Defendant Gregory E. Smith is an individual
residing within the judicial district. Defendant Smith is the Executive Vice
President and Chief Financial Officer of Federal Trust. Defendant Smith owns
189,685 shares of the company, of which 171,035 shares are shares he holds as a
trustee of Federal Trust's 401(k) plan.
8
JURISDICTION AND VENUE
----------------------
14. This Court has federal question jurisdiction over the federal
claims asserted herein pursuant to ss. 27 of the Securities Exchange Act of 1934
("Exchange Act"), 15 U.S.C. ss. 78aa. These federal claims arise under Section
14(a) of the Exchange Act, 15 U.S.C. ss. 78n(a). This Court has supplemental
jurisdiction under 28 U.S.C. ss. 1367 as to the remaining claims, as they are so
related to the federal claims under the Exchange Act that they form part of the
same controversy.
15. This Court has personal jurisdiction over Federal Trust
because Federal Trust is incorporated in Florida, has its principal place of
business in Florida, and it regularly conducts and solicits business within the
State of Florida. This Court has personal jurisdiction over Defendants Smith and
Suskiewich because they are residents of the State of Florida.
16. Venue is proper pursuant to 15 U.S.C. ss. 78aa, because the
defendant Federal Trust regularly conducts and transacts business in this
judicial district, because a substantial portion of the events giving rise to
the claims stated in this Complaint occurred in this district, and because
Defendants Suskiewich and Smith reside in this judicial district.
9
17. An actual controversy exists between the parties as to which
injunctive relief and an award of damages are demanded. Absent such relief,
Defendants will divest Keefe Managers and other shareholders of basic
shareholder rights, and Defendants will deprive Keefe Managers and other
shareholders of the notice, fair value, and other rights held by them under
Federal and Florida law as relating to the propriety of the proxy solicitation
and the Board of Directors' election that occurred on May 26, 2006.
FACTUAL BACKGROUND
------------------
A. Keefe Managers' Investment in Federal Trust.
-------------------------------------------
18. Keefe Managers seek to achieve attractive investment returns
for its investors by acquiring a significant minority equity stake in
undervalued publicly traded corporations, and then working with management and
the board of directors of the company to improve its corporate governance and
management to enhance shareholder value.
19. In 2001, Keefe Managers identified Federal Trust as a
potential investment opportunity because of, among other things, Federal Trust's
historical performance. Accordingly, in February 2002, Keefe Managers and its
affiliates began acquiring a significant equity stake in Federal Trust.
10
20. Federal Trust's Board of Directors currently consists of six
members, with two director positions being elected every year. At all times
relevant to the claims asserted by Keefe Managers, Defendant Suskiewich was the
Chairman of the Board of Directors.
21. The Board of Directors is elected through a vote of
shareholders. These votes are typically held at Federal Trust's annual meeting,
which, as relevant here, was held on May 26, 2006 (the "2006 Annual Meeting").
22. All shareholders are permitted to vote in the election of
board members. Although some participants of the ESOP, who are employees of
Federal Trust Bank, own shares of Federal Trust in their own name, others only
own shares as ESOP participants. As ESOP Trustee, Defendant Suskiewich has
various fiduciary obligations, including the obligation to ensure that every
ESOP participant is provided with all material information prior to soliciting
votes for the director election and to act with complete impartiality in the
ESOP voting process.
B. Keefe Managers' Attempts to Propose an Independent Director
-----------------------------------------------------------
for the Federal Trust Board and Keefe Managers' Filing of Its
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Preliminary Proxy Materials On April 12, 2006.
----------------------------------------------
11
23. In November 2005, Keefe Managers advised the Federal Trust
Board of Directors by letter that more independent oversight of the Board's
activities was necessary and proposed that Robert Goldstein ("Goldstein") become
a member of Federal Trust's Board of Directors.
24. Goldstein was chosen by Keefe Managers for the director
position because of his significant experience in the banking industry,
including having previously served as President and Chief Executive Officer at
several different banks; as well as serving on the Board of Directors of several
corporations, including F.N.B. Corporation; Luminent Mortgage Capital, Inc.; and
RS Group Holdings, Inc. Goldstein has also served as Chairman of the Executive
Committee of Great Lakes Bancorp, Inc., previously known as Bay View Capital
Corporation.
25. Federal Trust responded to Keefe Managers' letter on December
20, 2005, indicating that Federal Trust would not nominate Goldstein as a
director. Federal Trust also stated that it would have no further oral
communications with Keefe Managers, contrary to accepted industry practice to
keep open communication channels between a corporation and shareholders such as
Keefe Managers.
12
26. Left with no choice, Keefe Managers filed its preliminary
proxy statement with the Securities Exchange Commission on April 12, 2006 and
subsequently filed its Definitive Proxy Statement. Those proxy statements were
in compliance with all applicable rules and regulations. Attached hereto as
Exhibit A is a true and correct copy of Keefe Managers' Definitive Proxy
Statement. Over the course of the proxy solicitation process, Keefe Managers
spent approximately $250,000 to support the election of Goldstein as a director
of Federal Trust.
C. Management Defendants' Wrongful Manipulation of the Directors'
--------------------------------------------------------------
Election.
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27. Following Keefe Managers' filing of its preliminary proxy
statement on April 12, 2006 and in the weeks leading up to the election of the
new board members to Federal Trust's Board, Management Defendants engaged in a
scheme to manipulate the election of directors in their favor through the
willful violation of federal securities laws and breach of fiduciary duties
under Florida law.
28. Shortly before the Board election, Management Defendants took
action to dilute Keefe Managers' voting power. Specifically, two days after
Keefe Managers' filing of its preliminary proxy materials on April 12, 2006,
Federal Trust sold, on April 14, 2006, in a private placement, 850,000 shares to
13
accredited investors at a price of $10.00 per share, an 11.5% discount to the
closing bid price of the stock on April 12, 2006. Not surprisingly, the date of
sale was also the record date for determining shareholder eligibility to vote in
the upcoming election. At no time was Keefe Managers ever offered the
opportunity to purchase any of those shares. Rather, upon information and
belief, those shares were sold to investors who were in agreement to vote for
Management Defendants' slate of directors in the upcoming directors' election.
As a result of the sale, Keefe's ownership interest was wrongfully diluted from
9.58% to 8.69% of Federal Trust shortly before the election.
29. In its scheme to retain control, following Keefe Managers'
filing of its preliminary proxy materials, on April 24, 2006, Management
Defendants' also expanded the number of directors from 5 to 6 and placed Eric
Reinhold on the Board to strengthen his position as an "incumbent" director in
the upcoming director election.
30. As the annual meeting approached, Management Defendants,
including the ESOP Trustee and Federal Trust's President, CEO, and Chairman,
Defendant Suskiewich, undertook further extraordinary steps in connection with
the ESOP shares to manipulate the election in their favor.
14
31. In clear and blatant violation of his duties as Trustee to act
impartially in the election, Defendant Suskiewich as Trustee voted the ESOP
shares, held by him for the benefit of the ESOP participants, in favor of
Management Defendants' slate of directors.
32. In an effort to later conceal and ratify this misconduct,
Management Defendants failed to provide and withheld crucial information from
certain ESOP participants, in violation of ERISA, fiduciary duties and federal
securities laws.
33. Moreover, Defendant Suskiewich, as Trustee, through his biased
and coercive actions, breached his fiduciary duty to the ESOP participants to
ensure fair and non-coercive pass-through voting. Defendant Suskiewich's actions
were a deliberate abuse of his power as Trustee and were designed to further
entrench the Management Defendants in their positions of power at Federal Trust.
34. Defendant Suskiewich, as Trustee, also favored Management in
his treatment of undirected and unallocated ESOP shares. Without any explanation
or justification, he determined that all shares not voted by participants, and
all unallocated shares, would be voted in favor of Management. Pursuant to ERISA
ss. 404(a)(1)(A), however, the Trustee must act solely in the interest of the
15
participants, for the exclusive purpose of providing economic benefits to the
participants. Likewise, the Trustee is forbidden from acting in his own interest
by ERISA ss. 406(b).
35. However, Defendant Suskiewich acted in bad faith, and ignored
federal and state law by withholding crucial information from certain ESOP
participants regarding the election of directors. He, therefore, violated the
unambiguous directive in Rule 14a-13 (Note 3 and subparagraph (d)):
Note 3: The attention of registrants is called to the fact that
registrants have an obligation, pursuant to paragraph (d) of this
section, to cause proxies (or in lieu thereof requests for voting
instructions), proxy soliciting material and annual reports to security
holders to be furnished, in a timely manner, to beneficial owners of
exempt employee benefit plan securities. (Italics added).
* * *
d. If a registrant solicits proxies, consents or authorizations
from record holders and respondent banks who hold securities on behalf
of beneficial owners, the registrant shall cause proxies (or in lieu
thereof requests or voting instructions), proxy soliciting material and
annual reports to security holders to be furnished, in a timely manner,
to beneficial owners of exempt employee benefit plan securities.
36. By preventing full disclosure of information to all ESOP
participants, Defendant Suskiewich, as ESOP Trustee, President, Chief Executive
Officer, and Chairman, acted in bad faith and willfully breached his fiduciary
duties, which include the following:
16
(1) failing to provide neutral information to the participants
explaining what a "pass through" voting right is and how to
exercise it;
(2) failing to avoid influencing the participants on how to
vote;
(3) failing to ensure that the participants receive sufficient
accurate information to make an intelligent voting decision;
and
(4) when asked to forward information to the participants,
failing to ensure that the information was not false or
misleading.
37. See e.g., Memorandum of the Secretary of Labor as Amicus
Curiae Regarding Issues Presented by Motions for Summary Judgment, Harris v.
Texas Air, 1987 U.S. Dist. LEXIS 14321, CA No. 87-2057 (D.D.C.), text
accompanying note 23.
38. Additionally, Federal Trust did not at any time provide a copy
of Keefe Managers' Proxy Statement to any of the employees who owned shares only
through Federal Trust's ESOP. This omission alone constitutes a violation of
Rule 14a-3 of the Exchange Act.
39. As ESOP Trustee, Management Defendant Suskiewich had a duty to
monitor and protect the integrity of each side's communications to participants.
To qualify for favorable tax treatment under Internal Revenue Code ss. 409, the
ESOP should contain a provision for "pass through" voting by the participants,
17
so that each participant can direct the ESOP Trustee how to vote the shares
allocated to his or her individual account in the ESOP. Not surprisingly, as
Defendant Suskiewich knew or should have known, "each of the contesting parties
will want to be able to communicate quickly and frequently with the
participants." See Employee Benefit Plans in Control Contests: An Analysis of
Participant "Pass Through" Arrangements ("Employee Benefit Plans"), 17 Pens.
Rep. (BNA) No. 30, at 1290, text accompanying note 122 (July 23, 1990). In a
situation analogous to this, according to the Department of Labor, the Trustee's
fiduciary duty requires that he ensure "that necessary information is provided
to participants, that false or misleading information is not distributed to
participants, . . . [and that] the participants . . . render[] an independent
decision . . . without pressure from their employer as to how to vote . . . ."
See Labor Dep't Adv. Op. on Fiduciary Responsibilities in Connection with
Attempted Corporate Takeovers ("CHH Letter"), 11 Pens. Rep. (BNA) No. 19, at 633
(May 7, 1984). Defendant Suskiewich's actions effectively nullified the "pass
through" voting process and constitute a breach of his fiduciary duties as ESOP
Trustee.
18
40. Moreover, the shares of certain ESOP participants were voted
by the ESOP Trustee -- Management Defendant Suskiewich -- in favor of
Management's slate of directors even though these participants withheld their
votes. Such wrongful conduct is proof of Management's bad faith and willful
disregard for federal securities laws and common law duties to its shareholders.
41. To the extent that an ESOP participant's voting decision was
the result of Management's improper pressure, it must be disregarded. See 27
C.F.R. ss. 2550 404c-1(c)(2)(i) (a plan participant does not exercise
"independent control," and the pass through is invalid, where the participant
"is subjected to improper influence by a plan fiduciary or the plan sponsor with
respect to the transactions"). There can be no doubt that Management's
information control, manipulation of the proxy process, and disregard for the
law effectively pressured ESOP participants, in many instances, to vote as
Management wished.
42. Similarly, Federal Trust did not at any time file with the
SEC, nor provide a complete and accurate Proxy or Voting Instruction Form or
other means for its ESOP participants to cast informed votes for directors at
the May 26, 2006 Annual Meeting. This omission constitutes violation of Rule
14a-3 and 14a-13 of the Exchange Act of 1934.
19
43. Federal Trust's Proxy Statement was known to be false by
Defendants at the time it was made, and it was made with a knowing, willful and
malicious intent to deceive.
44. A reasonable shareholder would consider crucial the
misstatements and omitted facts regarding the Keefe-nominated director when
deciding how to vote at the 2006 Meeting.
45. The misstatements and omissions in the proxy information that
Management issued and failed to provide were intended to, and did, manipulate
the election process so that the Management-supported nominees were elected to
the Board at the 2006 Annual Meeting.
46. On May 26, 2006, a formal vote was taken at Federal Trust's
2006 Annual Shareholder's Meeting to elect two members to Federal Trust's Board
of Directors. Management's candidates for the Board election were Kenneth W.
Hill ("Hill") and Eric J. Reinhold ("Reinhold"). Hill, an incumbent director, is
part of the entrenched management team that has frustrated the rights of Federal
Trust's shareholders. Reinhold has no financial interest in Federal Trust and
lacks even the most basic qualifications to serve on its Board of Directors, but
20
had previously been appointed to the Board on April 24, 2006 to secure his
"incumbent" position as a Board member. Federal Trust's manipulation of the
proxy process, therefore, was intended to maintain Management's control on the
organization. Attached hereto as Exhibit B is a true and correct copy of the
Final Certificate and Report of the Inspection of Election. The results of the
vote were as follows:
Total votes entitled to be cast: 9,149,343
---------
Votes for Management's nominee Kenneth W. Hill:
3,747,975, with 18,276 withholding votes;
---------
Votes for Management's nominee Eric J. Reinhold:
3,747,975, with 18,276 withholding votes; and
---------
Votes for Keefe Managers' nominee Robert Goldstein:
3,646,670, with 1,745 withholding votes.
---------
47. The tainted election rewarded Management with ill-gotten
gains: the two Federal Trust nominees, Hill and Reinhold, were improperly
elected to the Board of Directors.
48. The difference between the votes for Goldstein and the two
management-endorsed candidates was approximately 100,000 votes. Defendant
Suskiewich, as ESOP Trustee, voted approximately 194,588 votes on behalf of ESOP
participants. Thus, these ESOP votes -- which were improperly solicited and
voted -- directly altered the results of this election.
21
FIRST CAUSE OF ACTION
---------------------
(VIOLATION OF RULE 14a-13)
(Against All Defendants)
49. Plaintiff incorporates by reference the allegations in
paragraphs 1 through 48.
50. Rule 14a-13(a) Note 3 gave clear warning to Defendant
Suskiewich:
The attention of registrants is called to the fact that registrants
have an obligation, pursuant to paragraph (d) of this section, to cause
proxies (or in lieu thereof requests for voting instructions), proxy
soliciting material and annual reports to security holders to be
furnished, in a timely manner, to beneficial owners of exempt employee
benefit plan securities. (Emphasis added).
Rule 14a-13(d) requires that:
If a registrant solicits proxies, consents or authorizations from
record holders and respondent banks who hold securities on behalf of
beneficial owners, the registrant shall cause proxies (or in lieu
thereof requests or voting instructions), proxy soliciting material and
annual reports to security holders to be furnished, in a timely manner,
to beneficial owners of exempt employee benefit plan securities.
51. Despite the clear directives in the foregoing rules,
Management solicited the votes of ESOP participants without providing a
Preliminary or Definitive Proxy Statement to any of those employees who only
owned stock through Federal Trust's ESOP.
22
52. The subject solicitation is subject to Exchange Act Rule
14a-13(d).
53. By engaging in the conduct described above, Defendants
violated, and unless restrained will continue to violate, Exchange Act Section
14(a) and Rule 14a-13(d) promulgated thereunder.
SECOND CAUSE OF ACTION
----------------------
(VIOLATION OF RULE 14a-3)
(Against All Defendants)
54. Plaintiff incorporates by reference the allegations in
paragraphs 1 through 53.
55. Rule 14a-3 provides:
No solicitation subject to this regulation shall be made unless each
person solicited is concurrently furnished or has previously been
furnished with a publicly-filed preliminary or definitive written proxy
statement containing the information specified in Schedule 14A (Section
240.14a-101) or with a preliminary or definitive written proxy
statement included in a registration statement filed under the
Securities Act of 1933 on Form S-4 or F-4 (239.25 or 239.34 of this
chapter) or Form N-14 (Section 239.23) and containing the information
specified in such form.
56. Under section 14(a) and Rule 14a-3 promulgated thereunder, a
person may not solicit proxies unless the solicited shareholders are previously
23
or concurrently furnished with official proxy materials. This rule exists to
ensure that shareholders have adequate information before their votes are
solicited.
57. Any other communications by Management constitute
communications reasonably calculated to influence participants' votes, and are
therefore solicitation materials under Rule 14a-1(1)(iii).
58. At the time Management made their solicitations, the ESOP
participants had not received proxy materials. Moreover, the Trustee's
solicitations constituted illegal after-the-fact proxy materials in violation of
section 14(a) and the rules and regulations promulgated thereunder, including
Rule 14a-3(a).
59. Indeed, Federal Trust never provided a Preliminary or
Definitive Proxy Statement to any of those employees who only owned stock
through Federal Trust's ESOP.
60. The subject solicitation is subject to Rule 14a-3.
61. By engaging in the conduct described above, Defendants
violated, and unless restrained will continue to violate, Exchange Act Section
14(a) and Rule 14a-3, promulgated thereunder.
24
THIRD CAUSE OF ACTION
---------------------
(VIOLATION OF RULE 14a-5)
(Against All Defendants)
62. Plaintiff incorporates by reference the allegations in
paragraphs 1 through 61.
63. Rule 14a-5 requires that "information included in the proxy
statement shall be clearly stated."
64. On April 28, 2006, Federal Trust filed its Definitive Proxy
Statement with the SEC. Attached hereto as Exhibit C is a true and correct copy
of Federal Trust's Definitive Proxy Statement. Federal Trust's Proxy Statement
contained misleading information. Specifically, the introduction letter to the
Proxy Statement, signed by Defendant Suskiewich, states:
A dissident shareholder is contesting Federal Trust's director nominees
and is proposing its own director nominee, along with a bylaw proposal.
The bylaw proposal was not timely or properly noticed and will not be
placed on the agenda for the Annual Meeting. If you receive a Proxy
Statement and a White Proxy Card from Keefe Managers, LLC, the Board of
Directors would request that you throw away the White Proxy Card, or
not vote in favor of Keefe Manager's proposals.
65. The introduction letter to the Proxy Statement filed with the
SEC and provided to shareholders was materially false and misleading as, among
other things, it suggested that the failure of a particular bylaw proposal by
Keefe to meet certain timing and notice requirements eliminated any need for the
25
shareholders to consider the "White Proxy Card" at all, which they urged the
shareholders to "throw away." Of course, the White Proxy Card contained the
proposal to elect Robert Goldstein, which proposal was timely and appropriate.
The inclusion of this misleading and confusing statement likely caused at least
some shareholders to throw away Keefe Managers' proxy card under the mistaken
assumption that Keefe Managers' proposal for a director nominee would not be on
the agenda.
66. Defendants' motive in making this misleading and confusing
statement was to manipulate the election process to ensure that the
management-supported nominees were elected to the Board at the 2006 Annual
Meeting.
67. By engaging in the conduct described above, Defendants
violated, and unless restrained will continue to violate, Exchange Act Section
14(a) and Rule 14a-5 promulgated thereunder.
FOURTH CAUSE OF ACTION
----------------------
(VIOLATION OF RULE 14a-9)
(Against All Defendants)
68. Plaintiff incorporates by reference the allegations in
paragraphs 1 through 67.
69. Under Section 14(a) of the Exchange Act:
26
It shall be unlawful for any person, by the use of the mails or by any
means or instrumentality of interstate commerce or of any facility of a
national securities exchange or otherwise, in contravention of such
rules and regulations as the Commission may prescribe as necessary or
appropriate in the public interest or for the protection of investors,
to solicit or to permit the use of his name to solicit any proxy or
consent or authorization in respect of any security (other than an
exempted security) registered pursuant to section 781 of this title.
15 U.S.C. ss. 78n(a).
70. Rule 14a-9, which was promulgated by the SEC under the
Exchange Act, provides:
No solicitation subject to this regulation shall be made by means of
any proxy statement, form of proxy, notice of meeting or other
communication, written or oral, containing any statement which, at the
time and in the light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or which omits
to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter which has become false or
misleading.
17 C.F.R. ss. 240.14a-9.
71. Defendants did not provide any proxy statement to its ESOP
participants, and omitted facts that were material to the election of members to
the Board of Directors at the 2006 Annual Meeting as required by Rule 14a-19 and
Rule 14a-13.
27
72. A reasonable shareholder would consider crucial the
misstatements and omitted materials and facts regarding the Keefe-nominated
director when deciding how to vote at the 2006 Meeting.
73. As a result of these violations, certain shareholders were
denied the right to vote their shares knowledgeably, resulting in detriment and
damages to all shareholders, including Keefe Managers.
74. By engaging in the conduct described above, Defendants
violated, and unless restrained will continue to violate, Exchange Act Section
14(a) and Rule 14a-9, promulgated thereunder.
FIFTH CAUSE OF ACTION
---------------------
(BREACH OF FIDUCIARY DUTY)
(Against All Management Defendants)
75. Plaintiff incorporates by reference the allegations in
paragraphs 1 through 74.
76. Directors of a corporation owe a duty of loyalty to all
shareholders, and must always act in the best interests of the shareholders, and
not for their own self-interest.
77. The actions of the Federal Trust Directors, Suskiewich and
Smith, described above, including but not limited to the failure to provide ESOP
participants with all proxy materials and improperly influencing and
28
manipulating the proxy process, were made in bad faith and with no legitimate
business purpose or justification. Rather, the Management Defendants committed
these acts solely for their own self-interest, with the goal of insuring their
own continued control of Federal Trust. The actions of the directors constitute
a breach of their duty of loyalty to shareholders.
78. Specifically, Management Defendants owe a duty to Federal
Trust's shareholders to protect the shareholders' voting rights, and to refrain
from taking any action that interferes with the shareholders' core right to
participate in a fair and equitable corporate democracy.
79. A shareholder's right to vote on the election of directors and
corporate governance proposals is one of the most basic elements of the
corporate franchise. The corporation and the members of its board have a duty to
respect that franchise and to refrain from taking any action that impedes the
shareholders' effective exercise of those fundamental rights. See generally, ER
Holdings, Inc. v. Norton Co., 735 F.Supp. 1094, 1101-02 (D. Mass. 1990) citing
with approval Reimer v. Smith, 142 So. 603, 604 (Fla. 1932).
80. Management Defendants undertook an improper and illegal scheme
to ensure that their handpicked choices for the two vacant Board positions were
29
elected. Management Defendants' actions, as identified above, consisted of,
inter alia, (a) making false and misleading representations during its
solicitation process to win votes for their board nominees; (b) improperly
voting shares held in trust for certain participants of the company's ESOP, even
though certain of those participants attempted to withhold their votes; (c)
failing to provide Keefe Managers' proxy statement to certain
employees/shareholders prior to the election, as required by federal
regulations; (d) making solicitations to certain employees/shareholders of the
corporation without providing them a copy of their proxy statement, as expressly
required by federal regulations; and (e) other inappropriate conduct intended to
manipulate and control the election process. Management Defendants' misconduct
resulted in the thwarting of the free exercise of the shareholders' franchise
and the subversion of the proxy process.
81. The actions of Management Defendants lacked any compelling
business justification or even any rational justification, and were designed to
perpetuate the existing Board members' control over the corporation.
82. The acts of Management Defendants, as set forth above, were a
breach of Management Defendants' fiduciary duties to Plaintiff.
30
83. Management Defendants' actions, which affect the voting rights
of Keefe Managers and other shareholders, is inequitable and a misuse of the
mechanisms provided to them by the corporation.
84. Keefe Managers has no adequate remedy at law.
85. Keefe Managers requests that the Court enter an Order that the
actions undertaken by Management Defendants identified above breached the duties
by Management Defendants to the shareholders, including the duties of good
faith, loyalty, and fair dealing, and enjoining Management Defendants from
taking any steps to confirm and implement the results of the May 26, 2006
election of the Board of Directors and completing any transactions that would
dilute the current shareholders' voting rights or alter their interests in any
manner.
86. As set forth in greater detail above, any demand to remedy
their breaches would be futile because and as evidenced by, among other things,
Management Defendants' prior failure and refusal to support an independent
individual to be appointed or elected as a board of director, and Management's
complete control of the company and its Board.
87. Keefe Managers suffered damages as a result of the breach of
this duty, including a diminution of value of the stock of Federal Trust, and
monies expended in an effort to solicit proxy votes for the election of
Goldstein to the Board of Directors, which total at least $250,000.
31
SIXTH CAUSE OF ACTION
---------------------
(INTENTIONAL INTERFERENCE WITH THE EFFECTIVENESS OF THE SHAREHOLDER VOTE)
(Against All Defendants)
88. Plaintiff incorporates by reference the allegations in
paragraphs 1 through 87.
89. Under Florida law, a corporation and its directors may not use
the powers granted to them to interfere with the shareholders' right to vote or
to deplete the effectiveness of their voting powers.
90. The actions described above of Management are inequitable and,
unless enjoined, Management will continue to interfere with the fair election of
directors and the shareholders' ability to determine who will be the stewards of
their corporation.
91. The actions of Management lacked any compelling business
justification or even any rational justification.
92. Keefe Managers has no adequate remedy at law.
93. Keefe Managers requests that the Court enter an Order
enjoining Management from taking any steps to confirm and implement the results
of the May 26, 2006 election of the Board of Directors and completing any
32
transactions that would dilute the current shareholders' voting rights or alter
their interests in any manner.
SEVENTH CAUSE OF ACTION
-----------------------
(PRELIMINARY AND PERMANENT INJUNCTIVE RELIEF)
(Against All Defendants)
94. Plaintiff incorporates by reference the allegations in
paragraphs 1 through 93.
95. Unless enjoined by this Court, Management, through the
improper and inappropriate ascension of Hill and Reinhold to Federal Trust's
Board of Directors, will wrongfully continue to conduct business on behalf of
Federal Trust as members of the Board of Directors.
96. If permitted to continue, Plaintiff and other shareholders
will suffer immediate and irreparable injury for which there is no adequate
remedy at law.
97. Keefe Managers intends to submit separately its Motion for
Preliminary Injunction and supporting memorandum.
PRAYER FOR RELIEF
-----------------
WHEREFORE, Plaintiff demands judgment in its favor on all Counts and
each of the following prayers, separately and severally, as follows:
33
a. That Defendant Suskiewich be removed, effective immediately,
as trustee of the Federal Trust ESOP;
b. That a neutral trustee, with no material relationship to any
party to this litigation and approved by all parties to this
litigation, be appointed for the Federal Trust ESOP, such
appointment to be evidenced by a stipulation signed by the
parties and filed with the court within fifteen (15) days from
the date that this Court's order is filed with the clerk;
c. That Federal Trust shall compensate the neutral trustee for
reasonable fees and expenses, such compensation to include
litigation expenses, if any, and the cost of an independent
financial advisor's opinion;
d. That the new ESOP trustee, immediately upon appointment as
trustee, send a "curative" letter to all ESOP participants
telling them that they should disregard any materials sent to
them thus far, that any voting directions they may have given
by the former trustee are now void, and that the election
process will have to begin again;
34
e. That all voting directions so far obtained from the ESOP
participants are completely void;
f. That Federal Trust comply with all SEC filing requirements;
g. That all Defendants are specifically enjoined from committing
any further violations of the federal securities laws;
h. That all Defendants are specifically enjoined from taking any
retaliatory personnel action against any Federal Trust
employee or officer as prohibited by 18 U.S.C. ss. 1514A
(Section 806 of the Sarbanes-Oxley Act of 2002), 29 U.S.C. ss.
1140 of ERISA, or Section 448.102, Florida Statutes.
i. That the solicitation and annual meeting process begin again,
with the trustee playing a neutral role as supervisor of
pass-through voting;
35
j. That an independent firm, with no material relationship to any
party to this litigation and approved by all parties to this
litigation, be appointed to tabulate the voting directions,
the results of said vote (except for the final, aggregate
results) to be kept secret, permanently, from all parties to
this litigation, and such appointment to be evidenced by a
stipulation signed by the parties and filed with the court
within fifteen (15) days from the date that this Court's order
is filed with the clerk;
k. That the Court enter preliminary and permanent injunctions
against Federal Trust restraining it from conducting certain
substantive business until such time as a new vote on the
election of members of the Board of Directors occurs;
l. That the Court enter preliminary and permanent injunctions
restraining Federal Trust from taking any action to amend or
change the bylaws of the corporation;
m. That the Court enter preliminary and permanent injunctions
restraining Federal Trust, except as required in existing
36
employee stock ownership plans, from issuing any securities of
any kind, including common or preferred stock or any form of
debt security;
n. That the Court enter preliminary and permanent injunctions
restraining Federal Trust from entering into any agreement to
borrow funds or borrowing under existing agreements outside
ordinary costs of doing business, although the corporation
shall be free to continue to draw upon its lines of credit in
such lesser amounts as are consistent with the corporation's
ordinary and necessary business operations;
o. That the Court enter preliminary and permanent injunctions
restraining Federal Trust from terminating, reducing the
salary or taking any other action with respect to currently
existing employees of the corporation;
p. That the Court enter preliminary and permanent injunctions
restraining Federal Trust from entering into any agreement
with its current officers and directors;
37
q. That Keefe Managers recover its costs and attorney's fees in
connection with this action;
r. That Keefe Managers be awarded damages for the costs it
accrued in its proxy solicitation efforts in an amount to be
proven at trial; and
s. That Keefe Managers be granted such other and further relief
as the Court may deem just and proper.
Keefe Managers, LLC demands a trial by jury on all issues so triable.
Dated: June 9, 2006
Atlanta, Georgia
/s/ MICHAEL P. BRUYERE
-----------------------------------------
Michael P. Bruyere -- Trial Counsel
Florida Bar No. 948586
E-Mail: MBruyere@LordBissell.com
Michael A. Hession
Florida Bar No. 194409
E-Mail: MHession@LordBissell.com
LORD, BISSELL & BROOK LLP
The Proscenium, Suite 1900
1170 Peachtree Street, NE
Atlanta, Georgia 30309
Tel.: 404.870.4600
Fax: 404.872.5547
Attorneys for Plaintiff
Keefe Managers, LLC
38