Analysis : Fireworks Missing at Crown’s Shareholder Session

As expected, there was tension galore at Friday’s annual meeting of Crown Bancorp shareholders. But the anticipated fireworks, the predicted blasts from dissident shareholders and the strong criticism of prior management by current officers never really materialized.

To be sure, there were hostilities and anger and sneers as protagonists jammed into a small meeting room for the better part of three hours. And the armed security guards who greeted the 120 or so shareholders at the Hotel del Coronado seemed to portend a pending brouhaha.

But investors seemed more anxious to get on with the once-delayed and controversial election of directors than exchanging brickbats.

They indeed voted, but the results won’t be known until Friday because management of Crown, a $60.4-million holding company that operates Bank of Coronado and Capital Bank of Carlsbad, is protesting at least some of the proxies voted by dissident Ed Schmidt.

Schmidt, founding president of Capital Bank, is trying to get himself and four others elected to the board by claiming he can raise up to $2.5 million in much-needed capital. Crown’s net worth, or equity capital to asset ratio--as of June 30 was 7.1%, below the 7.5% demanded by regulators.

Schmidt also has said that he opposes selling Capital Bank or merging it into Bank of Coronado. Current management has said it will do one or the other.

Crown management counters Schmidt’s criticism by claiming that many of the company’s problems--bad loans sparked a $2.5-million net loss last year--took place during Schmidt’s tenure.

Money and the lack of it seemed of prime concern to shareholders at Friday’s meeting.

They asked about directors fees (board members receive $600 a month and the chairman, Dr. Philip Akre, draws $3,000 a month), bonuses paid to prior officers (former President James Klingensmith received $110,000 in bonuses in 1984 and 1985) and stock ownership by current management (neither Crown President Mike Justice nor Capital Bank President William McLaurin owns any stock in the company).

Shareholders were most interested in a reported $12.94 per share offer to buy Crown in 1984 by an unidentified party. Klingensmith, now president of the Bank of Redlands, confirmed that the offer was submitted but said that the board failed to act on it.

Raucousness was kept to a minimum by Tom Phelps, Crown’s corporate counsel, who chaired the meeting. Phelps participated in Crown’s strategy to maintain current management control, but he ran the meeting with aplomb and gave the other side such a fair shake that even the dissidents said they appreciated Phelps’ even-handedness.

Management also took the offensive against potential conflict of interest charges by hiring an outside panel as inspectors of the election. Typically, a company employee serves that role.

The blue-ribbon group includes University of San Diego law professor Lester Snyder, former state superintendent of banking James Hall and former Peat Marwick & Mitchell accountancy partner Charles Lees.

They’ll have their work cut out. Each side in the corporate battle for control has been asking for shareholder proxies, and some stockholders, changing allegiances, have given their votes to both sides at different times.

But only the latest submitted proxies count, so if, for example, a shareholder gave his or her proxy to management, then submitted another one to Schmidt’s group, only the Schmidt proxy would count.

In addition, management is contesting many of Schmidt’s votes because, Crown officials claim, Schmidt didn’t file a change-of-control application with state banking regulators when he began his campaign for proxies.

Schmidt’s attorneys claim he can vote up to 24.9% of Crown’s 628,000 shares; Crown attorneys maintain that is entitled to vote only 9.9%. In either case, they are expected to challenge all of his votes.

The issue will be heard in court on Aug. 14, following a suit filed last month by the state banking department challenging Schmidt’s right to vote the proxies.

An undetermined number of Crown shareholders delayed their vote until the election inspectors rule on how many shares the dissidents can vote. Management said Friday it will wait to vote its proxies until then.

Other Crown directors apparently are unaware of how management will divide their votes, however. At Friday’s meeting, director Scotty Morgan asked management if it would reveal its voting intentions.

Chairman Akre said he would not.

Crown, meanwhile, has amended its lawsuit against Schmidt to include financial planner Michael Saywitz, Canadian investor Milton Sorokin and area car dealer Roque de la Fuente Jr., all of whom have bought chunks of Crown stock in the past few months. Saywitz has been nominated for director by the dissident group.

No matter what the outcome of Friday’s tally of the shareholder vote, the side that doesn’t win will take its case to court.

Which seems to proves one of the sure-fire things in the continuing Crown proxy battle, San Diego’s juiciest this year: There are a lot of people who think that the small holding company on the quaint island of Coronado is indeed worth fighting for.