Dissident shareholders of Baltimore Bancorp won a key round in their showdown with the company's management yesterday, prevailing in a fight over which of two outside companies should count the votes in a battle for control of the bank holding company's board.
The decision -- voted on by shareholders -- was viewed as a possible harbinger of which side will win six seats on the company's 18-member board that are up for election this year, as well as a separate proposal by insurgents to expand the board to 28 members.
If the board is expanded, the insurgents would capture the 10 new seats because management did not field nominees. That would give the insurgents control of the company, which is the parent of the Bank of Baltimore.
But the courts ultimately will decide who controls the company. The two sides have disputed whether it takes an 80 percent vote or a simple majority to expand the board. While the insurgents may command a majority on all issues, as they claim, they are well short of 80 percent stockholder support.
Management was able to convince the owners of only 4,040,264 shares to support their motion at last Wednesday's annual shareholders meeting that Manufacturers Hanover Trust of New York, the company's longtime transfer agent, should count the ballots on the other issues, according to results announced yesterday.
Insurgents led by Baltimore Blast owner Edwin F. Hale Sr. convinced holders of 5,519,268 shares to vote no, handing the job of election inspector to Corporation Trust Co., a Delaware company favored by the insurgents.
Who counts the votes isn't a momentous issue. But the vote on election inspectors is the first result made public on any issue where management urged holders to vote one way and the insurgents urged holders to vote the other way.
What's more, the figures closely track the support that the Hale camp has been claiming to have -- claims that Baltimore Bancorp Chairman Harry L. Robinson has disputed.
Daniel H. Burch, executive vice president of a New York proxy solicitation firm retained by Mr. Hale, has maintained that the dissidents have won proxies from holders of more than 5 million of Baltimore Bancorp's 12.8 million shares.
Mr. Burch has also said that the insurgents expected between 8 million and 10 million shares to be voted.
"I think it's indicative of the [votes on the] six [directors' seats] and the margin by which we were ahead," Mr. Burch said yesterday. The sixdirectors' seats are to be filled by a majority vote.
Mr. Burch noted that about 1 million shares, including the 540,000 held by mutual funds managed by Legg Mason Inc., voted for six of the Hale slate's directors but voted against expanding the board.
Adding those votes to the support management commanded on the election inspectors' issue would give the company about 5 million votes to keep the board the same size, unless the dissidents succeed in a legal challenge to many of management's votes.
If the board is not expanded, Mr. Robinson would remain in control of the company, but with six dissidents on the board.
Mr. Burch said the dissidents think they have enough votes to win on all issues.
The company wasn't willing to say how much deeper meaning yesterday's vote results had.
"I'm not entirely sure I can answer that," said Jerome P. Baroch, executive vice president of the company.
The vote on the six directors' seats and the Hale-backed proposal to expand the board were formally closed yesterday in a brief meeting on the 25th floor of the Bank of Baltimore building downtown.
Mr. Baroch said it could take up to a week to count all the votes. Then the courts will step in.
Either U.S. District Judge J. Frederick Motz or the state courts will have to decide whether it takes an 80 percent vote or a 50 percent vote to expand the board.
And the insurgents have asked the U.S. Securities and Exchange Commission, as well as Judge Motz, to throw out many of the votes management will count against expanding the board.
Management voted many proxies -- the exact number isn't available -- of shareholders who received their ballots before Mr. Hale proposed expanding the board. Those shareholders didn't vote one way or the other on expanding the board.
Management says it can use those proxies against expanding the board because the ballots included a "blanket proxy" that gave management the right to vote the shares as it sees fit on issues that came up after the shareholders received their proxies.
The Hale slate says that's illegal. They say management should have solicited new proxies from shareholders after Mr. Hale proposed expanding the board and cast only the proxies management received on the second round of ballots.
The insurgents also have said that votes cast after the May 22 annual meeting should be invalid. Management decided May 21 to hold the polls open until yesterday, saying the SEC pressured it to do so. The polls had been set to close at the meeting.
Management actually did send out a second round of proxies less than a week before the annual meeting. But the company has insisted that the original ballots also are valid.
Getting the first set of proxies ruled invalid could be the key to the dissidents' winning a majority vote to expand the board. Then the courts could decide whether a majority vote is enough.