Lawyers for Baltimore Bancorp argued today that if shareholder votes are properly counted, the bank holding company won a key vote that would deny control to a group of dissident shareholders.
In a hearing in U.S. District Court, David Clarke, an attorney for Baltimore Bancorp, pointed out that a motion to enlarge the company's board from 18 to 28 seats did not receive a majority of the votes cast. In that vote, 5.2 million shares were voted for the provision out of a total of 10.5 million cast.
While only 4.3 million votes have been officially counted as opposed to enlarging the board, Clarke contended that 1 million votes that were counted as abstentions should have counted in management's favor. The bank will bring suit to challenge the designation of those votes as abstentions, Clarke said.
Today's hearing before a federal judge comes a week after a preliminary count of shareholder ballots showed that 16 dissident shareholders won a majority. The vote means that six of the opposition candidates will sit on the board, unless the vote is overturned. However, whether the dissidents gain a majority on the board will be decided in the legal battle over securities law and the company's bylaws.
If the bank is successful in preventing the board from being enlarged, the dissidents would only be a minority on the board.
Baltimore Bancorp, the parent company of the Bank of Baltimore, is the fifth largest banking operation in Maryland. The dissident group is led by Edwin F. Hale Sr., who owns the Baltimore Blast soccer team as well as trucking and barging businesses.
In a proxy fight, a group tries to persuade shareholders to support its slate of candidates by casting votes at a company's annual meeting.
Today's hearing in Baltimore before Judge J. Frederick Motz involves a suit brought by Hale's group.
Motz found Clarke's argument significant about dissidents not gaining a majority on the enlargement issue. "That's the knife that cuts the Gordian knot," he said.
However, Bradford Reynolds, an attorney for the Hale group, dismissed the argument, saying the abstentions should not be counted. "I don't think that is an issue that has much weight," he told Motz.
The contested 1 million votes were "beneficially" voted by a company on behalf of individual shareholders and companies. Under these situations, proxies are sent to a central company, which sends one form stating how the proxies were voted. Baltimore Bancorp contends it should have the right to vote these shares on its behalf, as if the proxies were sent to the bank directly.
However, Corporation Trust Co., the firm that counted the proxies, decided to count the votes as abstentions, Clarke said.
Issues argued before the court today included whether the Hale group needs a simple majority or an 80 percent vote of the shareholders to enlarge the board from 18 to 28 positions.
Since only a third of the 18 members were up for election, the Hale group's strategy to take over the board included expand ing the board to 28 members and then electing 16 members. But the company's bylaws require an 80 percent vote to change the size of the board -- which the Hale group did not achieve.
Lawyers for Hale contend that Maryland law requires that such a restriction be in the company's charter, not its bylaws. There fore, they say, the 80 percent requirement should be thrown out. Baltimore Bancorp argues that the requirement is valid.
A second issue is the company's discretionary right to vote the ballots of shareholders who sent in proxies. Challenging that right is another way the Hale group hopes to achieve the required number to enlarge the board.
Under normal circumstances, shareholders who send in their proxies before a meet ing give management the right to vote their shares on matters that come before the meeting. In this case, the company used these discretionary votes against the proposal to increase the size of the board. The Hale group contends that the discretionary power can not be used in this case because a specific shareholder proposal was presented before the annual meeting on May 22 and management should have solicited authority from the shareholders to vote against it.
The third issue is whether Baltimore Bancorp management properly extended shareholder voting beyond the May 22 meeting to noon on May 28. Management said it took the action at the request of the Securities and Exchange Commission, while the Hale group said it was done as a way to give management more time to solicit support.
A decision from Motz is not expected for a least a couple of days. That decision can be appealed to the U.S. 4th Circuit Court of Appeals.
A suit brought by Baltimore Bancorp against the Hale group is to be heard by Motz on June 19. That case charges the Hale group made false and misleading statements in its campaign for support. As a result of those actions, the bank is asking that the shareholder vote be overturned and held again.