The fight for Baltimore Bancorp, the parent of the Bank of
Baltimore, was expected to come to a head today as shareholders met to vote on whether to hand over control to a group of dissidents or stay with the bank's current management.
Meeting at the Sheraton Inner Harbor Hotel, the shareholders were voting on whether to enlarge the bank holding company's board from 18 to 28 positions.
Should that motion be approved, it would give control of the company to a group of 16 dissident shareholders led by Edwin F. Hale Sr., a Baltimore truck and shipping business owner who also owns the Baltimore Blast, a professional indoor soccer team.
The Hale group had won an initial victory at the company's May annual meeting when shareholders elected six of the dissidents to the board.
But the Hale group's goal of putting another 10 of its allies on the board was dealt a setback when U.S. District Judge J. Frederick Motz ordered that another vote be held because of supposed confusion among stockholders over the first round of balloting.
While it is uncertain what the outcome might mean for the future financial fortunes of Baltimore Bancorp, the proxy fight already has taken a toll on the company's bottom line.
In its second-quarter report, the bank holding company reported that it has spent $1.3 million on the fight, helping to push down its earnings by 44 percent during that quarter. The bank expects to spend another $300,000 to $500,000 in the current effort, pushing up its total tab as high as $1.8 million.
The dissidents' expenses, which are being paid solely by Hale, could go as high as $1.25 million. Should the Hale group be successful, the new directors would be expected to vote to have the bank pay the expenses, pushing to more than $3 million the total expense to the bank.
If the dissidents fail in the vote, Hale stands to lose up to $1.25 million -- the equivalent of the annual net income for all of his operations. Hale dismissed the idea that this would put a strain on his operations. "My net worth is significant to take care of it and it is significant to take care of any obligation," Hale said recently.
Hale has significant obligations besides the expense of the proxy fight.
As a result of his divorce in 1988, he has to pay $136,250 each year to his ex-wife. Just recently Hale said he paid a judgment of $127,109 in connection with a failed truck plaza effort where he was a limited partner.
Hale confirmed that his two tugs that had been used in his Hale Container Line operation are laid up waiting for repair. Also, his corporate airplane is grounded, in need of repair. Hale said the barge service, which carries cargo between ports, is now chartering tugs from other companies.
Harry E. Lipsitz, vice president for finance for the Hale companies, said one of the two tugs will be repaired and other alternatives for tug service are being explored. He also said Hale's need for a corporate airplane has fallen off in recent months and they are exploring the possibility of selling the plane rather than pay for repairs that range into "six figures."
Lipsitz said Hale's combined operations are far from being in financial straits, having had record income in the last fiscal year, and the trend indicates this year will be similar. "On the maritime side, we are doing very, very well," he said.
Lipsitz confirmed that the company often takes more than a month or two to pay some of its bills. However, he explained, that is because the shipping lines with which the company deals take about 70 days to pay. "The cash just dries up," he said.
According to documents in the divorce suit, Hale's net worth as of Sept. 30, 1988, was $3.6 million. This included his companies, such as Port East Transfer Inc. and Hale Container Line, which are part of Hale's personal holdings.
His assets have grown substantially since then "because I work harder," Hale said. He also questions whether the figures he submitted to the court three years ago were accurate. "I'm not sure what it was," he said.
Hale conceded that the second round of the proxy fight would be more difficult with with Robert F. Comstock, who replaced Harry L. Robinson as chairman and chief executive officer of Baltimore Bancorp.
Robinson had angered many shareholders last year with his resistance to the offer by First Maryland Bancorp, the parent of First National Bank of Maryland, to buy Baltimore Bancorp for $217 million. The bank rejected the offer and First Maryland later dropped it.
But the Hale group has raised questions about Comstock's purchase of thousands of shares of Baltimore Bancorp stock while he was a director on the bank's board. The dissidents have suggested that Comstock may have been using insider information when he was buying that stock, which would be against regulations of the Securities and Exchange Commission.
Even though the SEC is now investigating the purchases, Comstock has denied any wrong-doing and a bank spokesman has characterized the allegations as "mudslinging."
The bank itself gave the Hale group some ammunition last week when it announced it will cut its quarterly dividend by 40 percent and expects a third quarter loss of $1 million because of problems with $30 million worth of loans. The quarterly dividend would be cut from 15 cents to 9 cents a share.
In a news release last week, Comstock said the announcement was painful, "particularly in the middle of a proxy contest."
"However, we believe that our stockholders should be informed of these steps before the special meeting of stockholders," he said.