Court Battle Is Predicted on Control of Crown Bancorp

The battle for control of controversy-plagued Crown Bancorp may be decided in the courtroom, the attorney for a dissident shareholder seeking two director seats said Thursday.

If the management of Coronado-based Crown blocks Ed Schmidt from voting the shareholder proxies he has solicited, then Schmidt will file a lawsuit against Crown the day after its annual shareholders meeting on June 30, according to James K. Sterrett II, Schmidt’s attorney.

During a press conference Thursday afternoon, Sterrett and Schmidt, former president of Capital Bank of Carlsbad, a Crown subsidiary, disputed a state Banking Department letter written a week ago that seemed to challenge Schmidt’s ability to vote more than 10% of Crown’s outstanding stock.

For the past month, Schmidt has solicited voting proxies from Crown shareholders through a series of letters that criticize management for Crown’s $2.5-million loss last year. The letters pledge that Schmidt will “turn around” the company with a new business plan and an infusion of as much as $2.5 million.

Crown also is the holding company for the Bank of Coronado.

Schmidt said Thursday that he feels confident he can raise the money through interested investors.

Schmidt declined to reveal how many voting proxies he has so far, but a letter from state banking officials to Schmidt stated, “It appears that Mr. Schmidt has already acquired proxies totaling more than 10%. . . .”

Disagreement With Officials

State banking officials seem to be at loggerheads with Schmidt and his attorneys over how much stock a shareholder can vote without first filing for regulatory approval. Schmidt maintains that he can vote up to 24.9% of Crown’s outstanding stock without approval.

In the letter to Schmidt, however, banking officials note that no one can acquire “control” of a bank without first filing requirement documentation. They define control as any person who owns, controls or “holds with power to vote” proxies representing more than 10% of a firm’s outstanding stock.

Sterrett maintains that Crown’s board of directors, not Schmidt, controls the company.

Deputy state banking Supt. Ronald Coleman could not be reached for comment Thursday.

Schmidt said Thursday that the irrevocable proxies he previously said were obtained from former Crown Chairman Richard Maitland and former director Fred Swenson had been returned.

The proxies were actually given to Schmidt by a person or persons--Schmidt wouldn’t say which, nor would he identify the party--who had bought the stock from Maitland and Swenson. Each is a founder of Crown.

Schmidt’s announcement Thursday that Maitland and Swenson have sold their Crown stock sheds light on how he has managed to obtain proxies from parties that have in the past openly warred with each other.

Also supporting Schmidt is former Chairman Dustin Rose, who left after a controversial tenure last fall, and former President James Klingensmith, who resigned a year ago after battling with Rose and other directors over corporate policy issues.

Crown President Mike Justice claimed earlier Thursday, before Schmidt’s announcement, that Schmidt had obtained the irrevocable proxies from Maitland and Schmidt from some type of “consideration” changing hands.

Disagreed With Merger

Schmidt resigned as Capital Bank president a year ago because, he said, he disagreed with the holding company’s decision to merge the bank into the Bank of Coronado.

In addition to himself, Schmidt is also nominating Great American Resources President Gary Takessian to Crown’s board of directors.

Takessian said Thursday that Schmidt can “bring peace and a good direction” to Crown.

Takessian also confirmed that he and his company have a “banking relationship” with Capital Bank.

Great American Resources has a loan of about $250,000 with the bank, he said. He would not disclose the amount of his personal loan with Capital Bank.

Both loans are current, he said.