3 Dissident Shareholders Join Crown Bancorp 7-Person Board

Three dissident shareholders of battled-scarred Crown Bancorp on Friday were elected directors of the bank holding company’s seven-member board. But the months-long proxy fight for control of Crown is likely to continue, the leader of the dissidents said Friday.

Dissident Edward Schmidt, whose proxies were disallowed by an independent election inspection committee, vowed to soon file suit to have his votes validated. Schmidt’s 47,958 votes, or 9.3% of the 518,390 proxies registered to vote, were invalidated after the committee determined that he had solicited the proxies “in contravention” of state banking laws.

One of the three inspectors issued a dissenting report and suggested that all of the dissident proxies be invalidated because they were garnered in violation of state banking regulations. Advance change-of-control permission from regulators is required if more than 25% of a company’s proxies are secured.

Crown management challenged a large number of the dissident proxy votes, including many of the votes cast by two newly elected dissident directors.

Four incumbent board members were reelected by shareholders: Chairman Dr. Philip Akre, President and Chief Executive Mike Justice, and outside directors Ron Beaubien and Marco Palumbo.

The elected dissidents were La Jolla financial planners Michael Saywitz and W. Aubrey Morrow, and Carlsbad real estate developer Rodolfo Albin Jr. The three dissidents were the top three vote-getters.

The board--four incumbents and three dissidents--mirrors a compromise board proposed by Saywitz in late June to avoid the flood of expensive legal action that occurred in July.

After Schmidt launched his proxy campaign, Crown filed suit against Schmidt and later amended it to include Saywitz, Canadian investor Milton Sorokin and area car dealer Roque de la Fuente Jr., all of whom have purchased blocks of Crown stock in the past few months.

Schmidt later countersued, and Saywitz subsequently filed a suit to block Crown from spending corporate funds in its suit against Schmidt.

State banking officials have challenged Schmidt’s votes and will make their case at a Thursday court hearing.

At a board meeting following Friday’s 11-minute reconvened annual shareholders meeting, Akre was unanimously elected chairman and Justice was reelected president and chief executive.

Board members said they were attempting to work amicably together, despite the pending lawsuits between Saywitz and Crown. There were indications Friday that efforts would be made to settle the legal squabbles out of court.

Although he failed to gain a seat on the board, Schmidt hailed Friday’s vote as a “major defeat for management. Even after an extensive campaign of character (assassination), they still only secured four seats. And if I’m successful in my challenge, they’ll have only three seats.”

Schmidt claimed that the dissidents would have secured about 54% of the votes cast had his proxies not been invalidated.

But Justice, after the meeting, said he didn’t know “where Mr. Schmidt got his numbers.”

Akre, meanwhile, speaking at a news conference after the meeting, said that he has a “sense that everyone wants to get back to the business of running a holding company.”

Both management and the dissidents cast their votes early Friday morning. The voting process was complicated because of the legal challenges and because of California’s complicated cumulative voting process, which allows investors to cast their proxies in any quantity for any director.

Crown, with $60.4 million in assets, lost about $2.5 million last year and, officials said Friday, will report losses of about $500,000 for the six months ended June 30. Crown operates the Bank of Coronado and Capital Bank of Carlsbad, and is under orders by regulators to increase its capital base from its current 7.1% of assets to 7.5%.

Schmidt and the dissident group campaigned on a pledge to infuse capital into the company. The dissidents also have said they will oppose the sale of Capital Bank as well as its merger into the Bank of Coronado. Both options have been suggested by current Crown management.

At Friday’s meeting former Crown president James Klingensmith, who unceremoniously resigned a year ago, asked if shareholders would have a chance to vote on any sale or merger of Capital Bank. Akre said the company was not required to put the issue to a stockholder vote.