Crown Considers Offer by Canadian to Purchase Note
A Canadian financier has offered to purchase a $1.5-million note owed by troubled Crown Bancorp in exchange for company stock and two seats on the Crown board of directors.
The financier, Dallas Stanley, said Monday that the deal also would include his “best efforts” to secure $2.5 million in much-needed capital through a stock underwriting offer, which he would coordinate.
Such an offering would also require a three-for-one split of the Coronado-based bank holding company’s stock, Stanley said in an interview.
As a condition for Stanley’s purchase of the note, which is secured by stock in Crown subsidiaries Bank of Coronado and Capital Bank of Carlsbad, a flood of lawsuits filed by and against Crown would have to be dropped, according to a four-page proposal submitted to Crown Chairman Phillip Akre late last month.
Crown President and Chief Executive J. Michael Justice would not discuss Stanley’s offer.
“We’re still trying to see if we can work something to get rid of this litigation, but there’s nothing specific to talk about at this . . . point,” Justice said.
He said the Crown board “hasn’t reviewed” Stanley’s offer. “They’ll review it when they meet,” he said, although he wouldn’t say when the next board meeting is scheduled.
Stanley said Monday that he thought his proposal had not been accepted because he had not heard from Crown officials.
However, late Monday, Stanley’s attorney, Roy Bell, said the deal was still under negotiation with Crown management.
Stanley is “an ideal white knight,” Bell said. “But if Crown can’t meet those business conditions, then we’re not going to do the deal because it won’t make business sense.”
According to the proposal, Stanley would buy the $1.5-million note from Canadian Commercial Bank in Liquidation. In return, he wants to receive $750,000 worth of stock at $6 per share, or twice as much as the stock’s bid price. The remaining $750,000 would be rewritten into a new loan, with interest-only for one year. The loan would be paid from the proceeds of the $2.5-million underwriting, according to the proposal.
Because of the loan, Crown is in a precarious position.
Canadian Commercial issued the loan to Crown in 1984 to pay for the opening of Capital Bank of Carlsbad.
The loan was in technical default until early September, when an $85,000 cash infusion--garnered from former Crown President James Klingensmith’s exercise of a stock option--was used to make payment on the note.
But because the note is secured by stock in Crown’s subsidiaries--Crown’s only assets--the company risked having the noteholder demanding immediate payment or, under a worst-case scenario, taking control of the stock.
Stanley, 54, owns Stanley Group Ltd. in Vancouver and describes himself as a financier and a corporate turnaround specialist. He is also chairman of First Western Communications Corp., a publicly traded insurance company.
Stanley said he knows fellow Canadian investor Milton Sorokin--also a Crown shareholder who management contended was involved in an improper proxy solicitation bid last summer--through Sorokin’s son, Brian, whom he said he once advised on a business deal.
