Judge urges settlement of bank proxy fight Baltimore Bancorp's battle is called 'clash of egos'


The combatants in the proxy contest for control of Baltimore Bancorp took their case to federal court yesterday and got a stern lecture from District Judge J. Frederick Motz, who said that they should settle their differences before the courts have to decide who should run the parent company of the Bank of Baltimore.

"The fact of the matter is that if you all really care . . . about the shareholders, it's time for this melodrama to end," the judge said near the end of a two-hour hearing yesterday. "Speaking for the conscience of the community, I would bet you people are tired of this, how the clash of egos overcame the interests of the $H shareholders, the institution and, in my view, the public interest. Everyone connected with this has a little egg on their face.

"I, for one, hope that good conscience will come out of this, when there's perhaps a still in the battle, and perhaps constructive solutions can be found," the judge said.

Both sides said that it could be hard to reach any deal before the judge makes his rulings in the case, which are expected by Tuesday. But Edwin F. Hale Sr., the leader of dissident shareholders, and an aide said that settlement talks have been held.

"We've been close to a deal twice," said Daniel H. Burch, executive vice president of Dewe Rogerson Inc., a New York proxy solicitation firm advising Mr. Hale. "I don't know why the board hasn't decided to settle this thing."

Mr. Hale said that he spoke with Baltimore Bancorp Chairman Harry L. Robinson earlier this week and thought that a deal had been struck. But he said that a meeting of at least some of the company's directors Wednesday apparently shot down the tentative accord.

"I thought it was 80-20 that it would go," Mr. Hale said. "I spoke to Harry, and where it went after that I have no idea."

Both Mr. Hale and Mr. Burch declined to describe the proposed settlements, saying that disclosing the terms could hurt the chances of settling the conflict peacefully.

A company executive confirmed that members of Baltimore Bancorp's board of directors met Wednesday, but he declined to say whether they were considering a settlement proposal.

"We're not talking publicly about any settling," said Jerome P. Baroch, the company's executive vice president. "Anything that is happening is strictly private."

George B. Hess Jr., an outside director of the company, refused to say whether a board meeting had been held. Asked whether it was right that shareholders had no idea what was going on at the company, he replied, "They won't learn about what's going on from me."

Richard Manekin, another outside director, also wouldn't reveal exactly what the board members discussed. "Discussions took place that obviously were related to what was going on -- that we had a date with the judge, and that discussions had gone on between Mr. Hale and Mr. Robinson," he said.

pTC The date with the judge allowed Judge Motz to hear the last set of arguments on legal issues that will decide whether incumbent management has beaten back Mr. Hale's challenge for control of the company.

The specific issue was whether 1,016,793 shares counted as abstentions by Corporation Trust Co., the Delaware firm that served as inspector of election in balloting that closed May 28, should be counted as votes against a Hale-backed resolution to expand the company's board of directors to 28 members from 18.

That resolution would allow the 10 new seats to be filled by director candidates who support Mr. Hale. The resolution won a majority by about 900,000 votes, according to a final count released by Corporation Trust, making the disputed votes a potential kingmaker.

The trouble is that the disputed ballots didn't give the shareholders any way to vote on expanding the board. Management sent out its first set of proxy materials, or annual meeting ballots, before Mr. Hale proposed expanding the board, so the proxies didn't give shareholders a way to vote on the proposal specifically.

Management sent out another set of ballots after Mr. Hale made his proposal public, but many shareholders did not have time to respond to the second set of ballots before the polls closed May 28.

Management contends that because the shareholders in question returned management's first ballot, that meant they intended to give Mr. Robinson and his aides discretion to vote on any matters proposed between the time the ballots were mailed and the company's annual meeting on May 22, such as the proposal to expand the board.

Granting such discretionary authority is common in proxy contests, and the outside companies that prepared the ballots said in affidavits that the ballots were intended all along to give discretionary voting rights to management.

Mr. Hale's lawyers contend that the disputed ballots, which were prepared by two outside companies, don't clearly give management the discretionary authority it claims. "You can't vote discretion that was never requested," said Dennis Gingold, a lawyer for Mr. Hale.

William Bradford Reynolds, another attorney for Mr. Hale, said that 90,000 of the shares using the disputed ballots voted against management on every issue, and another 300,000 voted against management on at least one of the three issues on that ballot. He argued that it's not clear what those shareholders wanted to do about expanding the board.

Management wants those votes anyway; if Judge Motz won't give them to management, Mr. Robinson wants the judge to order a new election.

"It's a fluke that fell out of the sky for these people" that Corporation Trust wouldn't count the disputed votes, insisted David Clarke Jr., an attorney at Piper & Marbury representing management.

"There's no basis on this record to turn control of the company over to Hale. . . . It's not good enough to say, 'the system broke down somewhere, let's forget about these million [shares].' "

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