The battle between Reading-based Massbank, whose Medford branch is shown above, and activist shareholder Lawrence Seidman is intensifying.
Signaling that the battle between activist-shareholder Lawrence Seidman and Reading-based Massbank is intensifying, the Massbank Corp. board of directors has changed the bank’s bylaws.
The changes eliminate from eligibility potential directors who have been indicted or convicted of dishonesty, breach of trust or money laundering, or been the subject of a regulator’s cease-and-desist order on similar grounds.
Seidman – whose nomination of himself and two other shareholders to the bank’s board of directors was first reported in Banker & Tradesman – in turn sued Massbank Corp. on Feb. 25, challenging the validity of the amendments and requesting expedited treatment from the Delaware Court of Chancery. Massbank Corp., Massbank’s holding company, is incorporated under Delaware law.
Seidman is no stranger to controversy. In 1995, the Office of Thrift Supervision fined him $20,812 and ordered him to cease and desist “unsafe and unsound practices in conducting the business of” Crestmont Federal Savings and Loan Association of Edison, N.J., of which he had previously been chairman of the board.
The actions were part of a “pattern of misconduct,” then-OTS Acting Director Jonathan L. Fiechter found. Separately, the U.S. Third Circuit Court of Appeals ruled that Seidman’s company in 1998 failed to properly disclose its ownership interest in IBS Financial Corp., holding company for Interboro Bank in New Jersey, according to Doug Faucette, a partner with Washington, D.C.-based law firm Lord, Bissell & Brook, who represents Massbank in the matter.
Seidman said the OTS finding “doesn’t stop me from doing anything.” Banks that have challenged his actions based on it “don’t exist anymore,” the Parsippany, N.J. investment manager, who owns 8 percent of Massbank’s stock, told Banker & Tradesman.
Massbank President and Chief Executive Officer Gerard H. Brandi denied the recent bylaw changes had anything to do with Seidman. He said the board, which made its decision on Feb. 11 – weeks after Seidman nominated himself and Massachusetts businessmen Welles Hatch and Thomas Goggins for election to the 12-member body – was simply updating the minimum requirements to be a director.
Faucette said Massbank filed a proxy statement with the Securities and Exchange Commission a year ago, which said that only persons of “the highest personal and professional integrity” would be eligible to serve on its board.
“No director wants to be on a bank board with someone of questionable character [as that person’s actions] could affect the board as a whole,” he explained.
The amended bylaws simply lay out minimum character standards, added Faucette, who acknowledged that “clearly, Mr. Seidman’s presence dramatized” the need for the board to do that.
‘Puppets and Desperation’
Seidman declined comment, citing his pending lawsuit. But he said he intends to send a letter to Massbank shareholders, stating his case that the bank is not doing well financially and needs a management shakeup, once the SEC approves preliminary proxy materials he filed Feb. 25.
Also on Feb. 25, he wrote to Brandi about the bylaw change.
“Two words popped into my head: puppets and desperation. ‘Puppets’ relates to [the bank’s] board of directors who apparently feel that their fiduciary duty is owed to you and not to the [the bank’s] shareholders. ‘Desperation’ relates to you,” he wrote.
In July 2007, he wrote, Brandi had challenged him to conduct a proxy contest – or attempt to take over the bank’s board – saying he would be wasting his time and money because Massbank shareholders loved him.
“It appears that, by approval of the bylaw amendments, that you are no longer confident about how the [the bank’s] shareholders view you and [the bank’s] financial performance,” Seidman wrote.
In its proxy filing, Seidman’s Committee to Preserve Shareholder Value said its nominees will attempt to persuade the bank’s board to accelerate the repurchase of stock and hire an investment banker to determine whether Massbank would be more valuable if it were sold.
The proxy materials allege that Massbank has a poor earnings per share history; has seen recent declines in total assets, net loans and total deposits; has a poor 10-year performance history; and should have repurchased more stock shares than it has to date. They also ask that Massbank Corp.’s board be declassified – in other words, that members no longer have staggered terms.
Seidman probably prefers to have one proxy battle – with all 12 Massbank Corp. directors up for election at once – rather than the two he would have to conduct under the current bylaws, in which four directors are up for re-election each year, suggested Richard Schaberg, a Washington, D.C.-based attorney at Thacher Proffitt & Wood who has defended other banks against Seidman’s efforts in the past.
