A pair of federal decisions announced yesterday opened the way for a final showdown between two groups of investors who have been fighting for two years for control of Financial General Bankshares Inc. of Washington.
The rulings could, for the first time, give Financial General shareholders a chance to vote on whether the banking company should be run by its present management or sold to a group of Middle Eastern investors.
The confrontation is expected to come at Financial General's annual shareholders meeting late next month.
The face-off was set up by decisions by the Securities and Exchange Commission and the U.S. District Court in Washington.
Since January of 1978, a group of Middle Eastern investors has been trying to buy control of Financial General, the holding company that owns Union First National Bank of Washington, First American Banks of Maryland and Virginia and several other banks.
The Middle Eastern Group has bought about 20 percent of Financial General's stock, but has been prevented from buying more by FG's management, lead by Chairman B. F. Saul II and President G. William Midendorf II.
Attempting to make an end-run around Saul and Middendorf, the Middle Eastern Group earlier this year proposed that Financial General shareholders be given a chance to vote in what amounts to a referendum on control of the company.
The group's attorney, Robert Altman, asked Financial General to let shareholders vote on a resolution recommending the company's board of directors and the boards of all its individual banks drop efforts to resist the takeover.
Financial General replied that it did not intend to bring the question up at its annual meeting and a few weeks ago asked the Securities and Exchange Commission to endorse its action.
In a letter made public yesterday, the SEC refused.
The agency said Financial General can leave the proposal out of the proxy statement for the annual meeting f it wants to, but at its own risk. The company's action could be challenged in court, the SEC warned.
Altman said yesterday his clients have asked for a list of all Financial General's shareholders, so they can take their case directly to the people who own the stock.
Altman refused to say what action his client, the Middle Eastern Group, is planning. In the past, he has said the group might run its own slate of candidates for Financial General's board of directors.
The outcome of both the board election and the referendum could be influenced by another decision, announced by U.S. District Court Judge Oliver Gasch.
In the latest round of a long and costly legal fight, Judge Gasch took away the power of Financial General Chariman Middendorf to vote some of the company's stock.
Middendorf for the past two annual meetings has claimed he has "irrevocable" rights to vote almost 7 percent of the company's shares.
In a ruling that directly affects only a small number of those shares, Gasch decided that Middendorf's control over the stock was not irrevocable.
Middendorf's voting rights could be revoked at any time by the shareowners who give Middendorf their proxy, Gasch ruled. It also could be revoked if the stock were sold he added.
Of the stock Middendorf claims to control, 5 percent has been sold by the original owners to the Middle Eastern group. The other 2 percent is owned by Eugene Casey, a wealthy Maryland investor who says Middendorf no longer represents him. Casey is Financial General's largest single shareholder, but only part of his holdings were claimed by Middendorf.
Middendorf's personal attorney could not be reached for comment, but Financial General counsel Martin Thaler said Gasch's counsel Martin Thaler said Gasch's ruling affects only stock owned by Eugene Metzger, a former FG board member.
Altman insisted, however, that the rest of the stock claimed by Middendorf could also be covered by the ruling.
Thaler said Financial General is refusing to let stockholders vote on the referendum proposed by the Middle Eastern Group, because it beleives the matter is not a proper one for shareholder action.