Solera National Bancorp (SLRK) lost its proxy battle at the ballot box, though the Lakewood, Colo., company still hopes it can win in the courtroom.
Michael Quagliano, an Illinois restaurateur and real estate developer who launched an aggressive campaign for board control, resoundingly defeated Solera's candidates in a shareholder vote last week, according to a regulatory filing Wednesday. Quagliano's six candidates received an average of nearly 1.2 million votes, about 73% more than each of Solera's nominees. Shareholders also endorsed Quagliano's proposal to shrink Solera's board to five directors.
Quagliano told the Denver Post that his daughter, Drew Quagliano, would relinquish her board seat so a better-qualified Hispanic director could be brought on.
But Solera disqualified the votes for Quagliano's candidates and awarded the board seats to its seven nominees. The company claims Quagliano omitted important information and misrepresented his nominees in proxy filings.
Solera is turning to the legal system to determine if Quagliano's nominations are valid, adding in its filing that it will concede the vote "if the court so directs."
Solera claims Quagliano's proxy submissions failed to provide details of his stock sales and whether he had any employment arrangements with his nominees. It also claims the filing incorrectly stated that one of the candidates was registered with the Financial Industry Regulatory Authority.
Solera's decision to disqualify the votes is just the latest twist in what has been an unusual and messy proxy battle between the $168 million-asset company and its biggest shareholder. Quagliano, who owns more than 23% of Solera's stock, had accused the company of mismanagement and overpaying its executives and directors. The company has lost about $3.5 million in the past five years and its share price has sunk about 42% since its 2007 initial public offering.
Still, Solera Chief Executive John Carmichael and others have raised concerns about Quagliano's plan to turn Solera around. Quagliano has said he wants to cut salaries and staff, but had offered few details. And two proxy advisory firms determined said that Quagliano's nominees a group that includes his daughter and his fiancé are unqualified.
Solera did not immediately respond to a request for additional comment.
Solera is at least the second bank in the last three years to overrule a successful activist challenge on procedural grounds. First Financial Northwest (FFNW) in Renton, Wash., declared victory over Joseph Stilwell in 2012 after determining that the dissident investor's board nominee neglected to sign a master ballot. Stilwell filed a lawsuit to invalidate the results, ultimately reaching an out-of-court settlement.
Stilwell was allowed to select a representative to join First Financial's board and Victor Karpiak, the company's chief executive, eventually resigned.