Pfp Objections To 2008 Special Master's Report

DISTRICT COURT, SECOND JUDICIAL DISTRICT CITY & COUNTY OF DENVER, STATE OF COLORADO 1437 Bannock Street Denver, CO 80202 720.865.8301 In re Application of: P.F.P. FAMILY HOLDINGS, L.P. And Concerning

▲ COURT USE ONLY ▲

STAN LEE MEDIA, INC., an administratively dissolved Colorado corporation Attorneys for P.F.P. Family Holdings, L.P.: KAMLET SHEPHERD & REICHERT, LLP Stephen D. Gurr, No. 19789 E. Lee Reichert, No. 22667 R. Livingston Keithley, No. 35786 1515 Arapahoe Street Tower I, Suite 1600 Denver, CO 80202 303-825-4200 303-825-1185 (fax) [email protected]

Case No. 2008 CV 8584 Ctrm: 3

Martin Garbus, Esq., pro hac vice Martin Garbus LLC 100 West 57th Street New York, NY 10019 212-242-9001 [email protected]

APPLICANT’S OBJECTIONS TO SPECIAL MASTER’S REPORT COMES NOW, Applicant P.F.P. Family Holdings, L.P. (the “Applicant”), through its undersigned counsel, pursuant to C.R.C.P. 53(e)(2), and hereby files its Objections to the Special Master’s Report tendered to the Court on February 10, 2009 by

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Special Master Cathy S. Krendl, Esq. (the “Interim Report”).1

Applicant states as

follows: INTRODUCTION This Court must reject the Special Master’s recommendation to conclude that that no quorum was present when the Annual Meeting was initially called to order at 9:00 a.m. on December 15, 2008, because the recommendation is based upon erroneous interpretation of applicable law and at least three purely legal errors contained in the Interim Report. The Interim Report finds that 5,277,952 were present for quorum purposes, representing 31.75% of the outstanding shares.2 In order words, the Interim Report finds a deficiency for quorum purposes of 262,463 shares. In determining whether to adopt the Special Master’s recommendation, this Court need to make a simple determination – was there a quorum present at 9:00 a.m. on December 15, 2008 when the court-ordered 2008 Annual Meeting commenced?

1

As noted in the Applicant’s Motion for Forthwith Order to Direct Special Master to Reconvene and Conclude the Annual Meeting, filed February 17, 2009 (the “Motion to Reconvene Meeting”), the Annual Meeting has not yet concluded and the Special Master has not yet completed her assignment from the Court as ordered on November 12, 2008. As such, the Special Master’s role and tender of the Interim Report to the Court and the issues addressed therein are not yet concluded, making the Interim Report an interim, rather than final, report. Applicant reserves its rights to further object, pursuant to C.R.C.P. 53(e)(2), to any revisions or supplements made by the Special Master to the Interim Report upon conclusion of the meeting. 2 The Special Master’s rejection of 42 proxies, and acceptance of one proxy revocation which was tendered after the 2008 Annual Meeting was called to order and the proxy appointment was exercised, resulted in the disenfranchisement of an astonishing 33% of the Company’s shareholders who attempted to attend the 2008 Annual Meeting.

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2

While the Applicant believes that the Interim Report contains a variety of factual and legal errors as described in this brief,3 this Court should focus on the following three fundamental legal errors set forth in the Interim Report: 

The rejection of the proxy appointment for quorum purposes of Stephen Gordon, the record owner of 242,000 shares, where there is absolutely no evidence about the validity of his signature on the proxy appointment.



The rejection of undated proxy appointments for quorum purposes delivered to the Special Master representing 66,747 shares (the “Undated Proxies”) before the commencement of the meeting where there is no dispute as to the validity of the signatures thereon; and



The determination that the proxy appointment of Knight Equity Partners, L.P. (“Knight”) the record owner of 186,719 shares, would be given retroactive effect where the revocation was not received until after the meeting commenced, a vote was taken, the meeting adjourned to be reconvened at a later date and the votes were tallied.

Once this Court properly accepts the proxy appointment of one shareholder, Stephen Gordon and either (i) properly accepts the Undated Proxies for quorum purposes or (ii) determines that a purported revocation submitted by Knight on January 7, 2007 can cannot be given retroactive effect for purposes of determining a quorum, a quorum will have existed at the 2008 Annual Meeting.

3

The Applicant believes that many of the errors in the Interim Report could have been avoided if the Special Master had provided the parties with a draft of the Interim Report and allowed the parties to comment on the draft report as she did with regard to the 2007 Report.

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Any other result effectively disenfranchises the nearly 133 shareholders of the Company that attempted to attend the 2008 Annual Meeting to exercise their fundamental corporate right to elect directors. BACKGROUND For nearly two years, Objector Stan Lee has been waging a strenuous fight before this Court to try and prevent the statutorily required annual shareholder meetings for the Company to take place and the election of directors for the Company at such meetings. See Motion to Reconvene Meeting at pp. __. Mr. Lee has fought so strenuously not because he is trying to protect the Company’s assets or his investment in the Company; to the contrary, he is exploiting this Court’s processes to collaterally attack claims that have been filed against him for the Company in federal courts in California and New York. In the pending actions, the Company is seeking to recover significant assets it obtained from Mr. Lee in 1998. Mr. Lee subsequently surreptitiously transferred these assets to other entities without the knowledge or consent of the Company or its shareholders. Mr. Lee has argued before the federal courts in California and New York that the claims against him are not authorized and must be dismissed before their merits can be heard and presented because there are no officers or directors of the Company. He is manipulating the annual meeting process in this Court to avoid responding to valid claims in those federal cases. Indeed, on January 20, 2009, Judge Stephen Wilson of the United States District Court for the Central District of California found that Mr. Lee had wrongfully and illegally transferred assets from the Company to companies he created specifically to acquire the assets while the Company was under bankruptcy protection,without the knowledge of the bankruptcy court. ( authorized the Company to proceed with its {00220849.DOC / 6}

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claims against Mr. Lee for those transfers subject to a Board being elected??). See Motion to Reconvene Meeting, at pp. __. In making its ruling, the California federal district court further found that Mr. Lee had made numerous misrepresentations to the bankruptcy court and to the federal district court concerning the transfers of assets from the Company. See California Order at p. 4-5, 10. In the hearing on the summary judgment motion, Judge Wilson further noted on the record his impression that Mr. Lee’s counsel, Mark Williams, repeatedly had been “somewhat deceptive with the court.” why not add more of Wilson's quote here??Mr. Lee’s actions before and during the Company’s bankruptcy are exactly the type of corporate fraud that are unfortunately all too common and familiar to securities regulators and the public today, and cannot be countenanced by the legal process. Judge Wilson in California noted that the remaining proceedings before him necessarily involve the Company, which does “not have anyone to speak on its behalf” due to the lack of directors.explain why??? See Motion to Reconvene Meeting at p. __. As a result, it is critical that shareholders of the Company be permitted to vote for directors. Perhaps nothing better reflects what is really going on with regard to the Company than the press release issued on February 13, 2009 by POW! Entertainment (“POW!”), the public company controlled created by Mr. Lee specifically to take the assets from the Estate of the Company in Bankruptcy -- and the very company to which Judge Wilson found earlier last month Mr. Lee illegally tried to transfer Company assets into. In the press release, attached hereto as Exhibit A, POW! announced that the Interim Report is a “clear victory for Stan Lee and POW! Entertainment,” even though

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the only connection that POW! has to the Company is the illegal transfer of Company assets by Mr. Lee.4 Throughout the 2008 Annual Meeting process, Mr. Lee has engaged in a continuous and un-ending character attack upon his former co-founder of the Company – Peter Paul (who himself is individually not even a awkward record shareholder of the Company) – to poison the Special Master’s well and taint this election process in a legally irrelevant, ad hominem attempt to prevent thwart directors from being elected that intend to use litigation by the Company to hold Mr lee accountable for multiple bankruptcy, securities, fiduciary frauds that have converted tens of millions in assets owned by the company can answer the claims in litigation against himself. In his attacks upon certain proxy appointments tendered to the Special Master for the Annual Meeting, Mr. Lee did not rely upon any Colorado statute or provision of the By-Laws. These character attacks should have been completely irrelevant to the job that the Special Master was charged with by this Court -- presiding over the 2008 Annual Meeting. Unfortunately, however, these character attacks appear to have caused the Special Master to adopt and apply certain “rules” that are contrary to the Company’s ByLaws and applicable Colorado law and public policy against using techincal issues to disenfranchise shareholders desiring to vote for directors, and to stray in bad faith from the procedures she used in presiding over the 2007 Annual Meeting, and ultimately reject enough proxy appointments that were valid on their face so as to recommend that this Court determine that a quorum was not present at the 2008 Annual Meeting.

4

It is beyond the scope of this brief to address the securities law implications or potential violations by POW! as a result of this press release.

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ARGUMENT I.

The Interim Report Reflects the Application Requirements in Reviewing Proxy Appointments. a.

of

Unduly

Narrow

Colorado Law Sets forth Applicable Statutory Standard of Review.

The Colorado Business Corporation Act, C.R.S. § 7-101-101 et seq. (the “CBCA”), sets forth the relevant provisions that governs the review of proxy appointments and any possible rejection of such proxies. As the Special Master noted in the 2007 Special Master’s Report and the Interim Report, there is a “strong policy of Colorado law to accept proxies.” See 2007 Special Master’s Report at 70; Interim Report at p. __.

Consistent with Colorado’s well-

established policy, the Section of the American Bar Association’s handbook on shareholder meetings entitled “Acceptance of Votes” notes that: The great bulk of instruments executed in the name of or on behalf of a shareholder are in fact authorized and the corporation and its officers should be encouraged to accept them rather than adopt unduly narrow requirements. American Bar Association Handbook for the Conduct of Shareholders Meetings, ABA Handbook on Meeting § 5.04, official comment 3 (2000) (emphasis added); see also 2 American Bar Association, Model Business Corporation Act Annotated § 7.24, official comment 4 (4th ed. 2008) (same) (the “MBCA”).5 On the other hand, Section 7-107-205(3) of the CBCA allows for rejection of a vote or proxy appointment in only two limited circumstances:

where the agent

authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about

5

The CBCA, including the provisions regarding proxies, is based in large part on the MBCA and, as a result, the comments to the MBCA are persuasive.

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(i) the validity of the signature on the proxy appointment or (ii) the signor’s authority to sign for the shareholder. As detailed below, in rejecting the Stephen Gordon proxy appointment the Applicant believes the Special Master failed both the “good faith” and “reasonable basis for doubt” prongs of the statutory requirement. With regard to the Undated Proxies, no one -- including the Special Master or Mr. Lee -- disputes either the validity of the signatures on the proxy appointments or the signature’s authority to sign. Rather, the Special Master has recommended that this Court reject the Undated Proxies based on a purported “rule” she adopted, which as described further below, she had no authority to adopt, and which in any event is inconsistent with the Company’s By-Laws, Colorado law and directly contrary to precedent from other jurisdictions. b.

The Special Master has No Statutory Authority to Adopt Rules to Reject Proxies.

Section 7-107-205(3) of the CBCA allows for rejection of a vote or a proxy appointment in only two limited circumstances. There is no statutory authority under the CBCA for the Special Master to adopt rules to reject proxy appointments. Cf. § 7-107205(2) (allowing the adoption of rules for the acceptance of votes and proxy appointments but only for situations where the name signed on the vote or the proxy appointment does not correspond to the name of the shareholder). The Special Master could no more adopt a rule to reject undated proxies than she could adopt a rule to prevent voting by proxy in the first instance or to prevent shareholders from attending the 2008 Annual Meeting by phone. Notably, the Interim Report cites to § 7-107-203 of the CBCA as the basis for the Special Master’s adoption of rules to reject proxy appointments. There is absolutely no language in § 7-107-203 (or for than mater in § 7-

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107-205) authorizing the Special Master to adopt any such rules regarding rejection of proxy appointments. c.

There is no Proxy Fight Here.

In determining whether there was a quorum present at the 2008 Annual Meeting, this Court should heed the guidance contained in comment 3 to Section 7.24(c) of the MBCA: In the absence of a proxy fight or a seriously contested issue, instruments should be rejected only if there seems to be no basis for finding the signature regular on its face (emphasis added). The 2008 Annual Meeting of the shareholders of the Company does not involve a proxy fight, but rather is a fight over proxies in an attempt solely to prevent the existence of a quorum. Mr. Lee did not attend the 2008 Annual Meeting, to specifically withhold inclusion of his 3.6 million shares for quorum purposes (should we reference that unlike the 133 shareholders who paid for their shares to vote, lee acquired his shares for rights from being or propose a separate slate of directors as in a traditional proxy contest. See Motion to Reconvene Meeting at p. __. Rather, Mr. Lee had his long-time employee Junko Kobayashi (who owns 11 shares and was part of the conspiracy to transfer Company assets to Mr. Lee’s company that Judge Wilson determined to be illegal), execute a proxy appointment so that an employee of Mr. Lee’s law firm could attend the 2008 Annual Meeting to try and prevent the existence of a quorum by objecting to proxy appointments. Id. at __. A fight over proxies (or more accurately an attempt to try and convince this Court to reject certain proxy appointments based on no actual evidence in the record so as to prevent a quorum) is not the same as a proxy fight or proxy contest and, as such, this

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Court should not adopt “unduly narrow requirements” or apply a “more cautious” standard that otherwise may be appropriate in reviewing proxies in a true proxy contest. Where, as here, no one votes in favor of a competing slate of directors or in opposition to the reinstatement issue, this Court cannot reasonably conclude there are “seriously contested issues.” The only issue that is contested is whether technical issues can be contrived by or through the former chairman of the company to deny shareholders their rights to hold an annual shareholders meeting and elect a Board of Directors to operate the company. d.

The Special Master’s “Finality” Concerns are Misplaced.

A shareholder’s right to vote for the board of directors of a corporation is a fundamental corporate right. Seidman and Associates, LLC v. G.A. Financial, Inc., 837 A.2d 21, 22-23 (Del. Ch. 2003); Mainiero v. Microbyx Corporation, 699 A.2d 320, 322 (Del Ch. 1996); Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 659 n.2 (Del. Ch. 1988). Based on the nature of this fundamental right, courts vigilantly guard against shareholder disenfranchisement, particularly as it relates to the election of directors. See Duffy v. Loft Inc., 151 A. 223, 227-28 (Del. Ch. 1930), aff’d 152 A. 849 (Del.Supr. 1930); see also Dynamics Corp. of America v. CTS Corp., 643 F.Supp. 215, 219 (N.D.Ill. 1986) (quoting Washington State Labor Council v. Federated Am. Ins. Co., 474 P.2d 98, 103 (Wash. 1970) (a shareholder’s right to vote for directors should not be annulled for purely technical reasons)). The Interim Report determines that a quorum was not initially present at the 2008 Annual Meeting. To the extent that a quorum was not initially present, no valid vote could have been taken with regard to election of directors (or with regard to

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reinstatement) at the 2008 Annual Meeting. See 18A Am. Jur. 2d Corporations § 849 (2008). It is black letter law that the only possible legal action that can be taken at a corporate shareholders meeting at which no quorum is present is to adjourn the meeting to a later date. Id. This is consistent with the motion on December 15, 2008 at the 2008 Annual Meeting and the Company’s By-Laws which limit the adjournment for a period not to exceed 120 days. See By-Laws at Art. II, § 8. In the Interim Report, the Special Master recommends that this Court disregard the well-established body of precedent protecting against shareholder disenfranchisement out of concerns of “finality.” See Interim Report at p. __. This concern is misplaced for a number of reasons. First, to the extent a quorum does not exist, no valid vote on directors has taken place. By definition, there can be no final action that needs to be respected. Secondly, in cases where there is a proxy contest with competing slates of directors, finality concerns may make sense and in very limited circumstances may prevail over the strong policy disfavoring shareholder disenfranchisement because a proxy contest interrupts the orderly conduct of corporate affairs and distracts management of the Company from their regular task of operating the business. In this case, however, there are no directors or officers in place. As a result, far from promoting finality, in the event that for some reason a quorum is not present at the reconvened 2008 Annual Meeting, the Special Master’s recommendation will force the shareholders to go to the unnecessary time and expense of having the Court order yet another special meeting to elect directors. See Duffy at ___, (“if after the contest has been waged one

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side defeats a decision by mere tactical maneuvers, the whole business must be gone through with again with the consequences of expense and disturbance”). II.

The Special Master Incorrectly Applied Colorado Law and the Company’s By-Laws in Rejecting (A) the Undated Proxies and (B) Proxies Submitted by Stephen Gordon. “If the name signed on a . . . proxy appointment corresponds to the name of a

shareholder, the corporation, if acting in good faith, is entitled to accept the . . . proxy appointment and to give it effect as the act of the shareholder.” C.R.S. § 7-107-205(1); accord C.R.S. § 7-107-203(10); By-Laws at Art. II, § 11. As noted above, a Colorado corporation may only reject a proxy appointment in two limited circumstances. C.R.S. § 7-107-205(3); By-Laws at Art. II, § 11; see also 2007 Report at 44 (only bases listed by Special Master for rejecting proxy appointments was if there “were a reasonable basis for doubt as to the validity of the signature on it or about the signatory’s authority to sign for the shareholder”). A proxy cannot be rejected because it is merely a facsimile and not an original. See C.R.S. § 7-107-203(4); By-Laws at Art. II, § 9; 2007 Report at 44 (“any complete copy, including an electronically transmitted facsimile, of a proxy appointment form could be substituted for, or used in lieu of, the original appointment for any purpose”). Likewise, the fact that a proxy appointment is undated has no bearing under applicable Colorado statutes and Company By-Laws upon whether the signatory had authority to execute the proxy and whether the proxy appointment may therefore be rejected, but rather is only relevant to the term for which the proxy appointment is valid. See C.R.S. § 7-107-203(3) (proxy appointment is valid for eleven months unless a different period is expressly provided in the appointment form); By-Laws at Art. II, § 9.

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a.

The Special Master Makes an Error of Law by Improperly Rejecting Undated Proxies.

In her Interim Report, the Special Master recommends that this Court rejects the proxy appointment forms from twelve shareholders representing 66,747 shares for all purposes, because the forms were signed by the shareholder but not dated. Under Colorado law and the Company By-Laws, however, there is no legal requirement that a proxy appointment form must be dated (for quorum or for voting purposes). Further, although the Special Master established rules for counting the votes of shareholders who had appointed proxies in her 2007 Rules, she did not establish any rules concerning the establishment of a quorum at the Annual Meeting or for rejecting proxy appointments. As such, the Special Master has no legal basis to reject those shareholders who appointed proxies and this Court should determine that these twelve shareholders representing 66,747 shares were present at the Annual Meeting for purposes of quorum. 1)

There is no requirement under Colorado law or the Company’s By-Law that proxies be dated.

The primary reason that proxies for Colorado corporations often contain a date is because under C.R.S. § 7-107-203(3), a “proxy appointment is valid for eleven months unless a different period is expressly provided in the appointment form.”6 In this case, no one – including the Special Master or Mr. Lee – disputes whether any of the undated proxies submitted in connection with the 2008 Annual Meeting were executed within the preceding eleven month period.

6

Similarly, there is no legal requirement for language such as “ONLY THE LAST DATED, VALID PROXY WILL BE COUNTED” to be included on a proxy appointment; rather, this type of language typically is used to help avoid situations where a corporation receives conflicting proxies and must determine which proxy to count.

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The proxy appointment forms themselves are prima facie evidence they were executed after November 26, 2008, because they are all on the form the Special Master specifically approved for the 2008 Annual Meeting, see Interim Report at 9 and Schedule 19. As such, there is no question that these undated proxies were executed within the eleven month period of validity contemplated by C.R.S. § 7-107-203(3). Under remarkably similar facts, the Fourth Circuit Court of Appeals held in Rogers v. First National Bank of St. George, 410 F.2d 579 (4th Cir. 1969), that undated proxies were valid because the proxies at issue were addressed to specific questions and were necessarily executed at some time between the notice of the meeting and the meeting itself. Notably, this was the result even when the South Carolina corporate statutes (unlike the Colorado statute) had an express statutory requirement that proxies be dated. In its holding, the Fourth Circuit stated: It is clear that the South Carolina requirement that all proxies be dated is designed to enforce the rule that no proxy shall be valid more than eleven months after the date of its execution. Here, the proxies were addressed to the specific question of merger and necessarily were executed at some time between the first notice of the meeting and the stockholders meeting, a period of approximately two months. The ill sought to be cured by the South Carolina statute is the prevention of the voting of a general proxy over a prolonged period. We decline to hold it applicable to a proxy on a specific question which could not have been executed earlier than two months before its exercise. Rogers, 410 F.2d at 528. This is not a new corporate law concept. See In re Election of Directors of St. Lawrence Steamboat Co., 44 NJL 529 (N.J. 1882) (overturning inspector’s decision to reject proxies that were undated because they were obviously prepared for meeting).

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The Special Master attempts to distinguish Rogers because there “were no courtestablished, agreed upon rules” in Rogers that required proxies be dated. See Interim Report at p. 34.

The Applicant takes issue that it ever “agreed” to such rules.7

Regardless, in point of fact, there was a “rule” requiring proxies to be dated in Rogers, specifically South Carolina Annotated 12-16.14(c) (cum. Supp. 1968). Even in the face of this statutory provision, the Fourth Circuit determined that such undated proxies should be counted. The Special Master also suggests that the “rule” she adopted is designed to prevent fraud. There is nothing in the 2007 Special Master’s Report that suggests that was actually the reason behind the “rule.” Moreover, it is unclear how such a rule actually could prevent fraud, particularly as here where the Special Master accepted a proxy appointment containing a pre-printed date from Ms. Kobayashi. 2)

The Special Master did not, and legally could not have adopted, a rule that a proxy had to be dated to be valid.

The Special Master states that she rejected undated proxies for quorum purposes because of a “rule” set forth in her 2007 Report. The Special Master, however, did not adopt, and legally has no statutory authority under Colorado law, to adopt a rule stating that a proxy appointment would be rejected if it was not dated. Rather, her “rule” merely references the statutory provision in the CBCA that a proxy appointment is valid for eleven months.

7

Mr. Lee did not object to any undated proxies even though he made numerous other objections which provides some evidence as to Mr. Lee’s contemporaneous view of this “rule.” See Interim Report at ___. The Special Master sua sponte first rejected a proxy because it was undated on December __, 2008. Prior to the commencement of the 2008 Annual Meeting, the Applicant objected to any rejection on this basis.

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The purported “Rule” set forth in the Special Master’s 2007 Report, under the section entitled “Acceptance of Votes,” states in its entirety that the Special Master would: [a]ccept a proxy appointment form or ballot if the name corresponds to the name of a shareholder on the Record Shareholders List and Beneficial Shareholders List if the proxy appointment form were signed and dated no earlier than 11 months prior to the Annual Meeting unless the proxy appointment form stated a different expiration date (C.R.S. § 7-107-203). 2007 Report at p. 44. Immediately below this statement, the Special Master states that she would only reject a proxy appointment form if there “were a reasonable basis for doubt as to the validity of the signature on it or about the signatory’s authority to sign for the shareholder.” Id. The Special Master does not say that she would reject a proxy appointment if it is undated or that she would only accept dated proxy appointments. Rather the language in the 2007 Report that a proxy appointment be “dated no earlier than 11 months prior to the Annual Meeting” is expressly tied to the statutory requirement that a proxy is valid for only 11 months. Indeed, that is the very statute to which she cited to in her 2007 report. It would be an unlawful expansion of the only two statutory bases for rejection under Colorado law to allow the Special Master to inject a new, third basis for rejecting a proxy appointment simply because a line unrelated to the identity of the signor was not filled in.

See C.R.S. § 7-107-205(3) (corporation may only reject vote or proxy

appointment based upon reasonable basis for doubt as to shareholder’s signature or the signatory’s authority to sign). 3)

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The Special Master’s “rule” regarding undated proxies is directly contrary to established corporate practice.

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No experienced corporate attorney, let alone any shareholder of the Company, would conclude that the “rule” adopted by the Special Master was intended to create a rule completely contrary to standard corporate practice, which prevails even in actual hotly contested proxy contests. Delaware courts, which have developed the most widely respected body of corporate jurisprudence, have taken judicial notice of the fact that proxies are often undated, and yet consistently accept such undated proxies.

See

Investment Associates v. Standard Power [need citation]; e.g., Concord Financial Group, Inc. v. Tri-State Motor Transit Co. of Delaware, 567 A.2d 1, 17 (Del. Ch. 1989). Renowned securities law professor Jay Brown of the University of Denver School of Law similarly has noted that while proxy appointments typically contain a space to date the proxy appointment, “ordinarily, the absence of a date does not affect the proxy’s validity. See R.F. Balotti et al., Meetings of Shareholders § 4.14, at 4-30 (3d. ed. Supp. 2003)”); see also 18A Am. Jur. 2d Corporations § 908 (2008) (minor irregularities on the face of a proxy appointment, such as a failure to fill in blanks, will not invalidate a proxy appointment); see also Cupo v. Community Nat'l Bank & Trust Co of New York, 324 F. Supp. 1390 (D.C.N.Y. 1971) (refusing to reject proxies and recognizing that shareholders tend to make minor errors on proxy forms because they often lack funds to hire the kinds of experts and clerical help available to management). The reason there is no citation in the Interim Report is because there simply are no cases where a corporation has rejected a proxy merely because it is undated that would support the Special Master’s recommendation to reject the Undated Proxies. 4)

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The Special Master’s statement that a proxy appointment had to be dated only applied to tallying and acceptance of votes, and should have no effect of determining shareholders who were present for quorum purposes.

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The Special Master’s statement that a proxy appointment had to have been “signed and dated within the past 11 months,” see 2007 Report at 44, was contained in the section concerning tallying and “Acceptance of Votes.” Id. As a matter of corporate law, the determination of shareholders present at a meeting for purposes of quorum is different from the acceptance of votes from a shareholder and must occur prior to any valid vote occurring. The fact that the Special Master states she would only “accept[] the vote” of a shareholder pursuant to a proxy if the proxy appointment form was signed and dated within the past 11 months does not mean that the proxy needed be dated to count the shareholder present for purposes of quorum. Notably, the language on the proxy appointment form suggested by the Special Master merely states that “PROXIES CANNOT VOTE THESE SHARES UNLESS YOU SIGN, DATE AND RETURN THIS APPOINTMENT.” This language is entirely consistent with the provisions of the CBCA and counting the shares present for quorum purposes, but not counting the votes with regard to the issues, as did the Special Master with proxies (such as Mr. Kobayashi’s) on which the boxes were not checked.

See

C.R.S. § 7-107-206(2) (a proxy appointment is effective against the corporation when received by the corporation). Once a share is represented for any purpose at a meeting, including the purpose of determining that a quorum exists, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting. C.R.S. § 7-107206(2). “The presence of holders of proxies at a meeting renders the shares that they represent present for purposes of a quorum, regardless of whether the written proxies are produced.” Berlin v. Emerald Partners, 552 A.2d 482, 493 (Del. 1989)(quoting 1 R.F.

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Balotti & J. Finkelstein, The Delaware Law of Corporations and Business Organizations § 7.15 at 361). Here, the Special Master received written notice from ninety-four shareholders 90 minutes prior to the commencement of the 2008 Annual Meeting that Christopher Belland or Jose Abadin had been appointed as their proxy for that meeting, including the twelve who did not date the proxy appointment. Importantly, the Special Master does not dispute the validity of the signature of any of the twelve shareholders who did not date their proxy appointment. Pursuant to C.R.S. § 7-107-206(2), there is no requirement that a share actually be voted at a meeting, only that it be “represented” at a meeting, for purposes of determining a quorum. When Mr. Belland and Mr. Abadin came to the 2008 Annual Meeting in person and the meeting was called to order, at that moment the shares of those twelve whose proxy appointments had been delivered to the Special Master were represented at the meeting for quorum purposes. The fact that the Special Master may not thereafter decide not to accept the votes submitted on behalf of these twelve shareholders (because their proxy appointment forms did not have the date filled in) does not destroy the fact that the shareholders were present at the 2008 Annual Meeting at 9:00 a.m. for purposes of determining a quorum existed. 5)

The Special Master’s compounded her legal error by refusing to allow Undated Proxy appointments to be cured.

The Interim Report notes that the Special Master refused to allow the Undated Proxies to be cured, thereby completing disenfranchising these shareholders. See Interim Report at __. This is inconsistent with the procedures followed in 2007 with regard to the replacement proxy appointments for the Paul Entities which the Special Master permitted

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to be dated and delivered after the date of 2007 Annual Meeting. See 2007 Report at p. 70. Pursuant to this Court’s Order, the Special Master should have afforded the same opportunity to the shareholders who provided the Undated Proxies. For the foregoing reasons, this Court should reject the Special Master’s recommendation concerning these twelve shareholders, and at a minimum determine that these twelve shareholders were present at the 2008 Annual Meeting for purposes of establishing a quorum. b.

In rejecting Stephen Gordon’s two proxies, the Special Master violates Mr. Gordon’s legal rights as a shareholder and makes an error of law in holding him to a higher standard than other shareholders without notice.

In recommending that this Court reject the two proxies tendered by Stephen Gordon, a shareholder owning 220,000 shares of Company stock, the Special Master continually ‘moved the goal posts’ and increased the requirements upon Mr. Gordon to validate the proxy appointments he submitted, in violation of Colorado law and the Company’s By-Laws. To adopt this recommendation, this Court would also have to disregard the undisputed fact that Mr. Gordon himself executed proxy appointments that the Special Master had in her possession when the 2008 Annual Meeting was called to order. See Affidavit of Stephen Gordon, attached hereto as Exhibit B, at ¶ 7 [hereinafter, “Gordon Affidavit”]. Mr. Gordon followed the same rules as all the other shareholders as he had done in 2007 when his proxy appointment was accepted by the Special Master, but has been disenfranchised by the Special Master who recommends that his proxy appointments be rejected solely because he was incarcerated at the time he executed the proxies and

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because the Special Master believes he is a bad actor. This Court should accept Mr. Gordon’s proxies on which there is no dispute as to the validity of his signature. Mr. Gordon executed two proxy appointments on December 11, 2008, appointing Christopher Belland as his proxy at the 2008 Annual Meeting, and authorized them to be electronically transmitted to Applicant’s counsel. See Gordon Proxies, attached hereto as Exhibit C. These proxies were signed by Stephen Gordon and were dated. Thereafter, the Applicant’s counsel submitted to the Special Master these proxies by the Special Master’s required deadline of 90 minutes before the commencement of the 2008 Annual Meeting on December 15, 2008. The proxies are regular on their face, and the signature upon them matches the signature from the proxy appointment submitted by Mr. Gordon for the 2007 Annual Meeting, which had been accepted without question by the Special Master. See 2007 Gordon proxy, attached hereto as Exhibit D. On December ___, 2009, however, in announcing the tally of the votes, the Special Master stated that she tentatively rejected the Gordon proxy appointments, for two reasons: (a) because an original was not submitted, and (b) because she did not send a Notice of the 2008 Annual Meeting to Mr. Gordon. The Special Master stated that these deficiencies could be cured by (a) producing an original of the proxy appointment, and (b) providing “additional information (verification of shareholder’s new address)”. See Rejected Proxy Breakdown, emailed to parties on December ___, attached hereto as Exhibit E.

Not only did the Special Master fail to indicate that there was a notary

requirement for Mr. Gordon, but after request by the Applicant’s counsel, refused to provide any further guidance or allow for review of the additional information, as she had done after the 2007 Annual Meeting. See Interim Report at __.

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By the Special Master’s deadline of January 7, 2009 (the deadline for curing documents), Mr. Gordon provided the Special Master with his original proxy appointments, and also with an original signed statement indicating his current address. See statement, attached hereto as Exhibit F. Despite the fact he submitted all of the information requested by the Special Master, in her Interim Report the Special Master suddenly and without proper notice rejected Mr. Gordon’s proxy appointments simply because they were not notarized. The Special Master has disenfranchised Mr. Gordon, even though there is absolutely no question that the signatures on his proxy appointments are valid. 1)

Mr. Gordon gave his originals to the Special Master, even though under Colorado law, the By-Laws, and the Special Master’s own rules, a proxy appointment form cannot be rejected because it is not an original.

The Special Master’s requirement that Mr. Gordon had to submit original proxy appointments for it to be valid is clearly contrary to Colorado law, the By-Laws, and the Special Master’s own rules. See C.R.S. § 7-107-203(4); By-Laws at Art. II, § 9; 2007 Report at 44. In her Interim Report, the Special Master ultimately determined that, as to all other proxy appointment forms except Mr. Gordon, an original was not required from the shareholder.

See Interim Report at 10, 26 (accepting proxies initially tendered

electronically for eleven other shareholders representing 320,413 shares). However, only as to Mr. Gordon and his 242,000 shares, the Special Master deemed the lack of originals to be an “irregularity” in support of her recommendation that this Court reject his two proxy appointments, contrary to law and her own rules. Second, the Special Master fails to inform the Court in her Interim Report that Mr. Gordon actually did provide his original proxies to her, through Applicant’s counsel,

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on January 7, 2009. See Interim Report at Schedule 21, bates-label “2-SM 400” and “2SM 401.” For comparison purposes, Applicant’s counsel also tendered to the Special Master a copy of the original email transmission from Dale Patrick, sent on Mr. Gordon’s behalf, emailing the proxies to Applicant’s counsel on December 11, 2008. See id. at bates-label “2-SM 402” through “2-SM 404.” When the Special Master initially rejected the proxy appointments on December 17, 2008, she stated that Mr. Gordon’s (and other shareholders’) lack of an original “may be overcome by providing original or by providing evidence that the proxy was transmitted by the shareholder,” see Rejected Proxy Breakdown at 1 (emphasis added). Mr. Gordon satisfied both of these methods, by tendering his original as well as evidence showing he had authorized electronic transmission of the copies prior to the Annual Meeting. Because it is contrary to Colorado law, by By-Laws, and the 2007 Rules, and because Mr. Gordon provided his original proxy appointments upon request by the Special Master, this is not a valid basis for which to reject Mr. Gordon’s proxy appointments. 2)

The Special Master improperly added a new rule for 2008 by stating that she would provisionally reject Mr. Gordon’s proxy appointments because she did not send him a Notice of the Annual Meeting; in any event, Mr. Gordon complied with her stated cure requirements.

The Special Master’s second basis for rejecting Mr. Gordon’s proxy appointment – that she did not send him Notice of the Annual Meeting – has no basis in Colorado law or the By-Laws, and is actually contrary to her rules and procedures from 2007. As such, the Special Master’s rejection of Mr. Gordon’s proxies on this basis must be rejected as well.

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In 2007, the Special Master sent out Notices to all shareholders of record and beneficial owners. See 2007 Report at 5. Notably, in her 2007 Report, the Special Master identified 227 shareholders for whom the Notice was returned by the Post Office as undeliverable.

See 2007 Report at Exhibit 19.

On this list, there were fifteen

shareholders (including eight non-Paul Entity shareholders and specifically including Mr. Gordon representing 373,154 shares8) whose Notice was returned but whose votes were counted in 2007. As noted in Exhibit 19 to the 2007 Report, the Special Master got the Notice back for all but two of these shareholders prior to the 2007 Annual Meeting, and got the Notice for those remaining two before she issued her final 2007 Report. Nowhere in the 2007 Report does the Special Master state that getting the Notice back provided any sort of basis to reject or even question those shareholders’ proxies and votes – the 2007 Report was silent. For the 2008 Annual Meeting, this Court ordered that the Special Master use her rules for proxies and counting votes as articulated in the 2007 Report. See Nov. 12, 2008 Order at ¶ 2(c). Upon the request of the Special Master, the Court gave her the right not to send Notices of the 2008 Annual Meeting to shareholders for whom she had received Notices back in 2007. See Nov. 12, 2008 Order at ¶ 2(e). However, there was no right given to the Special Master (and the Special Master did not request or discuss the need) to also reject or question proxies from shareholders to whom she did not send a 2008 Notice.9 Notwithstanding this, on December 17, 2008 the

8

Stephen Gordon, 242,000; Alexandra Gordon, 55,000; Stephen Gordon, as UTMA custodian for Alexandra Gordon, 770; Josè Abadin, 29,386; BW Adams Enterprises, Inc., 16,666; Kenneth R. Hubbert & Deborah Hubbert, 9,166; Kenneth Hubbard & Deborah Hubbard, 9,166; Frances Masters, 11,000. 9 Indeed, undersigned counsel recalls that it was not until the Special Master actually convened the 2008 Annual Meeting that she stated, for the first time, that her staff was cross-referencing proxies received with the list of shareholders to whom she sent the 2008 Notice, and that she would be questioning

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Special Master provisionally rejected Mr. Gordon’s 2008 proxies and the 2008 proxies from four other shareholders totaling 474,210 shares, because she did not send 2008 Notices to these shareholders. To cure these proxies, she stated that this new, previously unannounced ‘defect’ could be overcome by “providing additional information (verification of shareholder’s new address).” See Rejected Proxy Breakdown at 2. On December 23, 2008, Mr. Gordon learned that his proxy appointments had been provisionally rejected, and that he needed to provide the Special Master with an updated address. See Gordon Affidavit, at ¶ 7. On December 24, 2008, Mr. Gordon executed a statement of address, confirming his execution of the proxies and identifying his then-current address as 1500 Cadet Road, Taft, California, 93268. See Gordon Affidavit, at ¶ __. This was the address of Taft Federal Correctional Institution, where Mr. Gordon was incarcerated. See Gordon Affidavit at ¶ 6; see also printout from United States Bureau of Prisons Inmate Locator Service, http://www.bop.gov, dated Dec. 23, 2008 (indicating inmate Stephen Gordon incarcerated at “Taft FCI”), attached hereto as Exhibit ___.

This statement was submitted to the Special Master, along with Mr.

Gordon’s original proxies, on January 7, 2009 by Applicant’s counsel. Unbeknownst to Applicant’s counsel, Mr. Gordon had been transferred to another correctional facility two days before, on January 5, 2009. See Gordon Affidavit at ¶ 9. In her Interim Report, the Special Master states that it is an ‘irregularity’ justifying rejection that Mr. Gordon’s address on January 7, 2009 was different than his address when he executed his proxies and when he executed his statement of address.

proxies from shareholders to whom she did not send a 2008 Notice. This was after her deadline for shareholders to submit proxies for the 2008 Meeting, and after her deadline for shareholders to notify her they would attend by telephone.

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However, Mr. Gordon’s (or any other shareholder’s) whereabouts as of the date the materials were provided to the Special Master (as opposed to the more relevant date of the 2008 Annual Meeting, December 15, 2008) were never listed as being a relevant criteria for consideration of a proxy appointment. See 2007 Report at 48. Likewise, the parties and the shareholders were never notified that they needed to have current and active addresses on record or their proxy appointments would be rejected, because no such requirement appears in Colorado law or the By-Laws of the Company. Cf. By-Laws at Art. II, § 4 (notice deemed to be given when sent to shareholder at address as it appears of-record; no requirement that shareholder actually receive the notice, only that it be mailed). The Special Master is using a new criteria that was not announced to anyone prior to the 2008 Meeting itself, solely to justify her rejection of Mr. Gordon’s proxy appointments. More troubling, the Special Master accepted cure documentation from all of the other shareholders regarding their addresses in substantially the same form as submitted by Mr. Gordon, see Interim Report at 30. The recommendation to adopt a disparate treatment of this one shareholder on this issue should be rejected, and Mr. Gordon’s proxy appointments should be counted for quorum purposes. 3)

The Special Master’s remaining 3 “irregularities” cited as support for rejecting Mr. Gordon’s proxy appointments are new requirements that were not included in the 2007 Report, and were only announced as ‘criteria’ in her Interim Report after the Special Master’s deadline for submitting cure information had expired.

The Special Master’s remaining three justifications offered to support rejecting Mr. Gordon’s proxy appointments are new criteria never previously announced, with no opportunity for Mr. Gordon to respond or rebut these allegations. The Special Master has

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clearly fashioned additional criteria specifically to justify a rejection of the proxy appointments from this single shareholder, a procedure which is contrary to fairness and equity, and must be rejected by the Court. First, in the 2007 action, the Special Master was unquestionably aware that Mr. Gordon was under indictment – Mr. Lee’s attorneys tendered to her a copy of the indictment and referenced Mr. Gordon’s incarceration in Stan Lee’s briefs. See 2007 Report, Exhibit 15, Brief at 4 n.2 (“Stephen Gordon, who served 76 months in prison for his role in defrauding SLMI”) and exhibit thereto (copy of indictment of Peter Paul, Stephen Gordon, Jeffrey Pittsburg, Charles Kusche, and Jonathan Gordon). The Special Master specifically referred to this in the text of the 2007 Special Master’s Report. See 2007 Report at p. ___. It is disingenuous for the Special Master to state in her Interim Report, at 27 n.28, that she was “not aware [of Mr. Gordon’s past] at the time of the 2007 Matter,” because this statement directly contradicts the evidence that she had been told by Stan Lee at the time and which she referenced in her report. Despite this, in her 2007 Report, the Special Master had expressly stated that “a criminal record (however serious)” is not enough to prevent a shareholder in a non-public company from voting and had accepted Mr. Gordon’s proxy appointment without question. See 2007 Report at 54-55. Second, as a matter of law, the validity of a shareholder’s ballot or proxy appointment cannot be questioned on the basis that the shareholder did not check a box to vote. This is completely irrelevant to the question of whether a proxy appointment should be counted for quorum purposes. A shareholder not required to vote at any meeting. The Special Master did not reject any other proxy appointments on the basis

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that they did not indicate how to vote (including the proxy appointment submitted by Junko Kobayashi), and cannot apply a different standard to Mr. Gordon. Rather, the effect of not checking the boxes is just as the Special Master indicated – such votes are merely deemed present for quorum purposes. Third, the Special Master did not require any other individual shareholder to notarize their proxy appointments or proxy appointment revocations. See Interim Report at 9 (the Special Master “did not require a signature guarantee as requested by Mr. Lee’s counsel because, prior to examining the proxy appointment forms, she could not determine that there was a reasonable basis for doubt”), 31 (Special Master does not believe a notarization is required from any shareholder but Mr. Gordon); see In re Election of Directors of St. Lawrence Steamboat Co., 44 N.J.L. (inspectors of election cannot reject a vote offered by proxy because the written proxy was not acknowledged). It was only when the Special Master issued the Interim Report – after she had accepted Mr. Gordon’s proxy without question in 2007, after Mr. Gordon had supplied all additional information in 2008 that she requested of him, and after all of her briefing deadlines and document submission deadlines had passed – that the Special Master for the first time stated a new requirement that Mr. Gordon’s documents should have been notarized. It is telling that the Special Master did not contact the person that Mr. Gordon identified as being authorized to transmit his proxy appointment in the first place, even though the Special Master consistently did so with regard to other shareholders. See Interim Report at ___. In his Address Statement, Mr. Gordon affirmatively identified Mr. Dale Patrick, the legal officer at Taft FCI, who emailed Mr. Gordon’s proxies for the

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2008 Meeting, and provides contact information for Mr. Patrick. See statement at ___; Gordon Affidavit at ¶ 7. Unlike her procedure to contact other shareholders to confirm transmission of proxy appointments and statements of address, see Interim Report at 31, the Special Master reports absolutely no effort on her part to substantiate the documents provided by Mr. Gordon. This fact must be taken into account in evaluating whether the Special Master satisfies the good faith statutory standard. Because of the Special Master’s failure to consider Mr. Gordon’s proxy appointments according to her 2007 rules, to treat him under the same rules as the other shareholders, and to give him fair notice and opportunity to cure his proxy appointments, the Special Master has unfairly and inequitably disenfranchised Mr. Gordon without legal justification. To further assist this Court in determining that there is no reasonable basis to doubt the validity of his signature on the original proxy appointments, attached to this brief as Exhibit B is Mr. Gordon’s Affidavit (duly notarized) where he affirms his signature upon the proxies that he submitted, and his authorization to electronically transmit them for consideration at the 2008 Annual Meeting. See C.R.C.P. 53(e)(2) (court may “receive further evidence” in considering Special Master’s Report). Based upon the conclusive evidence provided by Mr. Gordon at every turn, this Court should reject the Special Master’s inequitable determinations with regard to Mr. Gordon’s proxy appointments, and accept his proxy appointments for quorum purposes. III.

The Special Master Applied Colorado Law Improperly When Allowing Shareholder Knight Equity Partners, L.P. to Retroactively Revoke Its Proxy for Quorum Purposes. In her Interim Report, the Special Master accepts the proxy appointment from

Knight Equity Partners, L.P., a decision with which Applicant does not take issue. See {00220849.DOC / 6}

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Interim Report at __.10 However, she also accepts Knight’s revocation for all purposes, including determination of a quorum, even though the revocation was received twentythree days after the 2008 Annual Meeting was adjourned. This retroactive acceptance of Knight’s revocation is contrary to Colorado law and the Company’s By-Laws as well as caselaw from other jurisdictions. a.

The Special Master’s retroactive revocation violates the Company’s By-Laws and Colorado law.

Under Section 7-107-203(3) of the CBCA a proxy appointment is effective against the corporation when received by the corporation. As such, it follows that at the time of the commencement of the 2008 Annual Meeting (not to mention the time when the vote was taken), the Knight proxy appointment was effective against the Company. It logically follows that a revocation of a proxy appointment can only be effective against the corporation when and after it is received by the corporation. Under the Company’s By-Laws, revocation of a proxy appointment only affects a corporation’s acceptance of the proxy’s authority, as relevant here, if “notice of the revocation of the appointment is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment.” Company By-Laws, Art. II, § 9 (emphasis added). Here, Knight executed a proxy on December 12, 2008 appointing Mr. Belland as its representative at the 2008 Annual Meeting, electronically transmitted a copy to the Applicant’s counsel that day, and sent the original via Federal Express for delivery the next business morning, December 15, 2008. The electronic copy was timely delivered to the Special Master by her deadline of ninety minutes before the Annual Meeting 10

The Applicant notes that no one disputes the authority of the party who executed the proxy appointment for Knight.

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commenced, see Interim Report at 28, and the original was delivered later the same day upon receipt from FedEx see id. Mr. Belland exercised his authority under the proxy appointment both by attending the 2008 Annual Meeting and by voting Knight’s shares in accordance with its proxy appointment form. See December 17, 2008 Tally Sheet, attached as Schedule ___ to Interim Report, at ___. Thereafter, the Special Master requested additional documentation to verify that Mr. Andrew Greenstein had authority to execute the proxy on behalf of Knight. The Interim Report neglects to mention that on December 19, 2008, Knight sent a Certificate of Incumbency directly to the Special Master via email, confirming Mr. Greenstein’s authority to sign on behalf of Knight. See email correspondence to Special Master, attached hereto as Exhibit ___.11 This Certificate of Incumbency was executed by the same individual who was listed in the Delaware Secretary of State’s office as being the General Partner’s representative for the limited partnership. See Delaware Secretary of State records, attached hereto as Exhibit ___.12 The Special Master states that she believes it is “fair” for her to retroactively apply the revocation to destroy the quorum that was present at the Annual Meeting, because certain shareholders had the right to cure proxies that she had provisionally rejected. Not only does this retroactive revocation patently violate Colorado law and the

11

It is notable that, although the Special Master had contact information for Mr. Greenstein from the date of the Annual Meeting (because his contact information was printed directly on the Knight proxy, including his phone number) and then received a follow-up email from an in-house counsel of Knight on December 19, 2008, she did not attempt to contact Mr. Greenstein or anyone else at Knight or otherwise discuss his execution of the proxy or authority to do so, even though she consistently did so with regard to other shareholders. This fact must be taken into account in evaluating whether the Special Master satisfies the good faith statutory standard.

12

Unlike other proxy appointments on which the Special Master had her office check the public records in Delaware in 2008 and in 2007, see Interim Report at ___, the Special Master did not do any search of the Delaware Secretary of State with regard to Knight. This fact must be taken into account in evaluating whether the Special Master satisfies the good faith statutory standard.

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Company’s By-Laws, but it balances itself against something that the Special Master was required to do in any event and is contrary to the “rule” she purportedly adopted regarding revocation of proxy appointments. In the 2007 Meeting, the Special Master expressly stated that she would “allow any proxies to which objections were made . . . to be corrected (including the submission of necessary backup information/documents).” See 2007 Report at 56-57. Thus, when this Court ordered the Special Master to follow her 2007 Rules, it implicitly ordered her to provide shareholders with a cure and correction period if their proxy was objectionable.13 Had she not allowed a cure opportunity, the Special Master would have been in violation of this Court’s November 12, 2008 Order of reference. It is incorrect for the Special Master to thereafter imply that she somehow had discretion regarding whether to allow cure documents, and it is hardly “fair” for her to say that her allowance of cure documents somehow offsets her retroactive application of the Knight revocation. Knight appointed Mr. Belland to act as its proxy, Mr. Belland fully acted pursuant to that proxy appointment at the Annual Meeting on December 15, 2008 and Mr. Belland’s actions were accepted by the Special Master. The fact that Knight later had a change of heart (perhaps based on contacts by Mr. Lee or his representatives) does not mean that Knight, or any other shareholder, can retroactively alter or revoke their proxy appointment to manipulate the outcome of the 2008 Annual Meeting. The Applicant does not contest that Knight’s revocation, if it otherwise is a valid revocation of a proxy

13

It should be noted that the Special Master, in her Interim Report, incorrectly yet repeatedly characterizes the right to cure as being solely the Applicant’s right. Because the appointment is executed by each individual shareholder, it is the shareholder’s right to cure and to ensure that their proxy is counted by the Special Master and this Court – the Applicant and its counsel are merely a delivery conduit, as the Applicant is not even appointed as a proxy by any shareholder.

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appointment under Colorado law, could prohibit Mr. Belland from voting Knight’s shares at any reconvened meeting; however, acts originally taken pursuant to the valid appointment are done. To follow the Special Master and hold otherwise would cause corporate shareholder chaos. The Special Master’s justification for retroactively applying the revocation is logically circular, and violates both Colorado law and her own rules for the 2008 Annual Meeting. The Special Master states that she would allow Knight to revoke because, although the meeting had been conducted and Mr. Belland had acted, she had not finally tallied the votes, see Interim Report at 29, even though there is no “finally” qualifier in her rules. This same reasoning would require that the Special Master accept any new proxy appointments tendered before she tallied the votes as well – if the cut-off point is when she finally tallied rather than the time of the 2008 Annual Meeting, then new proxies received after the 2008 Annual Meeting but before the final tally should have been accepted. As such, proper logic would dictate that any revocation, to be valid for the 2008 Annual Meeting, were also required by the Special Master to be tendered ninety minutes before the 2008 Annual Meeting. Alternatively, assuming that the Special Master’s “final tally rule” was a decision to allow the polls to remain open and for shareholders to change their vote prior to the time the vote was announced, Knight’s revocation could only affect the vote tendered by Mr. Belland, but as a matter of law could not destroy the fact that Knight was present via proxy for quorum purposes. See C.R.S. § 7-107-206(2).

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b.

The Special Master’s has no authority to adopt a rule with regard to revocation that conflicts with the Company’s By-Laws.

The Special Master has no statutory authority to adopt a rule with regard to revocation of proxy appointments, particularly one that directly conflicts with the Company’s By-Laws and the CBCA. Notwithstanding this, in any event, Knight did not comply with the “rule” adopted by the Special Master. In point of fact, the Special Master did in fact tally the votes and provided the parties with a copy of the tally on December [17], 2008. See Interim Report at ___. Under a literal reading of the Special Master’s “rule” at such point the right to revoke a proxy appointment should have expired. c.

The Special Master’s retroactive revocation is contrary to caselaw from other jurisdictions.

Not surprisingly, there is no case law cited in the Interim Report for the recommendation of the Special Master. Giving retroactive effect to a revocation of a proxy appointment is directly contrary to caselaw from other jurisdictions. A revocation received by a corporation after a vote has been taken cannot be given retroactive legal effect, whether for quorum purposes or for purposes of the votes cast. See Atterbury v. Consolidated Coppermines Corp., 20 A.2d 743, 749 (Del. Ch. 1941) (refusing to give effect to revocations received after the commencement of an annual meeting in which it was determined that no quorum initially was present); see also Duffy, 151 A. at 228 (a quorum cannot be destroyed by withdrawal or by revocation of proxies subsequent to the commencement of the meeting); aff’d 152 A. at 853 (same); Berlin v. Emerald Partners, 552 A.2d 482, 493 (Del.Supr. 1988) (“It will not do for a stockholder who executes a general, unrestricted proxy . . . to come forward after it has been acted upon and seek to repudiate what the [proxy] did in execution of the {00220849.DOC / 6}

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instrument’s plainly conferred powers[.]”) Gow v. Consolidated Coppermines Corp., 165 A. 136, 145-46 (Del. Ch. 1933). As a pure matter of law, this Court should reject the Special Master’s recommendation as to the effect of Knight’s revocation, and determine that Knight was and remains present at the 2008 Annual Meeting for quorum purposes. CONCLUSION WHEREFORE, Applicant P.F.P. Family Holdings, L.P. respectfully requests that this Court: 

ACCEPT the two proxy appointments tendered at the 2008 Annual Meeting from shareholder Stephen Gordon;



ACCEPT the proxy appointments tendered at the Annual Meeting from shareholder Knight Equity Markets L.P. and DETERMINE that the revocation tendered by Knight Equity Market L.P. is only effective from January 7, 2009 onwards, and that Knight was present and continues to be present for purposes of quorum;



ACCEPT all proxy appointments tendered by shareholders which were rejected by the Special Master simply for being undated;



ACCEPT and ADOPT the Report of the Special Master as so modified;



FIND that a quorum of at least 1/3 of the shareholders were present in person, by telephone, or by proxy when the Annual Meeting commenced at 9:00 A.M. on December 15, 2008;



DETERMINE that because of the presence of a quorum, the votes taken by the shareholders at that initial Annual Meeting were valid, and that Josè Abadin, Nelson S. Thall, and Jeff Segal were duly elected as directors for the Company.

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Dated this 19th day of February, 2009. KAMLET SHEPHERD & REICHERT, LLP By: /s/ Stephen D. Gurr Stephen D. Gurr, No. 19789 Lee Reichert, No. 22667 Livingston Keithley, No. 35786 Attorneys for Applicant P.F.P. Family Holdings, L.P.

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CERTIFICATE OF SERVICE The undersigned hereby certifies that on this 19th day of February, 2009, the foregoing APPLICANT’S OBJECTIONS TO SPECIAL MASTER’S REPORT was filed with the Court via Lexis/Nexis File and Serve and sent via email, properly addressed to: Cathy S. Krendl Krendl Krendl Sachnoff & Way, P.C. 370 17th Street, Suite 5350 Denver, Colorado 80202 [email protected] Special Master Mark W. Williams Marcy M. Heronimus Sherman & Howard, LLC 633 17th Street, Suite 3000 Denver, CO 80202 [email protected] [email protected] Attorney for Objector Stan Lee

/s/Diana L. Brechtel In accord with C.R.C.P. 121 § 1-26(7) & (8) a printed copy of this document with original signatures is being maintained by the filing party and will be made available for inspection by other parties or the court upon request.

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