pfp objections to 2008 special master's report

8/14/2019 PFP Objections to 2008 Special Master's Report

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DISTRICT COURT, SECOND JUDICIAL DISTRICTCITY & COUNTY OF DENVER, STATE OF COLORADO

1437 Bannock Street

Denver, CO 80202720.865.8301

In re Application of:P.F.P. FAMILY HOLDINGS, L.P.

And Concerning

STAN LEE MEDIA, INC., an administratively dissolved

Colorado corporation

COURT USE ONLY

Attorneys for P.F.P. Family Holdings, L.P.:KAMLET SHEPHERD & REICHERT, LLP

Stephen D. Gurr, No. 19789

E. Lee Reichert, No. 22667R. Livingston Keithley, No. 35786

1515 Arapahoe Street

Tower I, Suite 1600

Denver, CO 80202303-825-4200

303-825-1185 (fax)

[email protected]

Martin Garbus, Esq.,pro hac vice

Martin Garbus LLC

100 West 57th StreetNew York, NY 10019

212-242-9001

[email protected]

Case No. 2008 CV 8584Ctrm: 3

APPLICANTS OBJECTIONS TO SPECIAL MASTERS 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 Masters 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 Masters 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 Masters 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 Applicants 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 fromthe Court as ordered on November 12, 2008. As such, the Special Masters role and tender of the Interim

Report to the Court and the issues addressed therein are not yet concluded, making the Interim Report aninterim, 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 Masters 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 Companys shareholders who attempted to

attend the 2008 Annual Meeting.


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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 StephenGordon, 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 purposesdelivered 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.

3The 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 Companys assets or his investment in the Company;to

the contrary, he is exploiting this Courts processes to collaterally attack claims that have

been filed against himfor 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


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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. Lees

counsel, Mark Williams, repeatedly had been somewhat deceptive with the court. why

not add more of Wilson's quote here??Mr. Lees actions before and during the

Companys 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 Masters well and taint this election process in a

legally irrelevant, ad hominem attempt topreventthwart 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 companycan 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 Companys By-

Laws 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 of Unduly NarrowRequirements in Reviewing Proxy Appointments.

a. 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 Masters Report and the Interim

Report, there is a strong policy of Colorado law to accept proxies. See 2007 Special

Masters Report at 70; Interim Report at p. __. Consistent with Colorados well-

established policy, the Section of the American Bar Associations 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 acceptthem 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 signors 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 signatures 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 Companys By-Laws, Colorado

law and directly contrary to precedent from other jurisdictions.

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

Section 7-107-205(3) of the CBCA allows for rejection of a vote or a proxy

appointment inonly two limited circumstances. There is no statutory authority under the

CBCA for the Special Master to adopt rules to reject proxy appointments. Cf. 7-107-

205(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 Masters 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 Companydoes 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. Lees company that Judge Wilson

determined to be illegal), execute a proxy appointment so that an employee of Mr. Lees

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 Masters Finality Concerns are Misplaced.

A shareholders 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), affd 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 shareholders 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 Companys 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 Masters 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 CompanysBy-Laws in Rejecting (A) the Undated Proxies and (B) Proxies Submitted byStephen 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 signatorys 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 RejectingUndated 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 forcounting 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 theCompanys 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 oflanguage 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 thespecific 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 Carolinastatute 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 beenexecuted 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

inspectors 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 court-

established, 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 Masters 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 haveadopted, 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. Lees 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 Masters 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 theproxy 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 signatorys authority to sign for

the shareholder. Id.

The Special Masterdoes not say that she would reject a proxy appointment if it is

undated or that she wouldonly 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 shareholders signature or the

signatorysauthority to sign).

3) The Special Masters rule regarding undated proxies isdirectly 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 proxys

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 Masters recommendation to reject the Undated Proxies.

4) The Special Masters statement that a proxy appointment hadto 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 Masters 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. Kobayashis) 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. 7-107-

206(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 Masterdoes 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 Masters compounded her legal error by refusingto 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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{00220849.DOC / 6} 20

to be dated and delivered after the date of 2007 Annual Meeting. See 2007 Report at p.

70. Pursuant to this Courts 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 Masters

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 Gordons two proxies, the Special Masterviolates Mr. Gordons legal rights as a shareholder and makes an

error of law in holding him to a higher standard than othershareholders 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

Companys 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.

Gordons 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 Applicants counsel. See Gordon Proxies, attached hereto as

Exhibit C. These proxies were signed by Stephen Gordon and were dated. Thereafter,

the Applicants counsel submitted to the Special Master these proxies by the Special

Masters 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 shareholders 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 Applicants 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 Masters 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. Gordons 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, eventhough under Colorado law, the By-Laws, and the Special

Masters own rules, a proxy appointment form cannot be

rejected because it is not an original.

The Special Masters 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 Masters 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 actuallydid provide his original proxies to her, through Applicants counsel,


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on January 7, 2009. See Interim Report at Schedule 21, bates-label 2-SM 400 and 2-

SM 401. For comparison purposes, Applicants counsel also tendered to the Special

Master a copy of the original email transmission from Dale Patrick, sent on Mr. Gordons

behalf, emailing the proxies to Applicants 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. Gordons (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 satisfiedboth 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. Gordons proxy

appointments.

2) The Special Master improperly added a new rule for 2008 bystating that she would provisionally reject Mr. Gordons 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 Masters second basis for rejecting Mr. Gordons 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 actuallycontrary to her rules and procedures from 2007. As such,

the Special Masters rejection of Mr. Gordons proxies on this basis must be rejected as

well.


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{00220849.DOC / 6} 24

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; Jos 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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{00220849.DOC / 6} 25

Special Master provisionally rejected Mr. Gordons 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 shareholders 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.

Gordons original proxies, on January 7, 2009 by Applicants counsel. Unbeknownst to

Applicants 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. Gordons 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 wasafter her deadline for

shareholders to submit proxies for the 2008 Meeting, and afterher deadline for shareholders to notify herthey would attend by telephone.


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{00220849.DOC / 6} 26

However, Mr. Gordons (or any other shareholders) 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. Gordons 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.

Gordons proxy appointments should be counted for quorum purposes.

3) The Special Masters remaining 3 irregularities cited assupport for rejecting Mr. Gordons 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 Masters deadline for submitting cure

information had expired.

The Special Masters remaining three justifications offered to support rejecting

Mr. Gordons 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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{00220849.DOC / 6} 27

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. Lees attorneys tendered to her a copy of the

indictment and referenced Mr. Gordons incarceration in Stan Lees 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 Masters 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. Gordons 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.

Gordons proxy appointment without question. See 2007 Report at 54-55.

Second, as a matter of law, the validity of a shareholders 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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{00220849.DOC / 6} 28

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. Lees

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. Gordons 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. Gordons 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. Gordons proxies for the


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{00220849.DOC / 6} 29

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 Masters failure to consider Mr. Gordons 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. Gordons 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 Masters Report). Based

upon the conclusive evidence provided by Mr. Gordon at every turn, this Court should

reject the Special Masters inequitable determinations with regard to Mr. Gordons proxy

appointments, and accept his proxy appointments for quorum purposes.

III. The Special Master Applied Colorado Law Improperly When AllowingShareholder 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


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{00220849.DOC / 6} 30

Interim Report at __.10

However, she also accepts Knights revocation for all purposes,

including determination of a quorum, even though the revocation was received twenty-

three days after the 2008 Annual Meeting was adjourned. This retroactive acceptance of

Knights revocation is contrary to Colorado law and the Companys By-Laws as well as

caselaw from other jurisdictions.

a. The Special Masters retroactive revocation violates the CompanysBy-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 Companys By-Laws, revocation of a proxy appointment only affects a

corporations acceptance of the proxys 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

Applicants 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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{00220849.DOC / 6} 31

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 Knights 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. Greensteins

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 States office as being the

General Partners 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 otherwisediscuss 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 anysearch 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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Companys 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 Courts 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.

Bellands 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 Knights 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 Applicants right. Because the appointment is executed

by each individual shareholder, it is the shareholders 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 theApplicant is not even appointed as a proxy by any shareholder.


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appointment under Colorado law, could prohibit Mr. Belland from voting Knights 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 Masters 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 notfinally

tallied the votes, see Interim Report at 29, even though there is no finally qualifier in

her rules. This same reasoning wouldrequire 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 Masters 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, Knights 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 Masters has no authority to adopt a rule with regard torevocation that conflicts with the Companys 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

Companys 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

Masters rule at such point the right to revoke a proxy appointment should have

expired.

c. The Special Masters retroactive revocation is contrary to caselawfrom 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); affd 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


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instruments 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 Masters

recommendation as to the effect of Knights 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 AnnualMeeting from shareholder Stephen Gordon;

ACCEPT the proxy appointments tendered at the Annual Meeting fromshareholder 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 bepresent for purposes of quorum;

ACCEPT all proxy appointments tendered by shareholders which wererejected 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 takenby the shareholders at that initial Annual Meeting were valid, and that Jos

Abadin, Nelson S. Thall, and Jeff Segal were duly elected as directors for

the Company.


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{00220849.DOC / 6} 36

Dated this 19th day of February, 2009.

KAMLET SHEPHERD & REICHERT,

LLP

By: /s/ Stephen D. Gurr

Stephen D. Gurr, No. 19789

Lee Reichert, No. 22667Livingston 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 APPLICANTS OBJECTIONS TO SPECIAL MASTERS REPORT was

filed with the Court via Lexis/Nexis File and Serve and sent via email, properlyaddressed to:

Cathy S. Krendl

Krendl Krendl Sachnoff & Way, P.C.

370 17th Street, Suite 5350Denver, Colorado 80202

[email protected]

Special Master

Mark W. Williams

Marcy M. Heronimus

Sherman & Howard, LLC633 17th Street, Suite 3000

Denver, CO 80202

[email protected]@shermanhoward.com

Attorney for Objector Stan Lee

/s/Diana L. BrechtelIn 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.

pfp objections to 2008 special master's report

Documents