FII BOARD MINUTES
SEPTEMBER 20, 2003
FRYE ISLAND FIRE BARN
I. CALL TO ORDER:
President Fournier called the meeting to order at 10:45 A. M.
The following Members were present: Diane Babineau, Peter Bearor, Nancy Fournier, Dick Giggey, Carl Hommel, Dick Norris, Jan Roberts and General Manager Wayne Fournier. The following visitors were present: Kathryn Bacastow, Lot 85, George Brooks-Gonyer, Lot 25, Ed Charrette, Lot 79, John Crosby, Lot 27, Dave Decker, Lot 1678, Elaine Gately, Lot 3690, Steve Harvey, Lots 3030/1, 3, 7, 8, Marge Hommel, Lot 68, Jim Kuiken, Lot 323, Frank and Rebecca Limauro, Lot 74, Grace Morin, Lot 287, Don Nolen, Lot 36, Bob Roberts, Lot 111, and Oleg Svetlichny, Lot 13.
III. APPROVAL OF MINUTES
The minutes of the Board meeting of August 23, 2003, were approved as revised.
IV. REVIEW CURRENT FINANCIALS
Treasurer Babineau announced that we would be receiving a refund for 2001 Federal Income Tax.
V. REAL ESTATE
A.) Giggey reported on the last meeting of the RE Steering Committee. The Committee had approved a Mission Statement.
Giggey reported that the Committee was studying the feasibility of FII donating a two-acre waterfront lot (formed from merging several lots in the Cocktail Lane Section) to the BIT, and having the BIT use the funds to purchase inland lots and retiring them. The purpose is to reduce the 750 septic count limit. A similar plan is being studied for the several FII owned lots across from Cocktail Beach.
General Manager Fournier will investigate the details of putting lands into Conservation Easements.
Bearor MOVED and Roberts SECONDED that FII put before the Stockholders at the July 2004 meeting the recommendation of the RE Steering Committee, in a memo dated 9/20/03 (See Attachment A), relative to placing certain lots into a Conservation Easement, subject to research and refinement. Motion PASSED unanimously.
B.) Review Letter from Mr. and Mrs. Blackmore
Mr. and Mrs. Blackmore wrote to the Board, expressing their wish to purchase approximately 14,600 sq ft of Lots 1941 and 1942, instead of all of the two lots, as they originally proposed. This would leave FII with a conforming lot of approximately 22,500 sq ft. Their offer was for $7,000, plus all resurveying and closing costs. Babineau MOVED and Giggey SECONDED to make a counter offer of $9,700, plus costs, including resurveying and moving pins, based on the FMV of half a inland lot. Motion PASSED unanimously.
C.) Review Letter from Prescott, Lemoine, Jamieson & Nelson, dated Sept. 8, 2001
At the August 23 Board Meeting, a member of the BIT/EC expressed doubt that the FII Board had authority to sell lots without Stockholder approval for each sale. A letter from Prescott, Lemoine, Jamieson & Nelson, dated Sept. 8, 2001, was given to the Board (See Attachment B). The letter showed that the Board indeed has the authority to sell land and assets.
VI. BEACH COMMITTEE REPORT
The recommendations that the Beach Committee made at the last meeting are on the Town Budget, with the exception of swings.
VII. REVIEW LEASE TO TOWN
Hommel MOVED that the Town/FII lease be amended to state that the Town would have the right to establish policy for all assets they lease. Babineau asked if this would give the Town authority to change the rental fees for the Equity Slips at the Marina. The motion was tabled to the next meeting.
VIII. REVIEW STORE LEASE
Roberts MOVED and Babineau SECONDED that the General Manager is requested to obtain a price for purchasing and installing a fire suppression system in the café kitchen, and bring it to the next meeting. Motion PASSED unanimously.
IX. NEXT MEETING
The next meeting will be on September 26, following the meeting with the Portland Water District.
It was MOVED and SECONDED that the meeting be adjourned. PASSED unanimously. The meeting was adjourned at 1.30 PM.
Initial Lots to Convert to Conservation
The so‑called "Critical" (Tupelo) Area and all FF lots surrounding the wetland area, Lots 1527,1536‑44, 1546‑51, 1505‑8, 336 and 339.
The water‑oriented commercial area surrounding the marina and Long Beach Causeway and the lot next to 508, if it is not sold to MacGregor.
The Resource Protection Area 1607‑13.
Lots 1696 and 1886 for a trail.
Quail Circle Lots 230‑2, 35, 36, 1500‑3, 1556, 226‑8, 332, 328, 325 and the Area next to 228. Rental rights will be grand‑fathered for the tie‑up area.
Lot 104 for green space.
PRESCOTT LEMOINE JAMIESON & NELSON, LLC
Attorneys and Counselors at Law
37 Beach Street
P.O. Box 1190
Saco, Maine 04072
Tel (207) 282‑5966
Fax (207) 282‑5968
August 28, 2001
ALAN S. NELSON*
DAVID G. LEMOINE Richard Roedner
NEIL D. JAMIESON, JR. General Manager
JOHN G. LEMOINE Frye Island, Inc.
DANA E. PRESCOTI** 1 Sunset Road
TIMOTHY S. MURPHY Frye Island, ME 04071
EDWARD C. MALIK Re: Frye Island, Inc.
Boston, Massachusetts By‑laws Issue
*Also admitted in Connecticut
**Also admitted in Massachusetts Dear Rich:
Thank you, for contacting me with regards to Frye Island, Inc. and certain terms and conditions of its By‑laws. I appreciate your trust and will attempt to answer your concerns as posed in your letter of July 26, 2001. 1 would like to start by addressing the issue of what constitutes a "quorum" for meeting purposes. The rest of your questions flow from this initial starting point.
1. What Constitutes a Quorum for Conducting Business?
As you know, the stockholders of the corporation must, pursuant to the By‑laws, hold two (2) regular meetings. These meetings are very important as the stockholders elect their directors (who will administer the affairs of the corporation for the ensuing year), set up a budget, and transact other important corporate business.
To be a "duly called and held" meeting, there must be a quorum or legally sufficient number of stockholders present. Under the By‑laws a quorum for meeting purposes must be at least one third of the "issued and outstanding voting shares of the corporation" present in person at the meeting "or by proxy".
Let me note here that the one third number is actually the absolute floor (for numbers count) permitted under Maine law. See 13‑A MR.S.A. § 608 (1).
At issue then is the meaning of the phrase "issued and outstanding". The answer to this question depends both on historical facts and other wording in the By‑laws. Let me first note that the By‑laws state that "no shares shall be initially issued to or for any lot so long as said lot is owned by the corporation.”
Shares are based on the ownership of a "subdivided house lot on Frye Island" unless the lot is owned by the corporation.
In short, I interpret these phrases of the By‑laws to mean lots/shares held by the corporation are not deemed "issued" but are treated as akin to what are called "treasury shares" of a corporation. In other words, the corporation's shares are not issued or outstanding, and no vote may be cast by virtue of them, nor do they count for purposes of a quorum.
Now, I will turn to a couple historical facts that help guide the review a bit further.
You advise these are 750 lots which are privately owned and about 750 lots owned by the corporation. This total of 1500 lots (approximate) does not match with Article X, Section I of the By‑laws which states the corporation shall be divided "into 1,000 shares of common stock". Given the interpretation of Article X, Section 3, "issued and outstanding" meaning house lots except those of the corporation, I would have expected there to be roughly 1500 shares of stock.
I cannot logically explain this historical oddity, but I can say it is virtually irrelevant.
Article 10 defines what is an issued and outstanding share, and you have provided the figure of 750 as the number of privately held subdivided house lots. The remaining 750 subdivided house lots belonging to the corporation are not issued and outstanding for purposes of voting or quorum.
This leaves 750 issued and outstanding shares. The By‑laws thus require 250 (one‑third) of those lots/votes to be present in person or by proxy to constitute a duly called, lawful meeting of the stockholders.
2. What Happens if no Quorum is Present?
Without a quorum, the body is not acting in a duly called and lawful manner. All acts taken thereafter are subject to challenge and rescission.
You suggest a possibility that one or more past yearly meetings may have lacked a quorum. I can advise that any acts which followed from such a meeting, if one in fact occurred, are subject to lawful challenge.
Now, that is not to say those acts are forever at risk. Once a quorum is established, the stockholders can vote to "ratify" all prior acts of the directors and stockholders. Below is a sample motion:
Move that the corporation ratify and affirm those acts taken on its behalf by the stockholders and directors through this date as if voted herein and now.
Maine law permits another mechanism to ratify prior acts, and that is with a subsequent and unanimous vote. This procedure is also spelled out in Article VIII, Section 7 of the By‑laws but a unanimous vote on any matter seems highly unlikely.
It strikes me that ratifying the past acts of the corporation should be done the next time you secure a quorum. This will provide some protection from legal challenges against any past votes or actions.
Actually, I recommend you make ratification an annual process. Thus, for future purposes (after the first ratification motion described above) each subsequent motion would be as follows:
Move that the corporation ratify and affirm those acts taken on its behalf by the stockholders and directors for the past year beginning —————— and ending on the date of the meeting.
3. What if it is impossible to collect 250 people or proxies, may the Board change the quorum standards?
The Board may propose By‑law changes to the stockholders. See Article 13. However, state law (as noted above) prohibits lowering the quorum threshold to less than the one-third number set forth in Article 8. See 13‑A M.R.S.A.. § 608, attached. Thus, while you can increase the quorum count above one‑third with stockholder approval per Article 13, you cannot lower it below one‑third by virtue of state law. Other By‑law provisions may be changed but again any change must comport with state law.
Rich, I suspect you really are posing to me a very pragmatic question. In, short, how does Frye Island, Inc. proceed for future purposes knowing that securing 250 votes or proxies will be difficult? The answer leads me to your fourth question:
4. Can a proxy be established which permits its count even if the holder fails to return it?
As you might guess, the best practice is to secure all needed votes via attendance or by proxy. Apparently, on occasion less than 250 people or proxies have appeared. You ask whether the proxies might be worded such that the failure to reply by proxy is treated as "assent with the Board's recommendation" as you put it.
Maine law (13 ‑A M..R.S.A. Section 615) requires that every proxy must be written and "executed by the shareholder". That is legislative speak for it must be signed to be valid. Thus, the proposal you suggest appears to run contrary to Maine law as the failure to sign and return the proxy results in no legal transfer of proxy power to the Board under Maine law. A similar provision exists in Article 8, Section 8 of the By‑laws.
I discussed this issue with an old friend who is a partner in the corporate section at Pierce Atwood. He agrees that Maine, unlike some more "aggressive" states does not permit the transfer of proxy authority except upon written consent signed by the shareholders.
The rationale for such a rule is that without it, there would be opportunity for Boards to engage in mischief, to the detriment of certain stockholders.
I can recommend two possible solutions. The first is consideration of attendance by telephone. The second is more unusual. Arguably, what Frye Island, Inc. needs is an "inducement" to provide or return proxies. In short, you want to find a mechanism to encourage either attendance or the return of proxies. Here's one thought which can be modified as desired:
Tell your stockholders in their proxy notice, if 250 people or proxies attend the meeting, 5, 10, 25 (whatever) lots/names will be chosen at random from only those attending for a $50.00, $100.00 or $250.00 prize. Simply add this cost as a budget item to the cost you already incur for the annual meeting.
I am sure this seems like a funny way to run a railroad but the cost of having a prior act undone by a lack of quorum argument will make this idea seem cheap. And, once you have your 250 people or proxies, you can ratify all pastacts.
There may be other means/incentives you and the Board could concoct: Tax breaks, marina or golf privileges, car ferry passes, etc. Anything you can dream up to induce the return of the proxies will help.
5. Payment of dividends.
The By‑laws (Article X, Section 2) state that dividends shall be "determined and paid out of the surplus of the corporation" and only at such times as the Board of Directors "may unanimously determine."
This language, which is somewhat different than most corporations, clearly intimates the original drafters' intentions that the corporation not, as a general practice, run a surplus and not distribute dividends.
First, let me say that Article X, Section 2 does not prohibit running a surplus, nor does it require dividends if there is a surplus. Running a surplus may be a tax problem if Frye Island, Inc. is a so‑called "sub‑s" corporation. That is a discussion for you and Frye Island, Inc.'s accountant. I simply wish to point out that Frye Island, Inc. can, if it chooses, run a surplus without triggering the absolute requirement of issuing a dividend.
What you need to remember is that no dividend can issue except out of a surplus and only if there is unanimous vote of the directors. Note that the unanimous vote here means all the directors, not merely those in attendance at a meeting. The unanimous vote requirement is a clear sign that regular dividends was neither desired nor anticipated. As I say, that is different from other corporations.
6. Sale of assets.
Maine law, 13‑A M.R.S.A. Section 1002 empowers the Board of Directors with authority to sell some or all assets of the corporation. I would interpret Article IV, Section 2 of the By‑laws as being consistent with that power although the By‑laws do hold that some powers are "exclusively vested in the stockholders by law, by the Articles of Incorporation or by these By‑laws". So, let's address each of those limiting conditions.
I do not see a limit on the directors' authority under Maine law. Second, I have‑not received a copy of the Articles, ,so I hesitate to comment othjer thjan it would be unusual to find restriction of the directors there regarding
As for the By‑laws, they do establish a sort of "town meeting" like procedure. See Article VIII, Section 1. It could be argued that the stockholders alone have authority, to be resolved at the annual meetings, to sell all the assets of the corporation under a liquidation scenario.
I do not believe this is the better argument. My view is the By‑laws do not specifically reserve to the stockholders rights as to the sale of assets, and therefore Maine law controls, and Maine law gives the authority to the directors. Further, the directors have engaged in the regular practice of selling corporation assets (lots). Nothing suggests this was improper.
Now, of course, any sale must be in the best interests of the corporation, and hence the stockholders in general.
Please note here that Maine law on the directors' ability to sell some or all of the corporation's assets depends on whether the sale is "in the usual and regular course of the business of the corporation". If the sale is not in the usual and regular course, then per Section 1003 (2) a stockholder vote will be required.
I think it is highly possible a vote to liquidate all of Frye Island, Inc.'s assets would be held by a court as "outside" its usual practice, and believe the safer practice (if such were considered) would be to secure stockholder approval.
I say this because an all out sale of everything is not part of Frye Island, Inc.'s normal regular activities. Thus, it is possible someone could argue that 13A M.R.S.A. Section 1003 requires shareholder approval.
If you want safe guidance, I would do this:
If it is one, two or a few assets the Board has authority;
If it is all of the assets, then the safest course is to secure shareholder approval.
7. Final thoughts
Rich, if the corporation ever desires to sell any of its infrastructure assets (not the lots, but the other facilities: water system, ferry, golf course, etc.) we should sit down with the Board and its accountant to think such a transfer through carefully.
In the meantime, thank you for giving me this opportunity to be of assistance. It was nice to work with you again.
With my regards,
Timothy S. Murphy