Shareholder Proposals & Voting

Shareholder Proposals & Voting

2002 Shareholder Submissions

2003 Shareholder Submissions

2002 Shareholder Submissions

for

December 26, 2002 Annual Meeting

Two Forum participants submitted shareholder proposals to the company for the 2002 annual meeting of shareholders, one for a bylaw amendment to require independent directors and restore cumulative voting and another for a bylaw amendment to require the company's compliance with the Investment Company Act of 1940 ("ICA"). Management argued that the SEC should not require the company's presentation of these proposals in its proxy material for the annual meeting, and the SEC allowed the company to exclude the proposal for board independence.*

The proposal for ICA compliance was presented, as required by the SEC, for shareholder voting at the annual meeting which management scheduled for the morning after Christmas, December 26, 2002. Though management's control of 52% of the stock assured the proposal's defeat, it received 77% of the non-management votes to demonstrate public investor interest in the regulatory and tax benefits of ICA compliance.

* SEC policies have changed since its review of this proposal, which had been submitted prior to the Sarbanes-Oxley Act. There was no need to resubmit the proposal, however, since the company adopted substantially all of its provisions for board independence by April 2003.

2003 Shareholder Submissions

for

February 23, 2004 Annual Meeting

Two shareholder proposals were submitted by Forum participants in 2003 for voting at an annual meeting which was repeatedly postponed until February 23, 2004. One was for a bylaw amendment to restore cumulative voting, which had been blocked from presentation the previous year as part of the excluded proposal for board independence, and the other was to allow a shareholder vote to determine whether the directors had met the standards of conduct required for indemnification against claims for breaches of duty in relation to information disclosures, compliance with the Investment Company Act of 1940 ("ICA"), or actions to benefit controlling persons rather than all shareholders. Management argued, again as in the previous year, that the SEC should not require the company to include the proposals in its proxy material for shareholder voting at the annual meeting. The SEC required the company's presentation of the cumulative voting provision, but allowed management to exclude the proposal for judging director conduct.

Management's October 23, 2003 filing of a proposed "reincorporation" plan shifted Forum and public attention to the issues it raised, relating to the plan's provisions to restrict shareholder rights as well as management's use of a leveraged Employee Stock Ownership Plan ("ESOP") to acquire the votes needed to pass their proposal. Court proceedings were initiated by both family trust beneficiaries and shareholders to block management's use of trust holdings to vote for the proposal. Management made some concessions in its reincorporation proposal and announced its willingness to split the company's stock, and then settled the family trust litigation in a court-approved agreement announced December 24, 2003 which provided for the company's acquiring the entire 23% holdings of dissident family members for $25 per share (adjusted for the subsequent split). The shareholder motion for a preliminary injunction, however, was denied at a December 23, 2003 hearing based on the California court's ruling that shareholders do not have a private right of action to enforce the relevant ICA provisions.

Management was thus able to convey a portion of the acquired family block of stock to the ESOP to bring its holdings to 19% of the adjusted outstanding shares, which combined with the 39% of shares owned or controlled in continuing family trusts gave management sufficient votes to adopt their "reincorporation" proposal even though public investors voted less than 10% of their shares (less than 4% of the total outstanding) in favor of the provisions. The shareholder proposal for cumulative voting was similarly rejected.