RIGHTS OF SHAREHOLDERS
    
    A.VOTING RIGHTS
    
    1.RIGHT TO VOTE IN GENERAL--shs may generally vote for the election and removal of dirs, to amend the articles or bylaws, and on major corporate action or fundamental changes.
    a)Who May Vote--the right to vote is held by shs of record as of the record date;
    b)Restrictions on Right--shares may be either voting or nonvoting, or have multiple votes per share.
    
    2.SHAREHOLDER MEETINGS--generally, shs can act only at meetings duly called and noticed at which a quorum is present.
    a)Compare--informal action--statutes permit sh action without a meeting if there is unanimous written consent of all shs entitled to vote.
    
    3.SHAREHOLDER VOTING
    a)Straight Voting--this system of voting allows one vote for each share held and applies to all matters other than director elections, which may be subject to cumulative voting. Certain fundamental changes (e.g., merger) frequently require higher shareholder approval.
    b)Cumulative Voting For Director--this system allows each share one vote for each director to be elected, and the votes may be cast all for one candidate or divided among candidates as the sh chooses, thereby helping minority shs to elect a dir. Cumulative voting may be mandatory or permissive.
    
    4.VOTING BY PROXY--a proxy authorizes another person to vote a shareholder's shares. The proxy usually must be in writing, and its effective period is statutorily limited unless it is validly irrevocable.
    a)Revocability--a proxy is normally revocable by the sh at any time, although it may be made irrevocable if expressly stated and coupled with an interest in the shares themselves. Absent written notice to the corp, the death or incapacity of a sh does NOT revoke a proxy. a sh may revoke a proxy by notifying the proxy holder, giving a new proxy to someone else, or by personally attending the meeting and voting.
    b)Proxy Solicitation--almost all shs of publicly held corps vote by proxy. Solicitations of proxies are regulated by the Securities Exchanges Act of 1934 Section 14a, federal proxy rules and, in some cases, state law. Federal proxy rules apply to the solicitation of all proxies of registered securities, but NOT to nonmanagement solicitation of 10 or fewer shs. The term "solicitation" is broadly interpreted by the SEC to include any part of a plan leading to a formal solicitation, e.g., inspection of shareholder list.
    1)1992 amendments--the SEC revised the proxy rules to make it easier for shs to communicate with each other. Significant changes include: a safe harbor for communications that don't involve solicitation of voting authority, relaxation of requirements involving broadcast of published communications, relaxed preliminary filing requirements for solicitations, and removing communications between shs concerning proxy voting from definition of "solicitation."
    2)Requirement of Full Disclosure--the proxy rules require full and accurate disclosure of all pertinent facts and the identities of all proxy participants, disclosure of compensation paid to certain officers and dirs, and disclosure of conflict-of-interest transactions involving more than $60, 000.
    
    3)Inclusion of Shareholder Proposal--shareholder proposals must be included in corporate proxy materials if the proponent is a record owner or beneficial owner of at least 1% or $1000 worth of securities entitled to vote on the matter. The proposal must not exceed 500 words.
    I)Exceptions--a proposal need NOT be included if it: is not a proper subject for shareholder action, would be illegal, is false or misleading, seeks redress of a personal claim, relates to operations accounting to less than 5% of the corp's total assets and is not otherwise related to the corp's business, concerns a matter beyond the corp's power to effectuate, relates to ordinary business operations, relates to an election to office, is counter to a proposal submitted by the corp at the same meeting, is moot or duplicate, deals with the same subject matter as a very unsuccessful prior proposal, or relates to specific amounts of cash or stock dividends.
    ii)Private right of action--a private right of action is available to a sh whose proposal was rejected by the corp on the ground that it fails within one of the exceptions.
    iii)Providing shareholder lists--a sh has a right to obtain a list of shs or to have his communication included with the corporate proxy materials.
    4)Remedies for violation of proxy rules--these include suit by the SEC to enjoin violations or to set aside an election and individual suits, class actions, or derivative suits by the shs (In a private suit, the P must show materiality and causation, but causation is normally presumed from materiality. Fairness to the corp is NOT a defense to a violation of proxy rules ). The court may rescind corporate action resulting from a misleading proxy solicitation or award damages.
    c)Expenses Incurred In Proxy Contests--corporate funds may be used by management with respect to reasonable proxy solicitation expenses incurred in order to obtain a quorum for the annual meeting or regarding controversy over corporate policy (as opposed to a personnel controversy). The corp may, with sh approval, voluntarily pay the reasonable expenses to insurgents who win a proxy contest involving policy.
    
    5.OTHER METHODS TO COMBINE VOTES FOR CONTROL (CLOSE CORPORATIONS)--other methods include shareholder voting agreements which may be enforced by specific performance, agreements regarding greater-than-majority approval, shareholder agreements binding the discretion of dirs, and voting trusts.
    
    
    B.RESTRICTIONS ON TRANSFER OF SHARES--although most frequently used in close corps, stock transfer restrictions may also be imposed by larger corps (e.g., to restrict ownership to employees). ............