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confusion about the sponsor's roleDec 13, 2007


Hello everyone,

Article 2, Section 1 of our bylaws states: "The number of directors shall not be less than three (3) and not more than five (5). The first Board elected by the shareholders shall consist of five (5) members."

Section 7 states: " . . . the Board, from time to time, may fix the number of directors of the corporation, provided the number of directors shall not be less than three (3), nor more than seven (7) or such higher number as the shareholders shall have determined pursuant to Article 2, Section 1."

For as long as I have been in the building (since 2002), our board has consisted of four members who live in the building, and a phantom fifth member: the sponsor, who never attends any board meetings and has only attended one shareholders' meeting in the time that I've been here. Several times both when I was on the board and subsequently, action would be proposed and two members would be for it, two against it. Thus deadlocked, no action was taken and a certain inertia seemed to take over. To me it seems most pragmatic to have an odd number of directors and I would like to see an additional person (an actual warm body who would attend meetings and share responsibilities and vote on issues) added to the group. As we are more than 75% owner occupied at this point, must the sponsor even be a board member? The bylaws don't seem to address this.

It seems to me that a board majority could vote to remove the sponsor from the board and, at our next shareholders' meeting, a real flesh-and-blood person could be elected to fill this phantom role and, I hope, make moving forward on issues a little more straighforward.

I hope that I've managed to explain myself here and would appreciate your feedback. Thanks.

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Sponsor - AdC Dec 13, 2007


Why don't your board contact the sponsor through your management to request that the seat on the board be given up for the explanation provided below: deadlock during decision-making. Alternatively, invite the sponsor to participate for the same reason.

Unfortunately, if the sponsor's number of shares if voted all for one member is able to retain the seat, then there is not much to be done except keep asking the sponsor to give up the seat.

In most cases, the sponsor may retain the seat to have access to financials. In many proprietary leases, boards cannot make an independent decision to assess or increase the maintenance if the sponsor still holds a certain percent of shares in the corporation. This is to protect the sponsor's own operating budgets from unforseen major incrases, specially when the sponsor may have a large number of apartments occupied with rent controlled, non-eviction tenants.

AdC

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Sponsor - AdC Dec 13, 2007


Why don't your board contact the sponsor through your management to request that the seat on the board be given up for the explanation provided below: deadlock during decision-making. Alternatively, invite the sponsor to participate for the same reason.

Unfortunately, if the sponsor's number of shares, if voted in one block for one individual, is able to retain the seat, then there is not much to be done except keep asking the sponsor to give up the seat.

In most cases, the sponsor may retain the seat to have access to financials. In many proprietary leases, boards cannot make an independent decision to assess or increase the maintenance if the sponsor still holds a certain percent of shares in the corporation. This is to protect the sponsor's own operating budgets from unforseen major incrases, specially when the sponsor may have a large number of apartments occupied with rent controlled, non-eviction tenants.

AdC

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Sponsor - AdC Dec 13, 2007


Why don't your board contact the sponsor through your management to request that the seat on the board be given up for the explanation provided below: deadlock during decision-making. Alternatively, invite the sponsor to participate for the same reason.

Unfortunately, if the sponsor's number of shares, if voted in one block for one individual, is able to retain the seat, then there is not much to be done except keep asking the sponsor to give up the seat.

In most cases, the sponsor may retain the seat to have access to financials. In many proprietary leases, boards cannot make an independent decision to assess or increase the maintenance if the sponsor still holds a certain percent of shares in the corporation. This is to protect the sponsor's own operating budgets from unforseen major incrases, especially when the sponsor may have a large number of apartments occupied with rent controlled, non-eviction tenants.

AdC

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> Join the conversation Comments (1)
Re: Sponsor - GK Dec 13, 2007


Thank you, AdC.

"if the sponsor's number of shares, if voted in one block for one individual, is able to retain the seat, then there is not much to be done except keep asking the sponsor to give up the seat"

So you're saying that apparently the sponsor is voting for himself at each election.

Hm. At each election the sponsor's name always appears on the ballot, and we (the shareholders) are told to vote for four additional officers. So the way it is always presented to us is that the sponsor's presence on the board is inevitable. We aren't given the option either to vote for him or not. He is just always there, an inevitability.




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> Join the conversation Comments (2)
voting bloc - Batch Dec 14, 2007


If there are five directors and the sponsor retains at least 20.01% of the shares, the sponsor's rep is automatically elected. And that's if all shares are voted, which (of course) they aren't.

Even if every single shareholder votes, there is a sixth person running against the sponsor's rep, and the sponsor's shares dip below that 20.01, you cannot hope to see the sponsor's rep defeated until the sponsor's shares dip to around 16.5%:

shareholders split 83.5% among 5 directors (16.7% each director)
sponsor's rep has 16.5%

Hope that sales are brisk.

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Re: voting bloc - GK Dec 14, 2007


Thanks for the info, Batch; very helpful.

Well, I guess the solution is to bring one more officer on board. So technically there will be six board members; but, since the sponsor never comes to board meetings, it will be as if there are five members and deadlocks can thus be avoided.

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Sponsor on the Board - BP Dec 14, 2007


GK - Unless your sponsor controls enough shares of his own and/or by proxy to keep voting himself onto the board, or your by-laws give him the right to be on the Board, I see no reason why he has to be on the board.

You said his name is always on the ballot and you're told to vote for 4 BMs. Who creates the ballot? Who's "telling" you to vote for only 4 others? The sponsor, board, mgmt, coop attorney? Who chairs your annual meeting and oversees the election proceedings?

If your sponsor doesn't control enough shares or have the right to be a BM per your by-laws, get more Shs to run for the board and vote him out. If board votes on coop business keep ending in a tie, the sponsor doesn't vote and nothing gets done, that's unproductive. Talk to your mgmt company or attorney and get some straight answers as to why the sponsor is a permanent fixture on the ballot and why you don't have the option to vote him in or out. And get other Shs involved. If you want to get some action on this, you have to take some action.

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Re: Sponsor on the Board - GK Dec 15, 2007


BP, thank you, as usual, for your input.

The sponsor owns just under 20% of the shares at this point.

...or your by-laws give him the right to be on the Board...
I've looked again and I see nothing in the bylaws that explicitly gives the sponsor this right. There is one passage that confuses me, though:The president shall be a member of the board, but none of the other officers need be a member of the Board. . . . An officer who is employed by or affiliated with a holder of unsold shares need not be a shareholder.
BP said:You said his name is always on the ballot and you're told to vote for 4 BMs. Who creates the ballot? Who's 'telling' you to vote for only 4 others? The sponsor, board, mgmt, coop attorney? Who chairs your annual meeting and oversees the election proceedings?
It's amazing, isn't it, what people will accept when something is unfamiliar and they are told that that's simply the way things are done. In most aspects of my life, I question just about everything—but it has taken me five years to start peeling away the opaque layers of this co-op. At every annual shareholders' meeting I have attended, ballots are passed out by the managing agent. (In a thread from last spring I talked about how the managing agent "lost" my proxy at the most recent election.) Those who are running for the board are listed with a checkbox next to their names. The sponsor is also listed, but his name is in bold and there is no checkbox. At the first meeting the person next to me said: "Oh, yeah, there are five board members, but you can only vote for four; the sponsor is always assured a seat." And, you know, I thought that was weird and I didn't really get it but I got busy with the rest of my life and didn't think too much about it.

I would like to get some independent advice on this. The board VP and I were just talking today about how we should seek independent legal advice re: a fuel spill that occurred in the building in October. Residents called the managment company to complain of overwhelming fumes; the super perceived that a spill had occurred and notified the management company. But the management company waited a full week to report the spill to the DEC, lied about when the spill occurred (stating that it had occurred just minutes before they called the spill hotline) and cleanup was needlessly delayed. As you can imagine, we're not happy about this, and we feel that we need legal advice. But co-op counsel is employed by the management company. So the board VP and I are concerned that we won't be dealt with honestly. (By the way, I've always been bothered by the fact that the co-op accountant and co-op counsel are both employed by the management company and wonder if that's the norm. Is it the norm? Not to mention that the only board member counsel/accountant/managing agent have any contact with is our problematic BP. I think I'm finally making some inroads into persuading others that this situation needs to change and that there needs to be more transparency.)

Thanks again for your feedback. I am going to push hard for removing the sponsor from the ballot or at the very least making him run for the seat like everyone else.

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sponsor - Batch Dec 14, 2007


Good luck with your aspirations.

In my experience, the sponsor will be with you on the board until the last rental unit sells.

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6 seats = 5 votes - board treas Dec 14, 2007


First, about the sponsor. It doesn't matter how many apartments the sponsor owns. What matters is how many shares the sponsor holds. Your building has 5 seats on the board, so the sponsor needs only 20% of shares to elect him-/herself to the board. When the sponsor holds less, you may be able to run five residents and the sponsor; if the 5 residents get the votes, they win. (Ask your attorney for details -- prop leases vary on how votes are counted in contested elections.)

As for the number on the board, it sounds to me as though you have a perfect reason for adjusting the number. As long as you explain to shareholders why you're making the change -- and do it politely (no reason to annoy the sponsor) -- they shouldn't have a problem. After all, it will increase THEIR voice on the board.

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how about this - tl Dec 20, 2007


in our coop, the sponsor has a right to elect on person every year (unsually himself) and last year - the board president used all the sponsor proxies to vote himself and his own slate in to prevent a new comer from being elected. (the newcomer was actually a very decent person) - so what can we do about that?

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Do you have a staggered board? - AdC Dec 20, 2007


In other words, is the term of office 2 years in which the sponsor is elected for two years, then the votes are used to elect another member? or

Is this a matter of double counting?

Who acts as the supervisor of the elections? The independent accountant and counsel or someone else...?

AdC




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