DAVIS FOOD COOPERATIVE, INC.

BOARD OF DIRECTORS

MEETING MINUTES

May 2007

Call to Order

The regular monthly meeting was called to order at 6:30 at the Davis Food Co-op Conference Room, 620 G Street, Davis, California, by chair Lucas Frerichs.

Roll Call:

Directors Present: Winston Berger, Daniel Berliner, Julie Cross, Debbie Eernisse, Lucas Frerichs, Darius Pazirandeh, Ben Pearl, Doreen Pichotti, Joy Rowe

Directors Absent: Jared Davis, Danyal Kasapligil,

Staff Present: Beth Tausczik, Kenna Krueger, Doug Walter, Eric Stromberg, Amy Radbill, Seth Larsen

Guests Present: April Kamen, Steve Reynolds, Joan Randall, Janie Booth, Jack Young, Jay Erker

Roles:

Facilitator: Lucas

Time Keeper: Debbie

Notetaker: Amy Radbill

The Secretary determined that notice of the meeting was duly provided as required by Bylaw Art. VIII §6(C), and that a quorum of Directors was present under Art. VIII §6(B).

Member Comments:

April Kamen: Wanted to know if she could tape record the meeting. (Joan Randall objected and so request was refused)

Joan Randall: Read her complaint re: impartial analysis of Proposition One in the DFC Voter’s Pamphlet, April-May 2007.

Announcements:

Julie: Courtney Hopf asked her to give the BOD her regrets, but she was teaching and couldn’t be present this evening.

Seth: Has posters and fliers for Annual Meeting

Darius: Danyal told him he wouldn’t be here

Ben: Is working on a fundraiser rummage sale, Memorial Day weekend for the Davis Farm to School Connection. Looking for donations.

Debbie: Joy and she were at effective leadership training in Seattle. She went to board and GM leadership development training. Next event will be in Sac. Was interested in doing the same training with other board members—needs to know what kind of interest there is. Talk to Debbie if you want to know more about what the training entailed.

Lucas: Tasting Fair from weekend before last: a number of board members spoke with members and nonmembers re: the remodel/renovation, and other issues. Lots of positive comments; they talked to quite a few people.

Consent Calendar

Presented: Consent Calendar Items

• Retained by unanimous consent:

(none)

• Removed by objection:

Treasurers report

Task force report

Member follow up reports

First reading: GP9 revisions and monitoring

Amend Agenda by

Withdrawing items 6.3 and 7.5

Postponing items 6.5 and 6.8 until June

Adding the entire consent calendar as 8.2

Adding a letter from Good Humus as 8.3

Motion: Julie moved to adopt the agenda as amended

Seconded by Deb

Motion carried unanimously

Reports

Presented: General Manager's Reports

6.1 Report (5 minutes) and questions (25 minutes):

• B4 – second quarter financials

• B4 (A) (2) – Late Audit

• B4 (A) (2) – Legality and Propriety of Retained Patronage Refund

• Election Report (Eric/Doug)

Eric asked that the BOD consider addressing the election calendar timeline in the bylaws for next time—i.e., extending the timeline from 10 days to 21 days.

6.2 Report (5 minutes) and questions (25 minutes):

Doreen: On page 23 of Eric’s report: In the Budget to Actual Comparison, why wasn’t percentage included in Accounting column? Was that just a mistake?

Kenna: I left it out because it was such a large number.

Jack: With the audit, did you get a management letter that everyone saw? (Yes) Re: Patronage retention—did you pay taxes on it?

Kenna: No—Gilbert Assoc. determined that we had no tax liability.

Jack: My understanding is that you can do that with equity, but not with debt—and some of it seems to show up as debt.

Eric: We defer to their professional advice (Gilbert and Associates).

Winston: On Page 24, B4: Looking back over 3.5 years, with customer count, in terms of trying to sell members on renovation—where do we see the 8.5 % growth come from?

Eric: We’re likely to see that change in average purchases. That’s a conservative estimate based on an assessment of dept. by dept. changes, and came up with a modest growth estimate for each dept.

BE: Did the securities firm selected have any experience working with cooperatives?

Eric: Not that I know of, but we need a securities law specialist to give us advice on securities. They were referred by Gilbert and Associates.

BE: Did you speak with anyone else? North Coast…?

Doug: They’re a big law firm, and both attorneys had experience…but in talking with Ed and John, I stressed speed rather than anything else.

Steve: Just a comment on McDonough (?). I’ve practiced in Sacramento for 18 years, and they’re an excellent firm.

Joy: On page 25—budget to actual comparison. What’s the explanation of the deviation in “Other Professional Fees”?

Kenna: We have $18,700 over—earlier this year we changed our 401K plan from ______ to ADP. We wanted someone who could give us a lot better service and who was more local. But to terminate the plan was rather expensive.

Eric: It was really important to make that transition because on at least two occasions, _______ gave poor advice to our employees.

Joy: I just wanted to include that on the monitoring…

Kenna: The second part of your question—accounting, which was 7200 over. I’d say half of that was the audit—they had to put in more time than we had budgeted for. Also the policies and procedures manual, that was more than we had anticipated.

Doreen: On the election report, in order to give us 21 days, do we have to make a change to the bylaws? Because it can be more than 10 days according to the bylaws, right? It just can’t be less?

Eric: That’s a good question. Doug, can we do that?

Doug: ______________ I think that changing the bylaws would be better than changing the counting.

Doreen: I’m just worried that we won’t get the bylaws changed by next year.

Doug: Well, I’ve complained about this every year…

Doreen: I’d just like to guarantee that we get this problem fixed by next year.

Doug: _________________________ But here’s the date by which it has to begin in order for the end of the election to be in compliance with the bylaws…

Joan: So, why do we have to wait for a big revision (of the bylaws), why can’t we just do it and have this one done?

Debbie: That was my thought too—it’s just rewording that one phrase. I’ll reword it and have it for June.

Darius: The BOD has no power to change the bylaws (requires a membership vote). We’re just going to have to put this as a priority to work on.

Eric: Basically our atttorney told us the BOD has authority to make minor housekeeping changes, but he stressed minor.

Julie: The big mass of members get annoyed if we do bylaw changes at every election…

BE: There was the version of the bylaws that was proposed and reviewed by Laddie and is still available for future use.

Lucas: The primary reason we chose not to do bylaw amendments this year was because we were planning on asking the membership for a loan…

Debbie: Do we have a list of all the bylaws we want to revise?

Lucas is keeping track as head of the task force.

BE: Going back to the audit report, what’s your understanding (Doug) of what’s been delaying calculating the patronage refund?

Doug: I don’t know that there’s a simple answer other than there’s 360,000 pieces of data, and manipulating them is not quick and simple. If we outsourced it, it would probably be quick and simple for someone who’s well versed in….I don’t know what kind of program exactly. I’m not sure how to respond—which particular delay are you referring to?

BE: In 2004/05, there was corruption of the data. I’m curious if in 2005/06, it was the same problem, or if something different came up?

Doug: No, it’s not the same problem, but anytime you’re trying to deal with that much data and make sure that it doesn’t have any corruption… A more cavalier attitude would produce a quicker result…

BE: Could I just make a meta comment? I’m asking this question because I’m genuinely interested in understanding what kind of infrastructure changes you guys have made for the coming year in order to make this easier… Not trying to put you on the spot, I am really interested.

Doug: If I can make a meta comment, it seems to me that you were saying that the patronage refund made the audit late, and I do think it was involved, but it wasn’t the only cause. The money we would have to spend to get a faster result is something we need to weigh…

Darius: Eric, can you talk about the information Van Baldwin gave us when we decided to retain the patronage refund…

Eric: We asked Van to give his opinion about retaining the patronage refund. He said we’d need a permit if we … loan program. At the time, the advice he gave us was not very clear. So now the question has been raised as to what the definition is of securities that require a permit…

Darius: So basically, we didn’t try to clarify with Van back in July?

Eric: We asked him how to proceed, and he gave us a letter, and we proceeded.

Julie: I do think it’s really important, but I don’t think it’s advisable to have this conversation without paperwork in front of us. I’m willing to do a special meeting when we do have a letter, but I don’t think it’s a good idea to speculate.

Darius: I want to bring up the process leading up to it—whether we should have exercised more diligence. We’re in a murky situation right now, and we shouldn’t be here. I want to talk about that, not necessarily about the specifics.

Kenna: Van was commenting on whether the BOD could decide to omit the patronage refund. What he said was please remember that if you’re going to exceed 300 dollars in shares for each member, you need a permit. And we thought we had a handle on it—maybe we still do. It caught us by surprise that for someone who had $100 in cash, we could give them $20 in cash and the $80 in cash could be construed as shares.

Eric: Well there are two separate questions—

BE: I’m glad you brought up the letter and the content, because if it’s the letter we had Van Baldwin do, this was right before we had the BOD orientation in July—and the question was limited to—the question was whether or not the BOD could decide not to issue a patronage refund…

Jack: Eric made the comment that if it’s securities then it needs a permit, but the law to me clearly says that if it’s debt you need a permit to.

Eric: Well, we need a clear answer, because it’s an animal that could be construed either way.

Doreen: Could it be neither?

Steve: The concept of what is a security is real complicated, and that’s why non-securities lawyers are very careful.

Darius: I want to keep the discussion to the process and not about securities. We can talk about why Laddie would … Coming in as a board member, when I see section 8 that says we can do this (withheld patronage)…

Eric: We can clearly do that, the question is in California, do we need a permit?

Doreen: What does it mean that we need a permit? Does it cost a lot of money, does it delay us?

Eric: I’ve looked on the department of Securities web site, but I don’t want to guess.

Doreen: Does it seem like it would be a big deal though…

Joan: Was it Laddie who lives on the East Coast, who crafted the words? He’s not licensed to practice in California—in my work with him over the last few years, he would caution me to check with a local lawyer…

Darius: He wasn’t in this over the last year…

Joan: Is this the language that we’re operating on, and if he wrote it, he’s not a CA attorney…

Darius: I understand—so then Van Baldwin advised us…

Lucas: Admittedly it would be wonderful to have an attorney who specialized in cooperative law here in California—but I don’t think it should preclude us from using an attorney just because he doesn’t live here. Of course we should have things reviewed by someone in California…

BE: Who actually wrote the resolution? It sounds like it wasn’t written by Laddi? Was it written by Van Baldwin?

Kenna: I think Doug and myself and… It seemed very straightforward, it wasn’t complicated at all.

Lucas: RE: Gross margin report. I’m appreciative of the greater attention that’s being paid, especially to wine and beer.

Eric: B11 – Renovation

Eric: (Report on B11/budget) And there’s breaking news in lot line adjustment—had phone conference with Brett and his attorney and our attorney. The only issue outstanding is that Brett wants fifteen years worth of free advertising in our newsletter. He wants to name the shopping center the DFC Shopping Center—we can pick the name, but he wants something so that when our customers… We’ve got control over how the monument sign works—he’s going to have input. We don’t want something tacky, we want something nice. He also wants to try to turn the firelane into some kind of public gathering space… The contract recognizes that we didn’t cause the water contamination issues, we’re not responsible for it, etc.

Joan: Do we have to do disclosure to the lenders…

Eric: Yes—that’s nothing something you want to hide, and besides it’s public record.

Darius: I want to talk about the strategic plan. Jack, thank you—I skimmed your e-mail today, and I heard from a lot of people. The board has announced compliance with the policy that requires a strategic plan. And now I’ve heard from people who say that if they were board members, they wouldn’t have voted for that as a strategic plan. I haven’t been trained as a manager, so I don’t know what a strategic plan is supposed to be—so I’m wondering if you’d considered revising the strategic plan.

Eric: No, not for today.

Darius: Can you think about either revising or _______- for next month?

Eric: Yes.

Ben: I also read Jack’s e-mail, and it echoed some concerns… There’s potential there—as a standing document for the organization, it doesn’t have enough depth—it probably can serve it’s function in terms of the renovation, but we have some work to do envisioning where the DFC is going over the next ten, fifteen years. And it might involve the membership…

Jack: When we bought the building, the Co-op bank knew about the stuff down the road. And when I was on the board, one of the hardest things we had to do—we were just starting to…move ahead to what are we doing in the long term, what’s the big picture. What you’re saying is right on—it’s got to be a process. I have a comment about this renovation piece… I don’t know the right place to stick it in…

Joan: I want to follow up on what you were saying, because when I came onto the board, there was as struggle back and forth about who’s supposed to set the strategic plan—and it was staff that was supposed to do the hard core strategic plan, and now the GM is supposed to do the strategic plan based on our vision…

Darius: I guess procedurally : If the board has declared Eric in compliance with B11, then he’s free to do _____--------… Ben, if you’re concerned that we’re not in compliance, you can make… and we can tell Eric to fix it. Being out of compliance isn’t …

Ben: I was specifically not making a motion or calling that out at this point in the process, because I think it’s part of a longer…

BE: Are you using this sentence (page 32) “One definition of a strategic plan…”? Is that your interpretation?

Eric: More or less. I wasn’t trying to say that’s the definitive definition, but that’s one definition. Is that my interpretation? No. I’m saying that the elements of a strategic plan are here in ….

BE:

Eric: Well, people means how you use the people. Development is one aspect of people, it’s not the only one. But we’re going to be asking our employees to put in a lot of work during a stressful time.

BE: How would the board want this process (questions from concerned members) to proceed from here.

Darius: I’d like to see concerns with reference to policies, that indicate we’re not in compliance, so that I can take that to Eric.

Kenna: Eric said that for June’s meeting he would bring the topic back, and then the board could have a better discussion.

Doreen: The report we have right now that we’re calling the strategic plan really does have a few holes in it, but that doesn’t mean we don’t have those documents elsewhere. Maybe it just hasn’t been packaged right, but a lot of those questions that go into a strategic plan have been asked and analyzed…

BE: On the B11 report, on page 34, where it’s talking about compliance, sections I, J, K and L. Part of the reason it’s hard to support this document-- What kind of comparison pricing—was there any comparative pricing?

Eric: Not yet, we haven’t exhaustively gone through the equipment list, but that’s part of the plan—to go through Sutti’s equipment list and make phone calls to check other prices.

Lucas: I’m happy to see five year projections delivered to us—I’ve felt extremely uneasy about this process, specifically in regard to the loan amount, etc. And this clarifies things for me. Also, I’m appreciative that Eric pulled the motion to proceed with Phase 1. Also, last month, I made a comment re: not proceeding with a motion to proceed with equipment, etc.

Jack: Re: the renovation—did the BOD look at doing a capital campaign for member debt or member equity, like we did to buy the building?

Lucas: No, at least not in terms of the board level. Quite frankly, in my mind, a lot of small co-ops do that because they can’t secure credit from a lender. That’s why I would think we’re not at a size where we need

Jack: It’s a lower cost of capital… lower…

Kenna: The cost of the building purchase was ________, and we took out a loan of _______

Jack: We also had a share drive where we _________

Doug: Yes, but we now have _________ full share owners…

Eric: It seemed for the scale of this project to be a difficult way to raise capital.

Jack: I think if you went to—the definition of a strategic plan is pretty usual and understood (as a long term plan). Also, I’m kind of upset and disappointed in the board—in C, where it talks about equal access to ballot measures would seem to preclude this type of material (renovation flier), using joint co-op funds to produce this…

Eric: I think you should direct this more to staff than to the board…

Ben: Although it was staff’s decision to go with marketing on the renovation, it was all run through the board and subject to board oversight.

Motion: Darius moved to accept GM report B4 second quarter financials as presented

Doreen seconded

Opposed: Joy

In Favor: Winston, Daniel, Julie, Debbie, Lucas, Darius, Ben, Doreen

Motion carried

Motion: Darius moved to accept GM report on B4a2 as presented

Julie seconded

In Favor: Winston, Daniel, Julie, Debbie, Lucas, Darius, Doreen, Joy

Abstained: Ben

Motion carried

Darius moved to accept the election monitoring report, with the understanding that the equal access provision 7c will be discussed by the board and staff at the June meeting.

Debbie seconded

Motion carried unanimously

Darius moved to accept B11, store extension renovation report as written, with the understanding that Eric will specifically address the strategic plan in his June report

Winston seconded

Opposed: Lucas

In Favor: Winston, Daniel, Julie, Debbie, Darius, Ben, Doreen, Joy

Motion carried

(Discussion of how to deal with Joan’s written complaint…)

Recess at 8:31; reconvene at 8:45.

Reports Continued

Presented: by Ben, Report: GP1 Governance Style.

Darius: Ben, would you be willing to work on coming up with action plans to address these items?

Ben: Sure—

Darius: I’ve been thinking about C in particular, and on the one hand when we talk about inequity—you get out of the co-op what you put into it. Also, we could also institute some sort of work requirement—you have to do ten hours worth of work…

Joy: Also on C, board members arriving without having reviewed materials—I’m wondering where that came from?

Ben: That came from a discussion in February or March, about not having a rich discussion because people hadn’t read things in advance…

Joy: Okay, that hasn’t been my experience…

Debbie: (agreed with Joy)

Doreen: (agreed with Joy and Deb). Also likes the idea of assigning board members to write monitoring reports…and possibly even require participation in one task force…

Darius: I don’t read C as saying that board members are showing up unprepared—but when one board member does show up unprepared, we don’t know how to deal with it…

Ben: I’m turned off by the idea of making a ten hour requirement. But maybe we could do a monthly round robin, reporting on what we’ve done in the month…

Doreen: RE: Darius’ comment: I think that is the spirit of what Ben meant, but that’s not what’s written here…

Lucas: First of all, this has gone on for ten minutes, and it was supposed to be five. And also, we’ve already said he’ll go away and work on it, so do we need to have this discussion?

Doreen: Why not? …

Ben: (Will accept comments, and will edit and revise…)

Presented: by Darius, Report GP7 director code of conduct.

Doreen: I agree with everything written here—that’s a really great analysis.

BE: In terms of talking about it, it seems like the point you’re making is … In effect, you’re saying the board was in compliance, so there’s nothing the board should do to improve its due diligence. I don’t want to make people feel like I’m beating them over the head, but since you do have a board training coming up in July… One of the things that I would like to see is, have somebody who is on the board be looking at bylaws, and what kind of duties does the board have under the bylaws?

Motion: Julie moved to accept GP7 report as presented

Joy seconded

Opposed: Darius

In Favor: Winston, Daniel, Julie, Debbie, Lucas, Ben, Doreen, Joy

Motion carried

Unfinished Business

7.1 Discussion: 2007-08 Calendar and 7.2 Discussion: 2007-08 budget were postponed to June

Presented: by Julie, Discussion: 2007 DFC 201 Prep Planning – training for new board

Proposed dates for the DFC Board training are July 6 & 7, July 13 & 14, July 20 & 21. Julie will send an e-mail to get dates set

Presented: by Ben, Discussion: E1 monitoring

Julie: SO these are narrative questions you’re hoping to have answered in addition to the data tracking questions?

Ben: yes, in addition to Beth’s interpretation of normal ________ policy.

Darius: SO these are specifically going to be part of the monitoring?

Ben: They are.

Presented: by Doreen, annual meeting

Discussion of volunteer needs for annual meeting…

Eric: What’s the rain plan?

Doreen: We did consider the teen center, but we’ll book them at the last minute if it looks like it might rain.

Julie: If the teen center isn’t available, we’ve used the fireside room in the church across the street. And if it’s just a little sketchy, we have several pop-up tents.

(Discussion of length of time to allot to candidates for their introductions)

Discussion of whether/how there will be time allotted to the anti-loan side. Agreement reached that the message from the mic will be limited to encouragement to vote and to talk to the folks on the pro/con side.

New Business

Presented by Eric – Motion: Resolution to open Money Market Account

Lucas: What are the terms of interest? (and how much are we putting in?) It’s already listed in our current assets? So why do we need the board to authorize it?

Eric: It’s a requirement of the bank—if it’s not authorized by the board, then we undo the account.

Lucas: So my question is when were we going to be told…

Eric: Well, normally, staff doesn’t need authorization to move money around in accounts…

Julie: The CD matured in between board meetings…(had to put the money into another account—can’t put it in a shoebox under Eric’s desk)

Jack: Used to be an auditor for KP&G, and this was always the source of a _______. You guys have a lot of opportunity to (do a lot of cash management?). You might want to look at the broader issue of ________

BE: In talking about the policy of …I really do think that it falls under (________) this policy…

Motion: Darius moved: Resolved, that Eric Stromberg, Douglas Walter and Elizabeth Tausczik are hereby authorized to open a MMDA Plus money market account on behalf of the Davis Food Cooperative, Inc., with NCB, FSB.

Further resolved that any of the above named employees are authorized to endorse checks and orders for the payment of money or otherwise withdraw or transfer funds on deposit with NCB, FSB.

Seconded by Doreen

Motion carried unanimously

Presented by Darius – Approval of April Minutes

As emailed to all Directors on May 6, the wording at line 401 should read:

Darius moved to place on the ballot a proposition that The Davis Food Co-op Board of Directors:

Darius moved to accept the April minutes as amended

Dan seconded

Motion carried unanimously

No Treasurer’s Report, Task Force Report or Follow up To Member Comments were presented.

Presented by Ben: letter from Annie Main re: Good Humus/Farmland Preservation Trust

(Discussion of what action needs to be taken on the letter, the Co-op’s support, etc.)

Meeting Evaluation

What Went Well?

Liked how the discussion of the reports sticks to one topic, and each person who brings up a report facilitates the discussion

Liked the member input

Upgrades

Having the whole board present would be nice

Put phones on vibrate

Next Meeting – June 4, 6:30

Facilitator: Julie

Time Keeper: Joy and Winston

Recorder:

There being no further business to come before the meeting, it was adjourned to closed session at 9:41 p.m. by a motion made by Julie , seconded by Darius, and passed unanimously.

Notice of Closed Session

A closed session of the Board was called to order by Darius at 9:45. This session was closed to guests pursuant to Board Policy GP6(D), which requires discussions concerning issues of a sensitive nature be held confidentially.

Directors Present: Winston Berger, Daniel Berliner, Julie Cross, Debbie Eernisse, Lucas Frerichs, Darius Pazirandeh, Ben Pearl, Doreen Pichotti, Joy Rowe

Directors Absent: Jared Davis, Danyal Kasapligil,

Staff Present: Eric Stromberg

The Board then considered the following items:

Motion regarding termination of a member for cause

Motion carried unanimously

Eric Stromberg departed at 9:55. The Board then held a discussion of procedures under Section Article VIII, Section 10(A)(3) of the bylaws. No motion was needed.

The closed session was adjourned at 10:15 p.m. on a motion made by Darius and seconded by Deb.

/s/ Julie Cross, Secretary

__________________________________ ______________________

Secretary, Davis Food Cooperative, Inc. Date Approved