Co-op Board member resigns; Board urgent to fill vacancy

► Unexplained urgency in filling suddenly unidentified vacant Board position

Some Sacramento Natural Foods Co-op members may have received an email from the Co-op on August 18 that now (suddenly) a Board member resigned from the Board and that the vacancy has to be filled "immediately". See http://www.sacfoodcoop.com/index.php?option=com_content&view=category&id=51&Itemid=82

What’s the hurry? Members are about to elect two new Board members. Why not wait and let the new Board fill the vacancy?

As members, we have a right to know who resigned and why they resigned. You can try emailing the Board & GM Paul Cultrera and asking them.

Board & GM emails: michellereyn [at] gmail.com, steven_maviglio [at] yahoo.com, adienst [at] sbcglobal.net, sonemi [at] comcast.net, rhdjr65 [at] aol.com, sccfcommittee [at] yahoo.com, annmariein53 [at] yahoo.com, pcultrera [at] sacfoodcoop.com

► If you believe in one-member one vote: Vote No on Measure 1

Measure 1 would remove the restriction that preferred stock be “non-voting”

In the first sentence of its ballot argument, the Board refers to the amendment passed last year that permitted the Co-op to sell non-voting preferred shares to fully vested Co-op owners. But their Measure 1 removes the wording “non-voting”. Read it carefully.

In addition, Measure 1 would allow the Board to give unspecified special “rights, preferences and privileges” to those who buy Preferred Stock.

Current Wording: Section III of the SNFC Articles of Incorporation now reads: [bolding added]

This corporation is authorized to issue four classes of shares to be designated, respectively, (a) Class A Membership Shares, (b) Class B Preferred Non- voting shares, (c) Class C Preferred Non-voting shares, and (d) Class D Preferred Non-voting shares. The total number of shares that this corporation is authorized to issue is 4,000,000. The total number of Class A membership shares authorized to be issued is 1,000,000 (the “Membership Shares”). The total number of Class B Preferred Non-voting shares authorized to be issued is 1,000,000 (the “Class B Preferred Shares”). The total number of Class C Preferred Non-voting shares authorized to be issued is 1,000,000 (the “Class C Preferred Shares”). The total number of Class D Preferred Non-voting shares authorized to be issued is 1,000,000 (the “Class D Preferred Shares”). All shares of this corporation shall be without par value.

Measure 1 Proposed Wording: The above wording of Section III would be replaced with the following language: [bolding added]

The total number of shares which the cooperative corporation is authorized to issue is four million (4,000,000) shares, one million (1,000,000) shares of which shall be Membership or Common Stock (the “Common Stock”) having no par value, and three million (3,000,000) shares of which shall be Preferred Stock (the “Preferred Stock”) having no par value. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, within the limitations and restrictions stated in these Articles of Incorporation, to fix or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series prior or subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding.

What is the impact on the Co-op of selling preferred stock?

While Co-op members are not entitled to any dividend on their Membership share, Preferred Stock holders are entitled to whatever rate is fixed when they buy their stock – regardless of the Co-op’s financial situation. While generally preferred stock does not include voting rights, it can include such rights and the Board has left the door wide open for this by eliminating the “non-voting” restriction and by giving itself the authority to “fix or alter the rights, preferences, [and] privileges” made available to those who buy the stock. Such voting rights could be assigned based on the amount of preferred stock a person owns, meaning that a single stockholder could have multiple votes.

The Bylaws currently refer to preferred “non-voting” shares. However, Measure 1 not only eliminates the references to the term “non-voting”, it bypasses the Bylaws by only binding the Board to “limitations and restrictions” in the Articles of Incorporation (which, if Measure 1 passes would say nothing about Preferred Stock being non-voting).

Measure 1 would allow the Co-op to issue $4 million worth of stock, 1 million of which is Membership Common Stock and 3 million of which is Preferred Stock. Given that Co-op Management freely states it listens more to the opinions of the top 100 shoppers than to other shoppers, even without voting power, if three-fourths of the Co-op’s stock is owned by holders of Preferred Stock, it is difficult to believe that those stock holders would not have a significant, and quite possibly, overwhelming voice in the Co-op’s future, much more than the majority of members.

What is Co-op Management’s explanation?

When asked about this apparent loophole in Measure 1, which would potentially allow for holders of Preferred Stock to get voting rights (again based on the amount of stock they hold), Co-op General Manager Paul Cultrera did not dispute it. Instead he says: "the Board made that clear that it is their intention that preferred shares be non-voting through the time that it was proposing the program". If, despite this alleged intention, the Board tries to give voting privileges to Preferred Stockholders, Cultrera says he will "do everything in his power to stop the sale." (See his full message below.)

To assure that Preferred Stockholders do not have voting rights, the General Manager is asking Members to rely, NOT on the wording of Measure 1, but on the intention (or whim) of the Board and the General Manager. Given that this Board has show its willingness to violate the Bylaws and act in a deceitful manner (for example by posting a phony ballot argument to Measure 2) and that Boards and General Managers change, this isn't much of an assurance.

On Aug 19, 2011, at 12:52 PM, Paul Cultrera wrote [to a Co-op member]:

The Department of Corporations, after reviewing our application for a permit to offer preferred shares, wrote back saying: "Applicant is seeking to issue multiple classes of preferred stock, but its Articles of Incorporation and Bylaws fail to designate the rights, preferences, privileges and restrictions granted and imposed on each individual class. Please amend the Articles and/or Bylaws of Sacramento Natural Foods Cooperative to better disclose and designate the rights, preferences, etc. of the proposed classes of security to the Department"

So yes, the language in the proposed amendment are a response to what the DoC is requiring. In proposing the preferred share program last year the Board always made it clear that it would be the body that would decide dividend rates, and the terms of the share offerings, and that was the information that owners had when they voted 91% in favor of preferred shares last year (you can see the info that was given to owners at http://www.sacfoodcoop.com/index.php?option=com_content&view=article&id=1269%3Afaq&catid=115%3Anew-share-offerings&Itemid=111 . And if not the Board, then what other body of decision makers would be appropriate to make such decisions?

The non-voting language was not taken out to allow for voting privileges associated with preferred shares. There is mention of voting rights and the fact that preferred shares are non-voting shares elsewhere in many places in the Bylaws. And the Board made that clear that it is their intention that preferred shares be non-voting through the time that it was proposing the program. In its statement in favor of the proposed Measure One that Board starts off by saying "Last year, Co-op owners overwhelmingly approved a program to sell non-voting preferred shares to fully vested Co-op owners" (underline added here by me). So I don't think that there is anywhere any intent to give any voting privileges to the preferred shares. If in fact that was the case I would use everything in my power to stop the their sale.

Ballot arguments for and against Measure 1 are on the Co-op's website: http://www.sacfoodcoop.com/index.php?option=com_content&view=article&id=1530:view-the-pro-and-con-arguments-on-the-ballot-measures&catid=51&Itemid=82

Info about pro-Democracy candidates: http://www.CoopMembersMatter.org