ARTICLE V: Board of Directors
5.1 Number and Composition. The Board shall be composed of nine (9) Directors. Directors shall be elected from among the Members of the Cooperative, and all Directors must remain Members of the Cooperative during their term of office. A maximum of two eligible owners who are paid employees of the Cooperative may serve as Members of the Board at any one time, if they are not disqualified by any other provision of these Bylaws.
5.2 Powers and Duties. The Board shall have full power to govern the Cooperative, including, but not limited to: assuring that the Cooperative’s mission is carried out; fiscal oversight of the Cooperative; setting the level of required Member equity investment and making assessments for such investment; hiring and compensation of management, the evaluation of management’s performance and establishing compensation of Board Members, if any.
All Directors shall perform the duties of a Director, including duties as a member of any committee of the Board upon which the Director may serve, in good faith, in a manner such Director believes to be in the best interests of the Cooperative and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. The vote of a Board member, who is also a paid employee of the Cooperative shall not be counted in matters relating to the employment of the General Manager.
The following matters require vote of a majority of the Membership, as defined at Cal Corp § 12223:
- Voluntary Dissolution or Sale of more than 50 percent of the Cooperative’s assets.
b. Merger with another entity.
- c. An amendment to the Articles of Incorporation or Bylaws that would effect a change in the rights, preferences and privileges of any Members holding any shares of any outstanding class of Investment shares, requires the approval of a majority of the holders of shares of that class.
5.3 Vacancies. Any vacancies on the Board may be filled by approval of a quorum of the Board; or, if the number of Directors then in office is less than a quorum, by (1) the unanimous written consent of the Directors then in office, or (2) the affirmative vote of a majority of the Directors then in office at a meeting held pursuant to notice or waivers of notice, or (3) a sole remaining Director.
5.4 Terms and Elections. Elections shall occur annually, in a manner prescribed by the Board and set forth in the Cooperative’s Policy Manual. Directors shall serve no longer than seven (7) consecutive years including two 3-year terms; and shall serve staggered terms so that approximately one-third of the Board is elected each year.
5.5 Removal. A Director who has been declared of unsound mind by an order of court or convicted of a felony may be removed by a decision of two-thirds of the remaining Directors. A Director may also be removed for failure to attend three (3) consecutive regularly noticed meetings of the Board. A Director may be removed without cause by a vote of the Membership pursuit to Cooperative policy.
5.6 Meetings. Meetings of the Board may be called by the Chair of the Board or the President or any Vice President or the Secretary or any two Directors. Regular meetings of the Board may be held without notice if the time and place of the meetings are fixed by these Bylaws or the Board. Special meetings of the Board shall be held on four days notice by first-class mail or 48 hours notice delivered personally or by telephone, including a voice messaging system or by electronic transmission by the Cooperative. A notice, or waiver of notice, need not specify the purpose of any regular or special meeting of the Board. Notice of a meeting need not be given to any Director who provides a waiver of notice or consent to holding the meeting.
5.7 Action without a Meeting. Any action required or permitted to be taken by the Board may be taken without a meeting, if all Members of the Board shall individually and collectively unanimously consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. The action by written consent shall have the same force and effect as a unanimous vote of the Directors.
5.8 Quorum. A majority of the current Directors shall constitute a quorum and no decisions will be made without a quorum.
5.9 Conflicts of Interest Directors shall be under an obligation to disclose their actual or potential conflicts of interest in any matter under consideration by the Board. Directors having such a conflict shall absent themselves from discussion and decision of the matter unless:
A. The material facts as to the transaction and as to such Director’s interest are fully disclosed or known to the Members and such contract or transaction is approved by the Members in good faith, with any Membership owned by any interested Director not being entitled to vote thereon, or:
B The material facts as to the transaction and as to such Director’s interest are fully disclosed and known to the Board or committee of the Board, and the Board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the interested Director or Directors, and the contract or transaction is just and reasonable as to the Cooperative at the time it is authorized, approved or ratified.
C. A Director is not “interested” within the meaning of this section, in a resolution fixing the compensation of Directors, officers or employees of the Cooperative, notwithstanding the fact that the Director receives compensation from the Cooperative, except as provided in section 5.2.
D. Ownership of investment shares shall not be considered an actual conflict of interest except with regard to the setting of any of the rights, preferences or privileges of the specific series of preferred shares owned by a Director. However, in the event that ownership of preferred shares reduces the number of eligible Directors below the number required for a quorum, otherwise disqualified Directors may vote.
5.10 Officers. The Cooperative’s Board of Directors shall elect a Chair of the Board or a President or a single individual elected to serve with both titles, a Secretary, a Treasurer or a Chief Financial Officer or a single individual elected to serve with both titles, and such other officers as shall be stated in the Bylaws or determined by the Board as necessary.
5.11 Indemnification. It is the intent of the Cooperative to indemnify its agents to the fullest extent provided by law.
(A) For the purposes of this section, “agent” means any person who is or was a Director, officer, employee or other agent of the Cooperative; “proceeding” means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and “expenses” includes without limitation attorneys' fees and any expenses of establishing a right to indemnification under subdivision (d) or paragraph (3) of subdivision (e).
(B) The Cooperative shall have power to indemnify and shall indemnify any person who was, or is a party, or is threatened to be made a party, to any proceeding by reason of the fact that the person is, or was, an agent of the Cooperative, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the proceeding if the person acted in good faith and in a manner the person reasonably believed to be in the best interests of the Cooperative and, in the case of a criminal proceeding, had no reasonable cause to believe their conduct was unlawful.
(C).Except, no indemnification shall be made under this subdivision, in respect of any claim, issue or matter as to which the person shall have been adjudged to be liable to the Cooperative in the performance of the person's duty to the Cooperative, unless and only to the extent that the court shall determine that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine;
(D) Except in cases where the court has determined the amount of indemnification due, any other indemnification under this section shall be made by the Cooperative only if authorized in the specific case, upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in subdivision (b), by:
(1) A majority vote of a quorum consisting of Directors who are not parties to the proceeding; or
(2) Approval of the Members, with the persons to be indemnified not being entitled to vote thereon; or
(3) The court in which the proceeding is or was pending, upon application made by the Cooperative or the agent, whether or not the application by the agent is opposed by the Cooperative.
(E) Expenses incurred in defending any proceeding may be advanced by the Cooperative prior to the final disposition of the proceeding upon receipt of an undertaking by or on behalf of the agent to repay the amount unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this section.
(F) A Cooperative shall have power to purchase and maintain insurance on behalf of any agent of the Cooperative against any liability asserted against or incurred by the agent in that capacity or arising out of the agent's status as such whether or not the Cooperative would have the power to indemnify the agent against that liability under the provisions of this section.
(G) This section does not apply to any proceeding against any trustee, investment manager, or other fiduciary of a pension, deferred compensation, saving, thrift, or other retirement, incentive, or benefit plan, trust, or provision for any or all of the Cooperative's Directors, officers, employees, and persons providing services to the Cooperative or any of its subsidiary or related or affiliated Cooperatives, in the person's capacity as such, even though the person may also be an agent as defined in subdivision (a) of the employer Cooperative.
6. 1 Issuance and terms. The Cooperative shall issue two classes of shares to evidence capital funds provided by Members. Ownership of Class A Membership Shares entitles the Member of Record to one vote and all other rights of ownership. At their option, Members may purchase Class B Investment Shares, which are non-voting shares. Investment shares are entitled to a dividend should a dividend be declared by the Board. Shares may be issued only to persons eligible for, and admitted to Membership in the Cooperative. Shares shall be considered issued upon full payment of no less than their issuing price and need not be evidenced by certificates. Class A Membership Shares shall be entitled to no dividend or other monetary return on contributed capital. The minimum share purchase requirement shall be subject to increase by the Board of Directors, for the reasonable capital needs of the Cooperative, provided that such increase applies equally to both existing and newly- admitted owners.
6.2 Redemption. Upon written request, following termination of Membership, shares shall be redeemed, and the Cooperative shall have one year from the notice of redemption to redeem the shares. Shares shall be redeemable pursuant to their terms, or at the lesser of their carrying value on the books of the Co- op, or their net book value less a reasonable processing fee, if any, as determined by the Board. Redemption proceeds shall be subject to offset by amounts due and payable to the Cooperative by the Member. No redemption shall be made if the Cooperative is, or as a result of such payment would be, likely to be unable to meet its liabilities as they mature.
6.3 Conflict of Interest. Ownership of investment shares shall not be considered a conflict of interest except with regard to the setting of any of the rights, preferences or privileges of any specific series of preferred shares actually owned by a Director, and as further described in Article 4.9.
ARTICLE VII: FINANCIAL
7.1 Fiscal year. The fiscal year shall be determined by the Board.
7.2 Net Surplus Savings and Earnings.At the end of each fiscal year the net surplus savings and earnings of the Cooperative (hereafter referred to as net earnings) shall be computed and applied as follows:
(A) Computation of net earnings. For purposes of this article the net earnings of the Cooperative shall be based on the annual financial report and computed, in accordance with generally accepted accounting practices, as follows:
(1)without regard to Patronage Refunds;
(2)before provisions for federal and state income taxes; and
(3)after allocating to the reserve fund the net amount, after federal and state income taxes, of any gains or losses resulting from the sale or exchange of land, buildings, or equipment.
(B)Application of net earnings.The net earnings shall be applied as follows;
(1)Capital shall be restored to the extent of any impairment thereof;
(2)The Board may set aside reasonable reserves for necessary business purposes;
(3)The net earnings of the Cooperative for each fiscal year, to the extent attributable to the patronage of Members in good standing, shall be allocated and distributed among such Members as Patronage Refunds in proportion to their patronage. In determining and allocating net earnings, the Cooperative shall use a single allocation unit except to the extent that it may subsequently engage in any new and distinct line of business; Should the Board declare a Dividend on investment shares, such Dividend shall be paid first from that portion of net earnings attributed to non-Member business.
(4)Members shall retain the right to waive in whole or in part, by vote of Members at a meeting, any Patronage Refunds to which they may be entitled;
(5)Patronage Dividends shall be paid in the manner and to the extent required by the Internal Revenue Code and Treasury Department regulations to qualify for income tax deductions for the Cooperative. A qualified written notice of allocation shall be mailed to those eligible within eight- and-a-half months of the end of the fiscal year, including payment in cash of 20 percent or more, as determined by the Board. Any amounts not paid in cash will be credited as payment on additional shares until a shareholder owns the maximum dollar amount of Membership shares, after which, all amounts will be paid in cash;
(6) Any allocations of such a nominal amount as not to justify the expenses of distribution may, as determined by the Board, be excluded from distribution provided that they are not then or later distributed to other Members;
(7)A portion of Patronage Refunds, not to exceed 80 percent of the allocation, may be retained for the reasonable capital needs of the Cooperative. Such retentions shall accrue no monetary return on investment, shall not be transferable, and shall be in whole dollars only. They shall be redeemed when determined by the Board to be no longer needed for capital purposes. At that time they shall be redeemed in the order of the oldest outstanding amounts and on a pro rata basis among such amounts. Retained amounts may also be redeemed under compelling circumstances as determined by the Board. Retained amounts shall be subject at all times to being offset by amounts otherwise due and payable to the Cooperative.
7.3 Consent. Persons who become or remain shareholders of this Cooperative after the adoption of this Bylaw thereby consent to include in their gross income for federal income tax purposes the stated dollar amount of any qualified written notice of allocation in the taxable year in which such notice is received, except to the extent that such a patronage refund is not income to the shareholder because: (a) it is attributable to the purchase of personal, living, or family items, or (b) it should properly be treated as an adjustment to the tax basis of property previously purchased. All terms used herein shall have the same meaning as under the Internal Revenue Code.
7.4 Annual Audit. An annual audit or financial review of accounts shall be made by an auditor approved by the Board. The audit or financial review shall be presented to the Board no later than 120 days after the close of the Cooperative’s fiscal year and shall be available to any current Member, on written request. Notice of the availability of the annual audit or annual report shall be provided to all current Members in conjunction with notice of the annual meeting. Such annual audit or report may be provided to Members electronically.
7.5 Covered Transactions. The Cooperative shall also furnish to Members a statement of any covered transaction during the previous fiscal year involving more than $1000.00, or which was one of a series of covered transactions in which the same interested person had a direct or indirect material financial interest, and which transactions in the aggregate involved more than $1000.00. A covered transaction is one in which the Cooperative was a party and a Director or officer of the Cooperative had a direct or indirect material financial interest.
7.6 Communication by electronic means. Unless otherwise required by these Bylaws, any notice, consent, ballot, petition, or other document required or permitted by these bylaws may be delivered by electronic means, provided that, in the case where such communication expressly or impliedly requires the signature of the person submitting the communication, means are in place to reasonably assure the authenticity of the signature. By this section Members agree to receive such communications electronically.
ARTICLE VIII: INITIATIVE
The Board shall maintain an Initiative Policy in conformity with California Cooperative Corporation Law.
ARTICLE IX: PATRONAGE DIVIDENDS
9.1 Allocations to Members. The Cooperative shall allocate and distribute Patronage Dividends to Members in conformity with state and federal laws. The Board shall determine when and how such allocations and distributions will be made, according to the provisions set forth in Article VII of these Bylaws.
9.2 Payment of Dividends. All Dividends paid on preferred shares shall be paid exclusively out of net income from non-Member-owner patronage business, current or accumulated; to the extent such net income is sufficient to satisfy any dividend obligation.
ARTICLE X: DISSOLUTION
10.1 Asset Distribution. The Cooperative may be dissolved pursuant to sections 12620-12663 of the California Cooperative Corporations Law. Upon dissolution, the Cooperative’s assets shall be distributed as follows:
1. The Board shall first determine that all known debts and liabilities of the Cooperative have been paid or adequately provided for, including pursuant to section 12653(c).
2. The Board shall then provide for distribution of any retained, allocated patronage. If the patronage cannot be paid in full, it shall be paid in the order of paying the oldest outstanding amounts first.
3. Following the distribution of outstanding, allocated patronage, the Board may redeem any outstanding investment shares in order of paying the oldest outstanding class or series first and if such shares cannot be redeemed in full, then pro-rata among each outstanding series. After redemption of all outstanding investment shares, the Cooperative shall redeem any outstanding Membership shares on a pro-rata basis if such shares cannot be redeemed in full.
4. The Cooperative, in the process of winding up, may adopt a plan of distribution of the Memberships, obligations or securities of the Cooperative if approved by the Board and a majority of each class or series outstanding. The plan may provide that such distribution is in complete or partial satisfaction of the rights of any such Members upon distribution and liquidation of the assets. A plan of distribution so approved shall be binding upon all Members. The Board shall cause notice of the adoption of the plan to be given by mail within 20 days after its adoption to all holders of Memberships having a liquidation preference.
5. Any remaining assets shall be distributed to Members on a pro-rata basis.
6. If any Members, creditors, or other persons are unknown or fail or refuse to accept their payment or distribution or their whereabouts cannot be ascertained after diligent inquiry; or the existence or amount of the claim is contested or contingent, then the Cooperative may deposit any such payment, distribution or the maximum amount of the claim with the State Controller, under Chapter 7 of Title 10 of Part 3 of the Code of Civil Procedure, in trust for the benefit of those lawfully entitled to the payment, distribution or amount of the claim.
11.1 Amendments. These Bylaws may be amended or repealed in whole or in part by a majority of the Members who participate in the vote. An amendment may be proposed by decision of the Board or by petition of at least five percent (5 percent) of active Members. The proposed amendment shall be publicized to the Membership not less than four (4) weeks prior to the voting process, which shall be held at a time and in a manner determined by the Board.
Explanation of Bylaws Consent Provision with respect to Patronage Refunds
A provision of the Davis Food Cooperative Bylaws — Article VII, section 7.2 — requires that persons who become or remain shareholders of the Cooperative after the adoption of that provision thereby consent to include in their gross incomes for income tax purposes the amounts of any Patronage Refund paid to them by the Cooperative, except to the extent that certain exceptions apply.
The first exception states that inclusion in taxable income is not required where a shareholder’s purchases from the Cooperative are attributable to “personal, living, or family items.” This exception would apply to “consumer shareholders” whose purchases were for personal or household consumption. It would not apply to consumer shareholders whose purchases were for use or resale in a trade or business, or for use in other income-producing activities, nor would it apply to business shareholders.
Thus, the Bylaws consent provision is of no significance to most consumer shareholders of the Cooperative, and such shareholders are not required to include the Patronage Refund in their taxable incomes. Inclusion of the Patronage Refund in taxable income is required only of business shareholders and of consumer shareholders whose purchases were for business or income-producing purposes.