Minutes devcorp 2 13 2015 (2)

Minutes of iGATE DevCorp Meeting of February 12, 2015 (2nd St)

At 5:33 pm Chair Sblend Sblendario called the meeting to order with the following in attendance: Jeff Wolf, John Mahoney, CM Newell Arnerich, Mayor John Marchand, Doug Rotman, Buck Koonce, Shail Khiyara, Pamela Ott, Mayor Jerry Thorne, Dale Kaye, Chair Sblend Sblendario & Secretary Marshall Kamena. Any telephonic attendees were muted so they could not be heard by those in attendance at the 2nd Street meeting site. However, a quorum was deemed to be present.

In a motion by Mayor Marchand and a second by Mayor Thorne the minutes of October 14th, 2014, as well as the current Staff Financial Report to the Board were unanimously approved as submitted.

As a reminder from the Secretary, at the October 14th, 2014 meeting the relevant members authorized the DevCorp Board to add the NEST Board members to the DevCorp Board resulting in a now 18 member Board. (Later in the meeting the members were told by E.D. Cardwell & others that the “old NEST Board” still exists and has a bank account & other assets. Its powers were not defined at this time.)

E.D. Cardwell introduced & summarized the following letter from Michael Conneran, an attorney familiar with the Ralph M. Brown Act in California. This letter was requested in April, 2014. A discussion ensued on bifurcation of the DevCorp Board in particular, as it “would allow interested advisors to recuse themselves from consideration of particular matters, without interfering with the ability of iGATE to proceed with the underlying deals.” See the option in the report below presented in a red font.

Here is the Staff Report:

From: Brandon Cardwell Date: February 12th, 2015 Subject: i-­‐GATE Status as a “Legislative Body” and Recommendations Summary On May 9th, 2014, the NEST board voted to engage attorney Michael Conneran to render a legal opinion on whether state public meeting, public records, and conflict of interest statutes apply to NEST and i-­‐ GATE. This move was motivated by the need to obtain clarity on whether NEST and i-­‐GATE are subject to government code Section 1090, the terms of which “prohibit financial self-­‐dealing by ‘public officials’ in the ‘making of contracts’ in which they have a financial interest.” (p. 4) Mr. Conneran has subsequently provided the NEST’s chairman with a legal memo detailing his finding that i-­‐GATE is indeed subject to the Brown Act and the Political Reform Act, and possibly Section 1090. Mr. Conneran acknowledges that the application of these laws and regulations may impede the ability of i-­‐GATE to execute its mission, and suggests that the following structural changes could minimize the impact: 1. 1) “iGATE could form an advisory body separate from the Board for private sector individuals to provide input and support the organization without being empowered to create or approve contracts. This would allow interested advisors to recuse themselves from consideration of particular matters, without interfering with the ability of iGATE to proceed with the underlying deals.”

Or,

Minutes of iGATE DevCorp Meeting of February 12, 2015 (2nd St)

2) “Another approach might be to create an entirely new entity to perform the same role as iGATE but without involvement of any city or public agency in the new entity's creation.” (p. 7) If we do not elect to pursue one of these approaches, then going forward each board member – public or private -­‐ will be required to file annual Statement of Economic Interests disclosure forms (Form 700) with the Fair Political Practices Commission, as well as continuing to be subject to Government Code Section 1090 conflict of interest laws. In this case, any i-­‐GATE board member would need to be certain that he or she, or the company he or she represents, would have no financial engagements with i-­‐GATE, which may prove to be a burden not worth enduring.

Recommendation In order to appropriately address the findings of legal counsel Michael Conneran’s memorandum (memo), which states that i-­‐GATE is for all intents and purposes a public entity, staff recommends the i-­‐ GATE Development Corporation Board discuss the findings and take the following actions: 1. Vote to accept the memo and findings 2. Consider the options suggested by Mr. Conneran and staff and decide which course of action to pursue Background Following the resignation of i-­‐GATE CEO Thomas Spirgi in February 2014, the NEST board voted to install Chairman Shail Khiyara as acting CEO. The discussion of whether or not this role should be compensated prompted the City of Livermore’s City Attorney to advise that certain state transparency laws that apply to NEST and i-­‐GATE, e.g. the Brown Act, may also make it illegal to have a NEST board member serve concurrently as a compensated staff member.

On April 24th, 2014, the City of Livermore City Attorney’s Office produced a memo in which it renders the opinion that NEST and i-­‐GATE are subject to the section 1090 law, and that NEST’s and i-­‐GATE’s board members are, for all intents and purposes, public officials. However, the City Attorney also advised the NEST board to retain its own legal counsel for a final opinion and to seek guidance on how to proceed. On May 9th, 2014, the NEST board voted to engage the services of attorney Michael Conneran, who specializes in municipal law.

In July of 2014, Mr. Conneran produced a legal memorandum in which he concurs with the majority of the City Attorney’s findings. From the memo: “We generally agree with the reasoning and conclusions set forth in the Livermore memo, although we have some additional suggestions regarding the steps iGATE may opt to take in light of this situation. We also provide guidance on how iGATE might restructure itself in response to the above-­‐cited laws and other related statutes, should iGATE find that the application of those laws interferes with iGATE’s ability to fulfill its important mission.” (p. 1) The memo is largely focused on answering the question of whether or not i-­‐GATE is subject to the Brown Act, the Political Reform Act, and government code section 1090.

Brown Act With respect to the Brown Act, the memo explains the criteria for determining Brown Act applicability as follows: “While the law is generally directed at public bodies, such as City Councils and commissions, the Brown Act, under certain circumstances, also extends its reach to private entities. Specifically, the Brown Act, at Government Code Section 54942(c) applies to: 2.

Minutes of iGATE DevCorp Meeting of February 12, 2015 (2nd St)

1) a board, commission or other multi-­‐member body that governs a private corporation, limited liability company or other entity that either: 1. Is created by the elected legislative body in order to exercise authority that may lawfully be delegated by the elected governing body to a private corporation, limited liability company, or other entity. [or] 2. Receives funds from a local agency and the membership of whose governing body includes a member of the legislative body of the local agency appointed to that governing body as a full voting member by the legislative body of the local agency.”

The memo goes on to find that, “As the Livermore memo concluded, iGATE appears to have been created by a ‘legislative body’ (the City Council of at least one city) to "exercise authority that may lawfully be delegated" by the City Council and therefore, under one, if not both subsections of Government Code Section 54952(c), iGATE is a ‘legislative body’ subject to the Brown Act.” (p. 3) Political Reform Act According to Mr. Conneran’s memo, “The Political Reform Act (‘PRA’) applies to ‘public officials’ and mandates, among other things, reporting and disqualification procedures relating to decisions in which such officials have a financial interest.” (p. 3) The memo goes on to note that “Under long-­‐established determinations of the Fair Political Practices Commission (‘FPPC’), non-­‐ profit corporations can be considered to be ‘local government agencies’ whose board members are subject to the PRA's requirements.” (p. 3) The FPPC decides whether or not a non-­‐profit is subject to the PRA by applying the following criteria: • • Whether the impetus for formation of the corporation originated with a government agency; • • Whether it is substantially funded by, or its primary source of funds is, a government agency; • • Whether one of the principal purposes for which it is formed is to provide services or undertake obligations which public agencies are legally authorized to perform, and which in fact they traditionally have performed; and • • Whether the corporation is treated as a public entity by other statutory provisions.

As Mr. Conneran notes, “In this instance, it appears that the impetus for the formation of iGATE began with a governmental agency, its primary source of funding is from governmental agencies, and, based on the analysis of the applicability of the Brown Act above, it is treated as a public entity by other statutory provisions (although it remains a private, non-­‐profit corporation).” (p. 4) The result of these findings is that i-­‐GATE is indeed subject to the PRA, and therefore is required “to adopt a Conflict of Interest Code, have it approved by the FPPC, and have all of its directors begin to file annual Statement of Economic Interests disclosures (FPPC Form 700). More significantly, however, directors would need to consider whether any decisions they make as members of the Board might involve a financial interest that would preclude their participation.” (p. 4) Government Code Section 1090 Section 1090 is a statute that is designed to “prohibit financial self-­‐dealing by ‘public officials’ in the ‘making of contracts’ in which they have a financial interest.” (p. 4) According to Mr. Conneran, the “application of Section 1090 could be disastrous for a

Minutes of iGATE DevCorp Meeting of February 12, 2015 (2nd St)

body such as iGATE.” He goes on to state that the statute “contains draconian penalties for any violation.” (p. 4) Therefore, it is wise to avoid even the appearance of violating Section 1090.

One aspect of Section 1090 that may be particularly cumbersome to i-­‐GATE is “the potential for a conflict under Section 1090 to bar the entire entity from taking an action with regard to a transaction involving just a single director's financial interests, even if the interested director recuses himself.” (p. 5) According to Mr. Conneran, “This means that anyone considering participating on the Board would need to know that none of their projects (or likely those of their employer) are going to be eligible for assistance from iGATE while they are on the iGATE Board.” (p. 5) It is worth noting Mr. Conneran’s statement in the memo that “it is not entirely clear that Section 1090 applies to iGATE, since there is no legal precedent applying 1090 to a director of a non-­‐profit corporation. An argument could be made that a director of a non-­‐profit that simply receives government funding is not per se a ‘public official’ subject to the terms of Section 1090.” (p. 5) However, Mr. Conneran goes on to state: “While we are not convinced that a court would necessarily determine that the iGATE Board of Directors would be subject to Section 1090, given the severity of the penalties for violating this statute, we must advise you to act as if it does apply, at least until you can obtain definitive guidance from the FPPC that it does not.” (p. 7) Mr. Conneran also mentions in the memo that “there may have been previous instances in which a director also served as the temporary CEO of iGATE, receiving compensation for that service.” (p. 6) It is important to clarify that at no time has an i-­‐GATE board member/director served in any compensated role for i-­‐GATE. While it is accurate that clarifying the legal ability of a board member to serve as interim CEO and be compensated was the impetus for retaining legal counsel, no board member received compensation at any time.

Options to Consider The findings contained in the legal memorandum provided by Mr. Conneran have significant, but not insurmountable, implications for i-­‐GATE and its board of directors. If the i-­‐GATE board determines that actions should be taken to minimize the organizational impact of compliance with the Brown Act, the Political Reform Act, and Government Code Section 1090, Mr. Conneran has suggested some structural changes that may be useful:

1. 1) “iGATE could form an advisory body separate from the Board for private sector individuals to provide input and support the organization without being empowered to create or approve contracts. This would allow interested advisors to recuse themselves from consideration of particular matters, without interfering with the ability of iGATE to proceed with the underlying deals.”

Or, 2. 2) “Another approach might be to create an entirely new entity to perform the same role as iGATE but without involvement of any city or public agency in the new entity's creation.” (p. 7) Considering the fact that the majority of i-­‐GATE’s operating capital, its physical facility, and its executive director are all provided by one or more local government, pursuing option 2 does not appear to be feasible at this time.

Option 1 would entail a significant shift in the composition of i-­‐GATE’s voting board, but may be an effective way to reduce risk for i-­‐GATE’s private sector members while allowing them to

Minutes of iGATE DevCorp Meeting of February 12, 2015 (2nd St)

continue contributing to i-­‐GATE’s success through an advisory role. In fact, i-­‐GATE already has an advisory body in place in the Venture Advisor group, which could have its scope expanded to include providing input to the board. i-­‐GATE’s public sector board members are already subject to the laws and reporting requirements in question, and the city partners provide the bulk of i-­‐ GATE’s funding, so moving to a governance board that is populated by public officials could be reasonable approach.

XXX END of printed Staff Report XXX

A summary of discussion points & actions taken follows. E.D. Cardwell said that at issue here is the authorization for legal work that was given last year by the Chair of the inappropriate Board, namely the old NEST Board. Various levels of concern were expressed. CM Arnerich asked whether or not the attorney had been paid for his work. Furthermore the question as to payment for work by the Executive Director was broached. The answer was “No” in each case.

An explanation as to the motivation to get the attorney’s opinion was expressed by NEST Chair Khiyara. He mentioned that Section 1090 of the Act as it relates to conflicts of interest were quite draconian so that no one in the private sector would risk drawing a salary. DevCorp Chair Sblendario explained that not he, but someone else, namely the NEST Chair, signed the letter of engagement for legal work. The iGate DevCorp Board did not authorize the item. Opinions were given as to whether or not the attorney should get compensated and if so, by what board.

Tacit reference was made as to the NEST Board’s bank account of $30,000.00 to $40,000.00, but no conclusion was reached. A few Directors openly felt that no payment should be made.

Several Directors did not enter that debate. One opinion stated that none of the Boards, before or after arriving at the 18 member configuration, had actually authorized the work. A mixed conversation concerning the ability to pay any of the Board Chairs and the Conneran firm took place. No action was taken at this point. One further point was made by some directors, namely that no legal violations appeared to exist as a result of the sequence of actions under discussion. The question was asked, “Are there any past liabilities related to the Brown Act and/or 1090 to which this organization (DevCorp and NEST) has been subjected?" The response was, “None.”

Further discussion of the $3,000 or more dollars at issue with Conneran suggested that it should not be paid by DevCorp, but NEST. Another opinion that the DevCorp Board should not be without legal counsel in the future was also expressed. A motion by Arnerich & a second by Mahoney was made to place on the next agenda the issue of Conneran’s fee resolution, and whether or not the Board wishes to hire legal counsel. The motion appeared to pass by concensus.

Another action was requested by CM Arnerich. He asked E.D. Cardwell to place on NEST’s agenda a discussion of how NEST will phase out its Board and assign its assets. No motion was memorialized inasmuch as the iGATE DevCorp Board doe not have jurisdiction to schedule the old NEST Board’s meetings. No response was made to the request, but the silence appeared to indicate assent.

The Board now returned to the main point of Attorney Conneran’s letter: How should we restructure? A great deal of time was used to make the appeal to form an Advisory Board of

Minutes of iGATE DevCorp Meeting of February 12, 2015 (2nd St)

people to join who do not wish to be subject to the constraints of the existing rules applicable to the present Nest & DevCorp Boards.

A motion was made by Mahoney and a second by CM Arnerich to restructure the main iGATE governing board called the iGATE DevCorp Board. The restructure would result in having two groups. The present Board would be populated by at least all of the elected officials. The other group would be an Advisory Body to the governing body. If this motion passes it will be in accord with the Conneran recommendation to have two groups. One would be subject to the Brown Act & one would not.

Energetic discussion prevailed on the floor with reasons to vote in favor of the motion. The makers of the motion made it clear that the elected officials would automatically be members of the governing body as they are now. Private sector members would have the option of being on the Advisory Group with its associated relief from both the rigors of the rules of operation of the DevCorp Board and the decision making ability reserved to the DevCorp members. However, while this motion establishes a separate Advisory Group, it does not limit the Governing iGATE DevCorp voting Board only to the city members.

The motion passed unanimously.

Attempts to generally define guidelines for those who would populate the Advisory Group yielded to this topic being postponed to the next meeting. In the interim the Chair appointed a group of three original DevCorp Board Members consisting of himself, and Directors Mahoney & Kaye. They will meet to propose the general guidelines for the Advisory Group membership.

They may also address a recommendation as to the eligibility of non-­‐electeds to be members of the DevCorp Board & subject to its rules.

While on the subject of additional DevCorp Governing Board members, Buck Koonce, speaking for Lawrence & for Sandia National Laboratories, said that they would stay on that Board if, “It was deemed to be in the best interests of iGATE.”

The Operational Update for Feb 12, 2015 was presented by E.D. Cardwell. It appeared as a separate attachment in the agenda for this meeting. Special attention was given to learning how to commercialize technology through EERE’s LabCorps program.

The Chair adjourned the meeting at 7:02 pm.

The next meeting will be May 21st, a Thursday, at the 2nd Street iGATE location.

Respectfully submitted,

Marshall Kamena Secretary, DevCorp Board