North Dakota Board of Higher Education June 3, 2013 Executive Session Transcript Shaft: So, as President Espegard indicated,

we have all of the Board members present. In going into executive session, we indicated that the president of the Board has received, essentially, two proposals. One is a proposal to enter into an employment agreement with Chancellor Shirvani that would essentially continue his current contract for the remaining two-year period, subject to more formalizing language that isnt contained in the current contract, especially concerning terms of departure that became necessary. The second is a separation agreement option that was presented by Dr. Shirvani. As I understand, within that option, there are terms of buyout, along with some additional payments. I understand, per my direction, that you have been in contact with Dr. Shirvani's counsel at Dorsey Whitney, and through that process, you have entered into negotiations that will present options for this Board concerning the separation agreement that we can consider. Is that your understanding? - - - (attorney consultation with Sara McGrane) - - Espegard: Grant, would you go over the four options, then? You can start with number one, which seems terribly unfair. Shaft: So Ill start out withfirst, is everybody clear with the employment agreement option? Okay, then we can set that aside for now. With regard to the buyout options, the broadest option was: he gets paid out under his contract, but he would, right now, if he gets a new job, he gets paid no matter what, whether hes employed or not. Then he had some additional options which included moving expenses, some damages for reputation, and a provision that provided for a tenured position at UND and NDSU. That was the broadest. As Sara indicated, that really wasnt acceptable. What it boils down to is one acceptable option to them and one unacceptable option for them. The acceptable option was, essentially, he gets paid under his contract, and he gets paid no matter what. Period. Everybody fully releases each other; he doesnt get any a la carte. The other option is just the difference that he doesnt get paid no matter what; he gets paid only until he gets a job, and then the only payments we would owe him is if his new salary is less than what it is currently, so if it is a hundred grand less, he gets a hundred grand. And thats the difference. Theyve indicated it is not acceptable, and what we dont know is if that is posturing or not. I will tell you that they capitulated quickly on most of the other items, but they did draw the line in the sand on this item, and they have drawn the line in the sand on this item for a while, now. Our attorneys recommendation is option two, and that just says we pay him, good luck; if you get a job, good for you, it was a good day at the office; if you dont, youre covered because were paying out your contract. Espegard: It does include salary increases. Shaft: Its the same payment that you would get if he was continually with us. Espegard: At maximum, four and three.

Shaft: The same as what the legislature gave him, the retirement contributionsno different. Espegard: And thats in all options. Shaft: All options. As I understand it from Sara, that is not an uncommon thing, as far as what hed be paid. The question is, does he keep being paid no matter what? Thats the difference. Espegard: Thats the only difference now on these last two. Diederich: Which one had the clause where he became a consultant? That stayed in there? Shaft: They all have that, but, just so you know, thats just a way to clear him over 2013 for tax. Diederich: Other question I hadif Duaine and I are negotiating this, its not negotiating to change; what we adopt, its going to be Shaft: Right. So, without coming to a conclusion here, we cannot do that. We need to at least discuss a framework of which the president and vice-president could negotiate with Ham. So what we dont want to doI shouldnt say we dont want to, but what we shouldnt dois go out in the general and start talking five percent, three percent, these types of things, unless the Board wants to get into that, and we can. But more typically, you would see is you have a framework that comes out of here from a negotiating standpoint in consultation with our attorney. There is a motion that says that we would accept the recommendation of our attorney with regarding continuation or separation or both, and we direct our president and vice-president to negotiate that within the confines of what was recommended by our attorney and accepted, or recommended by our attorney. Espegard: If we got into trouble, and he says no, we stop, right? Shaft: Right. We dont come back into executive, no. Reichert: You will give him two options? Espegard: No, we give him one option. Shaft: No; what you have to consider, you have to consider three scenarios. One scenario is they negotiate a continuation agreement and they negotiate a separation, and they basically lay before Ham and say well go either way; thats one. The other is, you just give him a continuation; weve decided we dont want to accept the separation, we want to continue, so they negotiate that and lay it before him. And the third is, we dont want to continue, we just want a separation, so we just lay that before him. So those are the three options. So, what the Boardand we cant come to a decision right nowthose three options we have to view. Do we want to give him the chance of both? And I think we know the confines where were at, from the attorneys recommendation. The only issue we would have that I see in all of this is that we may want to have a discussion as to, do we just pay him no matter what, or does it get reduced if he gets a new job? And that would be up to a Board member to bring that up. If somebody wants to bring that up, we can. Otherwise, the acceptance of the option from the attorney is to pay him no matter what. And that would, in essence, mean that the first isnt something well consider. So coming out of executive session, what the best way to do it mechanically is to have somebody move that we forward both, okay? Now, if somebody disagrees with that, then the discussion would be to remove one of the options. If you wanted to just give him the separation, the

discussion would be lets remove the continuation; or lets remove the separation; or lets go with both. Reichert: We discuss that here between us, thats an issue of risk. Shaft: And I, thats why I would want to be careful about that. Franzen: Fundamentally, heres the issue; if youre talking about whether its a continuation or a buyout, youre fundamentally going to have questions with regard to performance, and thats what we cant do here. Reichert: Im just saying this option leads to the most amount of uncertainty. So, if were going to give options, we just open the doors with whats going to happen versus, if you do a six-month thing, again, its just a lot of uncertainty there, versus this option, I mean, theres no risk, you know whats going to happen. Diederich: And with the continuation, thats where I want it somehow defined that in our negotiation, we could not completely change what weve decided and what weve heard from Shaft: The difficulty with continuation agreement is this, and this is the difficulty that I see, is that one, Ham has indicated that he does want extension, because that will be more of a stamp of approval of the direction, and such things. And I think thats going to be hard for this Board to agree to go beyond his initial term. But the second thing is hes going to require, hes going to want some fairly strong language solidifying his position, and were going to want some very strong language as to how this eval process goes, and I really think its going to be hard to come to a meeting of the minds. I really do. With him. With him. Diederich: Do we have our lawyers assisting us in that? Shaft: Oh yeah. Most of this happens with the two of them; youre not talking to Ham ever. Hull: Are we allowed to talk about whether or not we think All I want to point out is that Grant said that the language for the continuation is very strong, and I agree. I thought that that would be hard to meet in the middle ground on that one that is really strong language. Reichert: Its still the term thats so the continuation language is I think that there is cause, and were still open in the universe about what that means. Shaft: And youre right. And, to be clear, so we dont get confused, if we did nothing, hes still our chancellor right now under his existing contract. What the first option essentially does is keep him under the existing term, but gives us a better contract from both sides. We get that stuff we wish we would have had in, and he gets to add stuff that he wants in. But Im saying getting to that is a difficult prospect, okay? And you already know the confines of that. The issue is that the mechanics of how we want these two to be able to negotiate it. Otherwise, its no, and were hauled back in. So at least its nice to get narrowed in, not so youre comfortable that theyll do that, and Im not saying you have to, but Reichert: Yeah, I guess, basically, this continuation of employment option is basically an affirmation of the existing contract with a little, I mean, you know, because right now,

arguably, the terms of our policy on evaluation are part of this contract. So, we already have that. So, we arent gaining anything with this option. Shaft: No. The only thing we can gain with this is that he agrees With our current evaluation policy, there are some grey areas as to what we can and cannot do. This would clarify that this is going to happen, and its part of his contract now, and its separate and in addition to the evaluation policy that we have. Its an add-on. Reichert: Right. But, so, I mean, when I say we dont gain anything, we havent really Shaft: Right. No question. Were just cleaning things up and moving forward. Espegard: His existing contract today says that he works from July 1 to July 1, we give an evaluation Shaft: One page, and it gets a Espegard: The new one here, its, it is a continuation, and it, in very detail, sets out new goals Diederich: That will come out of our meeting after this, that we have set that. I dont want that to be part of our discussion either, whether he accepts or not the one year. Shaft: So the merits of that, folks, is really, if the Board wants to try to keep him for a period of time, okay, thats all that is, because if were going to try to keep him, then I agree that we should have a better contract. Espegard: The contract is not good. Shaft: Thats all this. So the merit is, do we want to try to keep him, and that we cant discuss here. Reichert: But were also to do this without saying what those goals are going to be. Shaft: Right. Diederich: And that will come out of our nextwhen we come out of exec, we can put those rules in. Espegard: Well, yeah, theyve come out Diederich: Well, I know what I think, but if we are going to say that we adopt these Shaft: And you can say that contract with regard to evaluation should have, and we can have an open discussion about what that process would be. Diederich: Then I can say that there would behow we operatethat would be Shaft: Now, what I would prefer, and Im not saying we cant, but I would prefer we dont get into numbers and these types of things that get headlines. I think thats all fairly clear. Diederich: Well, wont that affect him accepting that offer, depending on what the parameters are? Shaft: Say that again. Diederich: For the chancellor, he would accept Shaft: Say that again?

Diederich: Well, I think that we are handling these two options, I think he needs to know what that option for continuation really holds, and that we would not be changing. Shaft: Thats right. Diederich: And thats where Im concerned about this negotiation. If we originally say its going to be this and this and this, and then it comes back that were not going to do this, then all of a sudden were just getting two more years without whatI think we need to, I want that clear. Shaft: Oh, absolutely. Espegard: I think it is cleararent we talking about Narcisa? Diederich: Yes. But thats what I want in there, not Espegard: I think that that would be in there, wouldnt it? Shaft: Yeah. When we say negotiations, it doesnt mean your etch-a-sketch isyoud have some very thorough parameters coming out of our meeting. Diederich: But would he have the ability in that negotiation to say, I dont want it at six months, I want it at a year? Morton: Yeah, but we would say no. Shaft: Wed have to say no, unless we give you that flexibility. Neset: Are we going to bring this back after our negotiations? Would we bring it back again. Shaft: No. Franzen: With regard to the practicality of doing thistodays a special meeting, and we have the executive session listed on the agenda, but we dont have any follow-up conversation about the specifics of the potential agreements on the agenda, so just as an FYI for you guys, we should probably notice it at some point before we actually have that discussion. We can do that; it will be quick and dirty, but to the extent that there are going to be any substantive discussions after this session, we need to make sure that fits into an agenda. Espegard: Are you saying that we are not able to go back into session here? Franzen: You can go back into session, but if there will be significant discussions about options with regard to a buyout agreement versusany sort of particular agreement, that should probably be noticed. I think were safe, based on the agenda that we have at this point in time, I think were safe if you guys want to take a vote simply to accept the buyout proposed by Sara, I think you can do that without changing anything. That said, you know, given the environment that theres going to be any kind of real, substantive discussion on options A, B, and C in an open meeting, we should probably give Noah and myself twenty minutes, half an hour to make sure that we get something out indicating to the public that those discussions are going to take place. Espegard: Well, why would we talk about A, B, and C? Franzen: Well, thats up to you guys. Espegard: Weve pretty much, well, I dont know if weve agreed on that or not, but option two is our recommendation.

Shaft: Right. But what you have to come out of exec withthe way this typically works is, we would come out of this, wed take a five, ten-minute break, wed come back, and come back, call us back into order, theres a motion that we accept the recommendation of our counsel, all in favor, aye, and its over. We dont have it quite that clean this time. Whatthe way at least I see this going is that there will be a motion to accept both options, if the Board wants to go the way, well start broader. Then we can have that discussion, okay? The discussion could then go to, as to option one, I want one clarification with regard to the evaluation process. We can then, and I recognize the notice part of this, hammer that downsix months, one year, we can give you some latitude, somewhere in between, whatever, whatever, whatever. But otherwise, what Sara indicated, we dont deviate from that on Diederich: Thats what Im looking for, is the options going to be for us to go forward? Shaft: And then within that, if somebody wants to say, I move we scrap the continuation, then we vote. That means you two dont have that on the table anymore; now you just have the separation agreement. Or vice versa. Separation agreement, our attorney has recommended option two, that at least in my view, I am going to accept, my personally, her recommendation, unless there is additional discussion beyond that, that can be pretty clean. But anybody can bring anything up. Hoffarth: Do we need to notice that? Franzen: I would do it. Brisbin: If I can try to clarify, yeah. Insofar as you are discussing which options to proceed with, in terms of financial effect and negotiation effect, that you can handle when you come out of executive session in this meeting. If you want to discuss the parameters of the potential six-month evaluation on the continuation side, that would require a new notice so you could discuss the evaluation parameters. Shaft: One final note you need to be aware of as you come out of this, as Kirsten said thats really important, that none of this can be discussed. Reporters will say, what did you guys have to say in there? Dont anybody get caught in that. What we have to remember is what we do bring up in open session is now removed from executive, okay? So when we talk about the evaluation, which is fine, and I agree with that, that that is now a public matter and that is now outside of executive session. Reichert: Just generally speaking, if were going to leave that question open to negotiation, thats troubling just because, thinking of risk management, when were trying to box in the potential, I think for us to just approve an option thats wide open, I guess, Im a little concerned that, I think that we probably should come back. I mean, I dont know that Shaft: Well, and it depends. So heres what, and Im not disagreeing with you, but heres what I see as the continuation option thats before us. Theres an agreement to continue with the terms exactly as they are from the salary standpoint; that doesnt change. Theres going to be language that his attorneyIve got it hereis going to say hes the CEO, he calls the shots with his hirings, weand that is what they want contained in there, okay? And from our side, we want an evaluation process. Now, we dontone thing we can discuss is whether his terms would be acceptable or not, okay? And we dont necessarily have to

accept those. We can discuss right now what we think about those terms, because thats still negotiating. Should we have that discussion? Reichert: Yeah, Im just concerned withas I said yesterday as we were talking about this, I get thatI like the structure; I think it makes sense if you trust that people are making good decisions. You know, just for us to, say, agree with these terms about CEO, and not interfere, and all of these things, generally speaking, thats the right modelright now, I think we have risk there because I believe decisions are being made that are creating a cost to us, including I question some of those decisions that I think are expensive decisions, and so, to me, thats just compounding the risk by taking, by leaving that open. Shaft: Careful now with this discussion; this is starting to get a little bit into the merits, and that discussion would Reichert: Well, I mean, yeah, I know, but $90,000 pay increases, theresthat cost is a risk that we open up. We have to understand the true cost. Espegard: Should we nowwhen I see something wrongbut doesnt he have a right to do that? And Im not disagreeing with you, at all. Shaft: I didwhen Sara got into this, I said, you know, I want to clarify if hes asking anything beyond what our policy says, and her conclusion was hes not. But I think what hes asking for is, he feelsnow, I dont know this, but I think what hes saying is, even though the policy says that I the Board, to really say it one more time in writing Espegard: Wants the written word, but hes got Diederich: So, what we can decide in here right now is, do we want to have the two or the one? Shaft: We cant decide. Diederich: Okay, so when we leave, all we say is two or one? We dont give the details? Neset: I need some clarification on that, because were talking options within the buyout, without continuation. So Im going to try to keep this just to logistics; not merit, but logistics. Those are some optionsone, two, three, fourthat Sara outlined. Then the other outline is how to we proceed as a Board withnot with numbersbut with, can you guys negotiate that we offer a continued contract or make it clear, one, one, or two? Shaft: I think were fairly clear on the separation agreement, so lets set that aside. Our attorney has recommended option two, and body language tells me were all pretty clear on the separation. So if we were just going to go with that, I think our leadership would know, here is option two, get her done. The question we have is the other optionA, whether we want to do it or not, and B, what would be the confines. My view is that the structure of it is fine, with two exceptionsone is language Ham wants included which essentially restates his authority as chancellor, and two is language we want included which isnt in there right now as to the assessment and that evaluation process. That would come out of here and you would sit down with the attorneys and say, we dont want a couple things here on what hes got, and he wants this, and either it works or it doesnt work. But thats it. Diederich: If that doesnt work, then we just go back to the buyout.

Espegard: Yeah, that was my question, too. If we do the continuation deal and we get through this, but it doesnt work, then the buyout option two, six months later? Shaft: And I have a very strong hunch, for what hunches are worth, that were going to end up with a separation agreement, just so you know. Morton: Can we, can someone just, when we come back in to the public meeting, can someone just make a motion that we go with the attorneys recommendation of option two and just hold on that? Shaft: Yeah. And then, the only issue is that if there are Board members who do want to discuss the other option, its cumbersome. So its best to make the motion to accept both; that gets seconded; then we discuss do we want to accept both. In the discussion, if we vote, and the vote is no, we dont accept both, then we know that were going to have a new motion to accept the separation. Follow me? Espegard: I think thats probably all we can do. Hoffarth: But we need to notice that, and so we need to take a half-an-hour break. Shaft: Or we can use one of Duaines absolutions. Hoffarth: Is that something we need more of? Reichert: Are we going to be speaking in code when we come back out about option two? Espegard: Well, well have to lay it out. Brisbin: Heres an option; we could come out of this executive session Neset: Can we have a word other than option? Brisbin: Sorry; an alternative is that we could come out of executive session, not take any final action, temporarily adjourn, put up a new notice, come back, discuss potential evaluation parameters, have the authority to go back into executive session if we need to, and then come out of that and decide. Shaft: The only issue is that if we do that, we would have to have our attorney present. So, I mean, I think we know what we want to do. Hull: I think we know, yes; I think perhaps we approve both the options, then we put up notice, then we decide whether we want both options. We have to try to make this as clean as possible. Shaft: And I think that were clear enough that, on the items that are typically salacious items, I dont think on any of this that were in disagreement about those. So, whether were talking about whether to continue at currently salary, I dont think we even need to get into that; I think its just limited to the evaluation. Neset: So both outcomes still could come from this motioncontinuation, and that will be up to you guys to work on that, under the guidelines that we decidewe give you the authority to come to either conclusion. Shaft: The likelihood is that, even if we gave him both, he is going to say no. That was his thats where he went. The continuation is essentially ourwhat weve given back to them, to his lawyers, as an option.

Espegard: And whichever way it goes, I would appreciate if Linda put out notice. Shaft: These will be difficult to comment on, so typically, this is the one area where we want to have just a statement from the Board, because we could get ourselves into trouble. You need to adjourn us, then. Espegard: I will adjournany more questions? Reichert: I guess I had a questionI mean, so, suppose, I forgot it. Never mind. Espegard: Okay; Ill call this executive session adjourned, and we will Shaft: Give us fifteen. Espegard: Fifteen minutes, about twenty-five to eleven. Hoffarth: Are we noticing? Espegard: They know what needs to be done. Hoffarth: We have to make sure its everywhere.