February 4, 2009 Members of Board of Trustees Lancaster Independent School District c/o Dr. Dana Marable Interim Superintendent 422 S. Centre Avenue Lancaster, Texas 75146 RE: Explanation of rationale for recommendation of settlement with Dr. Larry

Lewis, in Lancaster ISD v. Lewis, TEA Docket No. 068-LH-1208, Before Jess C. Rickman III, Certified Hearing Examiner

Dear Ms. Morris, At the request of Board President Carolyn Morris, I am writing this letter to summarize the bases upon which our firm made the recommendation, on February 2, 2009, that the Board of Trustees of the Lancaster Independent School District enter into a settlement agreement with Dr. Larry Lewis and, pursuant to that settlement agreement, accept Dr. Lewis’ resignation effective July 31, 2009. Our recommendation was based upon a number of factors. Some of those factors were monetary. Some were not. The non-monetary factors centered on the fact that the preparation for, and trial of, Dr. Lewis’ case would have required a significant number of LISD staff hours. This was especially so for those employees in the District’s business and finance departments. We judged that, given the pending audit and the task of reconciling the District’s General Ledger and other accounts, the District would be better served by completing the reconciliations without the disruption that a hearing would bring. We also judged that, if a leadership change was to be undertaken, there was value in preventing the process from being drawn out and divisive. We did not substantially consider the likelihood of success on the merits in making our recommendation. After being retained on December 23, 2008, we prepared and presented to the Board a draft Second Amended Notice of Proposed Termination for its consideration on January 12, 2009. At that time, we informed the Board that there was competent and admissible evidence to support each of the allegations in the draft Notice. We also informed the Board that, in our

Letter of February 4, 2009 Ms. Carolyn Morris Page 2 of 4 pages opinion, there was “good cause” to support the proposed contract termination. Throughout our subsequent trial preparation, our opinion remained unchanged. In assessing the terms of a settlement to the District, it is necessary to consider the price of the alternatives to such settlement. In this case, the alternative to the settlement would be the cost of pursuing a hearing on the proposed termination of Dr. Lewis’ contract. On January 12, 2009, in recommending the Board’s consideration of the Second Amended Notice of Proposed Termination, we estimated that trying the case would entail the following costs: 1. Estimated Costs of Litigation to District A. Estimated Attorneys fees, O’Hanlon, McCollom & Demerath for termination litigation before Certified Hearing Examiner $ 35,000.00 B. Estimated fees of Certified Hearing Examiner $8,000.00 to $10,000.001 C. Estimated fees for Court Reporter $ 8,000.00 D. Estimated fees for testimony from Harry Jones and Ashley Goodwin as expert and fact witnesses $10,000.00 Total Costs $61,000.00 to $63,000.00 In addition to the costs of the local hearing before the Hearing Examiner, in our opinion, it was probable that Dr. Lewis would have appealed an adverse decision to the Commissioner of Education. I calculated the costs of an appeal through the Commissioner of Education in our base cost estimate, listed above. However, once a case is determined by the Commissioner of Education, it can then be appealed to a District Court in Dallas County, Texas: then to the Court of Appeals, and, finally to the Texas Supreme Court. In the event of such an appeal, the estimated cost to LISD would be approximately $7,000.00 for each of the three levels to which the case could be appealed. Based on our experience handling the Matthews case (Wilmer-Hutchins ISD), we judged it to be likely that the case would have proceeded through all of these levels. 2. Costs and Savings to the District Under the Settlement Under the provisions of the Texas Education Code, Dr. Lewis was entitled to remain on the LISD payroll until the Board of Trustees took final action on his proposed termination, after receiving the Hearing Examiner’s recommendation. In Dr. Lewis’ case, the Hearing Examiner’s recommendation was due on March 2, 2009. There is a LISD Board meeting scheduled for that date, but it is unlikely that the parties would be ready for a full Board hearing on the date which they received the recommendation. It is more likely that a Special Called Board Meeting would have been called in the middle of March 2009 to consider the matter. For purposes of

1 Mr. Jess C. Rickman, III, requested a recommendation that the District approve payment in excess of the $8,000.00 cap on his fees, in case the hearing exceeded three days, which we agreed to recommend. Most such hearings do not exceed two and a half days.

Letter of February 4, 2009 Ms. Carolyn Morris Page 3 of 4 pages comparison, we will assume that Dr. Lewis, even if his employment was terminated, would have been entitled under Texas law to remain on the LISD payroll through the first half of March 2009. Under the settlement approved by the Board, Dr. Lewis will continue to receive his monthly salary through July 31, 2009, along with the statutory health benefit paid by the State. If he is employed elsewhere before July 31, 2009, he will receive his salary and some contract benefits until the last business day before his new employment commences, plus the remainder of his salary only from the last business before his new employment through June 30, 2009. Under the agreement, Dr. Lewis has to assume payment for his own disability insurance and life insurance benefits, and all insurance benefits for his spouse (which were to be paid by the District up to a maximum amount of $6,396.00 per month under his contract), for the duration of his employment. He also had to forgo a cell phone provided at District expense. Dr. Lewis’ contract dated March 11, 2008, ran through June 30, 2011. Under the settlement agreement, he agreed to forgo twenty-three (23) months of salary and benefits under the contract, as well as accepting reduced benefits for the six months of his remaining employment.2 If the District had pursued the termination proceeding, Dr. Lewis would have remained on the payroll, with full contractual benefits, through approximately mid-March. Under the terms of the settlement, the District will pay Dr. Lewis approximately $75,000 more than it would have had to pay him if he had been terminated in mid-March. Given the estimated litigation costs, the District will have to pay out less than $12,000 more than it would have cost to litigate the termination through the Commissioner alone. Given the probability that additional attorneys’ fees and costs would have been incurred for likely judicial proceedings, the District will be paying Dr. Lewis less than the likely cost of termination. In engaging Dr. Lewis’ counsel in settlement negotiations, we were given express instructions by the Board of Trustees that our offer should not exceed the probable costs of the actual litigation. We believe that the settlement adopted by the Board on February 2, 2009 met these parameters.

3. Non-Monetary Considerations. In addition to the foregoing financial considerations, there are substantial additional intangible litigation costs that would have been unavoidable. In a termination proceeding of a Superintendent, in any school district in this State, school district employees are extremely conflicted about being required to testify. This is true no matter whether their testimony may be favorable or unfavorable to the Superintendent or to the District. They are naturally fearful of future adverse personal consequences as a result of their testimony, Witness preparation is difficult and time consuming in these types of cases. This results in a loss of employee productivity in supporting District operations. The loss of productivity is inevitable, since even the best and least reticent witnesses require preparation for testimony. Further, in our experience, the turbulence of a Superintendent employment termination proceeding inevitably spreads even to employees who are not going to testify, so that the loss of productivity spreads broadly. It is impossible to put a price tag on this collateral damage on employee and

2 Less if he is employed elsewhere any time prior to July 31, 2009.

Letter of February 4, 2009 Ms. Carolyn Morris Page 4 of 4 pages productivity, but it is significant to a school district’s operations. While it is impossible to place a dollar value on the lost employee productivity, and general disruption to District operations and to the community, that would have resulted from pursuing the termination litigation to finality, those intangible costs must be considered by the Board in assessing the benefits of settlement. Based on the foregoing considerations, it was our recommendation that the Board approve the proposed settlement. We stand by that recommendation. If you have any questions, please contact me. Sincerely,

Kevin O’Hanlon