TO:             Betty Burns (The Chateau), Jim Brennan (The Colony), Connie Schacher (Condo I), Arlene Quillan (Condo II), Walt Girardin (Condo III), Betty Ferguson (Country Greens), Ron Berkeley (Fairway Knolls), Burr Passenheim (Highland Casitas), Don Shawler (Hunter Valley), Charles Papish (Lions Gate), Oscar Zoebisch (LSM Gardens), Joy Simcic (LSM Villas), Cathleen Stevens (Mall I), Ray Nichols (Mall II), Rich LaFarge (Mall III), Rena Robinson (Mall IV), Bill Holbrook (Panorama), Jack Jackson (Sun Park), Rex Edmonds (Sunrise Point), and Bob Kreis (LSM Community Association).

FROM:       Fred Mortimore (The Fairways)

DATE:        March 23, 2005

That which follows represents an interim report of the activities of a "Steering Committee" which was established at a meeting of Lake San Marcos Association Presidents (or alternates) which convened on Thursday, December 2, 2004 at the Panorama Clubhouse.  Thirteen associations were represented by Presidents (or alternates) at that first meeting; six associations were not represented.

At that first meeting the primary topic of conversation was the prospect that the new owners of Citizens Development Corporation (CDC), owned by an investment group; La Jolla Development Company, planned to increase our Lodge and Lake (L&L) fees by 8%-10% beginning May 1, 2005.  This level of increase was disturbing in light of the fact that over the past several years, under the ownership of Ron Frazar, CDC L&L fee increases have averaged 2%-5% each year.  Association representatives present at that initial meeting reached a consensus that we should create an ad hoc "Steering Committee", composed of five (5) members, who would meet and discuss measures which homeowner and condominium associations might pursue in order to preclude annual increases in our L&L fees of 8%-10%.  Nominated to serve were: Fred Mortimore (The Fairways), Rex Edmonds (Sunrise Pointe), Charles Papish (Lions Gate), Don Shawler (Hunter Valley) and Bob Kreis (LSM Community Association).

The five members of this group met together for the first time on Wednesday, December 15, 2004.  By the conclusion of this first meeting it had been decided that, as our initial step, we should meet with Erik Richard, President of CDC, to determine whether it was true that he expected to increase our Lodge and Lake (L&L) fees by 8%-10%, and for what purpose(s) such a large increase was being proposed.

A meeting with Mr. Richard was scheduled for Monday, January 17, 2005; in a memorandum sent to him in advance of this meeting, Steering Committee members indicated that "Association Presidents view this meeting as an opportunity to begin a mutually beneficial dialogue with CDC regarding how our Associations and your organization can cooperate in efforts to reach our joint goal of improving amenities here at Lake San Marcos."  This memo also said that, "At this meeting with you . . . we will be eager to learn of your future plans for the operation, maintenance, improvement, expansion, and/or replacement of . . . the Recreation Lodge, the swimming pools plus attendant dressing rooms and showers, the Billards and Club rooms, the tennis and paddle tennis courts, the boat docks/slips adjacent to the Recreation Lodge, the picnic area, and the beach area near the Recreation Lodge."

During this meeting, held in the Country Club Trophy Room, Erik spoke extensively of CDC’s plans to increase membership in the Country Club, attract more meetings to the Conference Center, improve the occupancy rate at the Lake San Marcos Resort Center (formerly the Quails Inn Hotel), further increase patronage at the Quail’s Dinner House, make improvements to both golf courses, design and install new "entrance monuments" to the "resort" on Rancho Santa Fe Road and Discovery Drive, improve maintenance of boat docks and slips, prevent poorly maintained boats from operation on the Lake, and do a better job of controlling weed growth in shallow areas around the Lake shoreline.  As for the Recreation Lodge and attendant facilities, he said they plan to repaint the dressing rooms and showers, replace filters on both swimming pools,  refinish the stage area of the Recreation Lodge and perform repairs to the kitchen.  As a result of this meeting it became clear to Steering Committee members that the principal interests and concerns of Mr. Richard and his organization are improvements to "Resort" facilities, not those facilities of primary interest and concern to Lake residents.

Immediately following this 90 minute meeting with Erik, Steering Committee members met again in the LSM Community Association office to discuss what we had learned and to decide on our next steps.  By the conclusion of this meeting Steering Committee members had concluded that we had to (1) identify our primary objectives of any further negotiations with CDC, and (2) discuss with legal counsel the enforceability of several important provisions of our leases (Agreements) with CDC.  As for the first point, Steering Committee members have tentatively agreed that our four (4) principal objectives of further negotiation with CDC are:

*        to restrain the amount of annual increases in our Lodge and Lake fees to a level reflecting either published cost of living increases or historical annual increases in L&L fees paid to CDC;

*        to establish parity (not necessarily equality) in the level of L&L fees paid in future by all Lake San Marcos residents;

*        to enforce the provisions of Agreements (leases) between residents and CDC to insure that a substantial amount of the funds collected by CDC under provision of these Agreements are devoted to the operation, maintenance, improvement and/or replacement of L&L recreational facilities; and,

*        to establish and maintain a mutually beneficial relationship between the residents of Lake San Marcos and the owners of CDC pursuant to the objective of maintaining and enhancing the livability and beauty of this community.

Pursuant to our desire to discuss with legal counsel the enforceability of certain lease provisions, the Lake San Marcos Community Association offered the services of their attorney Ken Lounsbery for preliminary evaluation.  Members of the Steering Committee met with Ken Lounsbery on Monday, January 24, 2005.  As a result of this meeting Steering Committee members came away with the feeling that: (1) despite the lease clause that CDC is permitted to increase L&L fees by a maximum of 10% each year (or a maximum of 20% over any three year period, as stipulated in some leases) law and equity provide the possibility that we can restrain the amount of annual increases below this level; (2) given the wording of our leases, there is a very high probability that CDC can be required to devote a substantial amount of the money collected in L&L fees to the operation, maintenance, improvement and/or replacement of Lodge and Lake recreational facilities.

On February 18, 2005, Steering Committee members received a communication from Attorney Ken Lounsbery in which he summarized several topics discussed at our January 24, 2005 meeting, and in which he also outlined in general terms what positions we might consider taking in future meetings with Citizens Development Corporation.

On Thursday, February 24, 2005, Steering Committee members met to review the communication from Ken Lounsbery dated February 18, 2005.  Among the other topics addressed were (1) potential sources of funds to pay future legal costs and (2) the implications for our future efforts to negotiate with Citizens Development Corporation occasioned by the demand by CDC that all boat owners in Lake San Marcos sign a new, expensive and poorly drafted "Marina/Wharfage Contract" which had been mailed to all boat owners on Tuesday, February 15.

As the latter issue could have a potentially significant impact upon our desire to negotiate with CDC regarding Lodge and Lake fees, it was decided to consult again with our attorney.  On behalf of the Steering Committee, Bob Kreis met with Ken Lounsbery on Thursday, March 3^rd, and among other topics covered, received from him an estimate of the legal costs to represent us in future negotiations with CDC.  Bob also delivered to Mr. Lounsbery on this date copies of Association and individual resident leases which Ken wished to examine more closely.  Bob had another, follow-up meeting with Ken Lounsbery on Thursday, March 10^th.