Castle Pines North Homeowners Association Number One

Election Review-Pg 10-12

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2. Valiga is currently sitting as a member of the Board of Directors, having been appointed to fill the empty seat that was vacant at the time this entire process started;

3. The Association has spent approximately $17,500.00 in attorneys fees for the attorneys defending it and the Board;

4. The Association has spent approximately $6,800.00 in attorneys fees to reimburse MST pursuant to the Court’s order. This has been reimbursed by insurance;

5. MST has spent approximately $6,500 in attorneys fees out of their own pockets for which they have not received reimbursement;

6. There is a tremendous amount of distrust and animosity between certain segments of the Association.

CONCLUSIONS

1. There was some confusion as to who was the chairman of the Nominating Committee in the minds of the committee members. The bylaws clearly state that a member of the Board of Directors will chair the Nominating Committee.

2 There was an insinuation by some that the Nominating Committee would not forward for nomination all names offered. Throughout the history of this HOA there were two instances where the Nominating Committee did not place all names received on the ballot. Those two individuals were not placed on the ballot after consideration was given to their newness to the community and their lack of previous involvement in HOA committee work. Additionally, there were sufficient nominees to fill all vacant positions. Also, members of the MSST in previous years had had their names placed on the ballot by the Nominating Committee.

3. There was an accusation that people who solicited proxies from the community did so by falsely implying that the proxy was needed to establish a quorum for the meeting. The ERC was told of one member who had said this and contacted that household. They affirmed that they were misled but did not remember who had contacted them. The ERC asked every member of MSST if they had implied a quorum reason for soliciting proxies and could find no one who did. Consequently, we could neither confirm nor deny that this happened. However, even if a misleading statement were made while asking for a proxy, it would not invalidate the proxy. It is important for homeowners to know to whom they are giving their proxy and for what reason.

4. It has been asserted the Yannick LeRolland did not act properly by knowing that he was going to run for the Board position but not offering his name to the Nominating Committee. The bylaws specifically state that a nomination can be made from the floor at the annual membership meeting. So even if he did know for some time that he was interested in running for a board member position, there is nothing wrong with his actions. Now regarding his plan to run, this committee

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believes that while he had considered running for some time, it was only a few days before the election that he finally made up his mind to run.

5. It has been asserted by some that this whole "Stealth" candidacy was planned by the MSST group. This committee found nothing to support that assertion. In fact, it appears that only Mark Shively was aware the Yannick was going to run and then only days before the election. Dale Mullen was out of the country and had to be faxed a proxy to change his vote to Yannick. Charles Schaap did not solicit proxies on Yannick's behalf because he did not know him.

6. Yannick LeRolland stated he that chose to run the way he did as a nomination from the floor because he knew he did not stand a chance of being elected if he offered his name to the Nominating Committee. He had decided not to run until he met Ron Valiga while at the elevator at Writer Corp. and things were said that made him believe the Board needed "new blood." This conversation was the straw that broke the camel's back and caused Yannick to solidify his intent to run for a Board position.

7. While there could be a possibility that votes in an election could be changed after the election results are tabulated and the winner(s) announced, it is obvious that the law has an overwhelming concern that elections be irreversible. Therefore, it should have been evident to the Association's legal counsel that this election's results once announced and unchallenged could not be altered. The opportunity to contest the results of the election was presented after the polling results were announced and before the winners were declared, and no one stood to contest the election.

8. The MSST has labeled the Board's actions as election tampering. While there is no set legal definition of election tampering, the term is usually used to refer to a criminally illegal practice. That is certainly an overstatement in this case and serves only to inflame an already heated and combative relationship.

9. Ron Valiga was not on the Board or president of the HOA after the annual meeting. Consequently, his call to Writer Corp. was in the capacity of one of 400 homeowners. Additionally, Sondra Willis was on vacation, and Yannick LeRolland was in France while the Board was polled regarding the "Subsequent Event." This means then that to vote for a recount after receiving Writer's letter of retraction all four other members (Fredrick, Barrow, Maidenberg, and Butler) had to vote "Yes."

10. No minutes of the "Subsequent Event" were recorded. It is the practice of this board and secretary/treasurer to confirm via vote at the next regularly scheduled board meeting any action taken by telephone polling in the interim between meetings. This did not occur.

11. The methodology utilized in telephone polling by the Board is for the president to call Board members until there are sufficient votes to pass or defeat the motion. This could lead to someone being excluded from important Association business between monthly meetings.

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12. It has been asserted by some that the Board breached a fiduciary duty owed to the Association through its decision to reverse the election results. They further assert that as a result of this breach of fiduciary duty, the Association should pursue legal action against the Board members individually to recover the damages allegedly suffered by the Association. The ERC has carefully considered these accusations.

The duty of care of a director of a non-profit corporation such as the Association is controlled by the provisions of the By-Laws, Articles of Incorporation and the Colorado Revised Statutes. For purposes of this report, without going into specific detail, these governing principles require that a director act in “good faith” with respect to their actions and decisions on behalf of the Association. Generally, if a director acts in good faith he or she will not be personally liable to the Association even if a mistake is made. Alternatively, if a director undertakes some action in the absence of good faith, and a mistake is made, he or she can be held personally responsible for the consequences. In the present situation, there is no question but that a mistake or a series of mistakes were made. The question is whether they were made in good faith or not.

Good faith is an intangible and abstract quality with no technical meaning or statutory definition. It is defined in legal dictionaries as encompassing, among other things, honesty of belief, the absence of malice, honesty of purpose and honesty of intention. Considering these factors with respect to the actions of the Board surrounding the 1998 election, the ERC concludes that none of the Board members acted with any wilfulness or malice. However, the ERC does conclude that Board members Barrow, Butler, Frederick, and Maidenberg did not act in good faith with respect to the actions and decisions leading to the overturning of the election results. The degree of lack of good faith varies among these Board members and is primarily predicated upon a lack of honesty of purpose and intention with respect to their actions and decisions.

In arriving at this conclusion, the ERC focused primarily on the decision to look into the election results and the decision to give effect to Writer’s withdrawal of its proxy. Various reasons were given for these decisions. These included that Board members thought they had a fiduciary duty to do so and that they needed to investigate the confusion concerning the Writer proxies. With respect to the Writer proxies, multiple reasons were advanced for questioning the validity of the Nickless proxy. These included the fact that Horan had always voted the Writer proxy; a challenge to the proxy based on cumulative voting; a challenge to the proxy alleging it had been altered; a challenge to the proxy based upon the lack of a corporate resolution authorizing Nickless to cast it; a challenge to the proxy based upon the lack of a formal writing withdrawing the Horan proxy, and a question as to the dates of either proxy. The ERC concludes that there should have been no confusion with respect to the Writer proxies. Rather, the ERC concludes that it was, in part, these Board members’ mistaken belief that MSST were behind the election of LeRolland that caused them to question the election results and seek to invalidate the Nickless proxy. Hence, those actions were not taken totally in good faith.

Having concluded that the initial action taken by the referenced Board members with respect to the election was not taken in good faith, those Board members are potentially personally