MINUTES

2^nd Special Meeting of Membership

For Assessment Increase

June 21, 2004

resolution of outstanding repairs, upscale community appearance and improved landscape.

A mid year current assessment increase is necessary, greater than maximum Board Directors is allowed to unilaterally impose. Passage requires a "Special Meeting of Membership for Assessment Increase". (Declaration ofCovenants, Article V).

This is the 2^nd called "Special Meeting of Membership for Assessment Increase" as prescribed under Article V of Declaration of Covenants. The first meeting May 17, 2004 did not meet membership attendance quorum – see minutes of that meeting. A reduced quorum of 38 or more is required for this 2nd meeting per Article V.

B. LOCATION: Quince Orchard High School, Rooms 221-224

C. DATE/TIME: Monday, June 21, 2004 – 7:30 Pm

D. SIX MEETING NOTICES: (Item 2 is a legally required notice).

1. WEB PAGE: Notice added to Orchard Knolls web page - early April.

2. MAILED: Written notice, including proxy(s), mailed to owners of assessment record – Mailed May 19, 2004.

3. NEW SIGN: 14 X 20 notice sign installed at community exit stop sign – Re-Installed May 19, 2004

4. NEWSLETTER: Included notice, dates, times location, and purpose and encouragement to attend – early May

5. HOA SIGN: 24 x 36, modified to include meeting notice installed at entrance/exit- June 15.

6. MINUTES: Notice included in last 3 months minutes posted on web site.

E. SIGN-IN VALIDATION FOR VOTING: A current master list of eligible voters was provided by Associated Bookkeeping Services. Owners were required to sign the master list against their address of assessment record. Proxy(s) were similarly recorded on the master list. One owner per address. A validation card was provided to later exchange for an official ballot if quorum is achieved.

F. CALL TO ORDER: 7:40 p.m. (Delayed until sign-in process complete).

1. DIFFERENT PROCEDURES – REVIEWED/APPROVED BY HOA ATTORNEY: Secretary welcomed new owners, and identified parliamentary changes different from the first meeting in May. He noted that an assessment increase meeting was a first for Orchard Knolls and was governed by differing and cumbersome covenant procedural rules identified in Article V. Procedures for notices, scheduling, preparation, conduction of assessment increase business and voting tonight, have all been reviewed and approved by our HOA attorney. Secretary noted that the difficult procedures provided membership protection and were necessary to discourage frivolous assessment increase requests - other than at Annual Meetings. He highlighted the following points:

2. NO OTHER BUSINESS: Although common discussion of community interest would naturally occur – no business decision other than related to assessment increase is allowed – would not appear in minutes of this meeting.

3. TONIGHT WILL BE LAST ASSESSMENT INCREASE MEETING ALLOWED. If quorum of 38 or more (including proxys) is not attained - Meeting will be quickly dismissed. Next opportunity to present issue to membership will be Annual Meeting in November.

4. REVISED 2004 BUDGET WILL BE PRESENTED AND RECOMMENDED BY BOARD: Secretary explained that if quorum is attained tonight, BOD will present a revised 2004 budget – effective July 1, 2004 through December 31, 2004, retroactive to July 1, 2004. Budget review will address all community needs previously identified by membership – including financial shortfalls in reserves and operating funds. Secretary explained that although membership will again review and approve a budget for 2005 – the revised 2004 budget presented tonight was structured to hold until 2006. Both board and membership have right to revise the 2005 budget at Annual Meeting.

5. BOARD MEMBERS HAVE EQUAL POWER TONIGHT: Board members all have equal powers tonight – therefore President would not preside until after determination if quorum was achieved. Until then, secretary role would be "Facilitator".

6. PROCEDURE IF QUORUM ACHIEVED: Secretary explained that President would immediately preside, explain purpose, request 4 volunteers for a ballot committee, handout financial information packets, also handout a recommended revised budget for 2004. After appropriate discussions, questions and answers – one secret ballot vote would be taken to accept or reject revised 2004 budget recommended by board of directors.

7. CPI FACTOR ESTABLISHED: Secretary noted that research on government web sites indicate that December 31, 2003 CPI for Washington DC and Baltimore area was 3.2%. This means BOD can unilaterally impose an immediate 13.2% assessment increase if higher percentages are not approved by membership

8. BOARD ALREADY UNANIMOUSLY PASSED A MINIMUM 13.2 % INCREASE: Secretary explained that in event of membership rejection of board’s recommended revised 2004 budget, a minimum 13.2% assessment increase effective July 1 – December 31 is already in effect retroactive to July 1. (See minutes of June board meeting). This minimum increase is specified in Article V as minimum prerogative of board of directors with a cap of 10% plus CPI.

9. BILLING/INCOME: Secretary explained that due to an administrative error by our bookkeeping firm – 3^rd quarter bills had already been mailed with old amounts. Bookkeeper is prepared to re-issue corrected billing upon receipt of revised assessment increase information transmitted to them by board of directors tomorrow morning. Owners that have already paid 3^rd quarter under old rates will be billed the incremental amounts. Those that have not paid will be billed the new amounts. 4^th Quarter billing will reflect the new amounts. Secretary noted that community will only realize increased income for ½ year 2004.

10. FURTHER INCREASES LIKELY: Secretary warned that if rejection of recommended increases occur tonight the default unilateral Board of Directors 13.2% increase would take effect July 1. However, additional rate increases would likely be necessary at the upcoming November annual meeting of membership.

G. QUORUM ACHIEVED – MEETING PROCEEDS: Secretary called upon Treasurer to state results of owner sign-in registration to vote including proxys. Treasurer reported 38 owners present and 6 proxys validated – total 44. A total of 38 (25% of Class A members) is required to proceed with a "Special Meeting of Membership for Assessment Increase".

1. BOARD MEMBERS INTRODUCED: President Rick Schinner introduced himself and all other members of the board and members of the Architectural Review Committee

2. BALLOT COMMITTEE: President asked for four volunteers for ballot committee tonight for handouts and counting results. Counting will be conducted out of the room. No board members on the committee.

3. FINANCIAL INFORMATION PACKETS HANDED OUT. INTERACTIVE Q&A REVIEWS: Nine historical and current financial information charts were handed out to all and reviewed via overhead projector. They were:

Major Operating Increases – 1998 – 2003

Reserve Requirement Increases – 1998 – 2003

Assessment and Billing History – 1990 – 2004

Adding and Replacing Assets – Increases Reserve Fund Requirements

Key Financial Measurements – 1999 – 2005

Current 2004 Budget – Reserve Fund Status

Replacement Reserves – 2003 – 2005 (Snapshot)

Townhome Community - Supplemental Additional Assessment

Assets Replacement Plan - Annual Reserves Fund Budget 1990 -2005 (6 Pages)

4. RECOMMENDED, 24% INCREASE REVISED 2004 BUDGET HANDED OUT. INTERACTIVE Q&A REVIEW . The revised one-page budget recommending a 24% increase for all assessments was handed out. The one page budget is back-to-back with a list of all financial needs and requests identified by membership at last annual meeting. Contractor quoted costs and cost estimates were included including a breakout of first year and one-time costs.

5. NEW BUDGET COMPARES CURRENT TO PROPOSED. IDENTIFIES SOURCES FOR ALL ACCOUNTS. The proposed budget page identified the source for every change to the current budget including known cost increases, proposed upgrades, repairs and financial adjustments. Current ABS account line numbers are identified.

6. NEW BUDGET IDENTIFIES POSTPONED UPGRADES, REPAIRS AND FINANCIAL ADJUSTMENTS. The proposed budget page also identified remaining upgrades, repairs and financial adjustments that could not be included in the 24 % proposed budget. These will require further assessment increases.

7. MAJOR QUESTIONS AND DISCUSSIONS: The following are the major questions asked from the floor:

Q - Can we select what to include or remove from this budget?

A – No, This is a composite recommended by Board of Directors for remainder of year.

Q – How can we change what items are included in the budget?

A – Attend next (ongoing) monthly meetings of board of directors.

Q – Do we have a budget choice at the Annual Meeting?

A1 – The budget for the following year is presented at every annual meeting.

A2 - If assessment increases, the revised budget must be voted upon by membership.

Q – Do we have a choice?

A - Alternative is to reject this budget then influence your elected Board of Directors in direction you wish to proceed.

Q - Why are both reserves under funded?

A1 – Inflation factors reported by Federal Government are inadequate. We now use CPI instead of inflation factors.

A2 – We have been allowing reserve budget deficits – an allowed procedure for general reserves, but not TH streets.

Q – Since General Reserves is optional - Why don’t we liquidate it?

A – It is a "Replacement" fund for aging assets. Decline is in direct opposition to current membership demands.

Q - Why is it necessary to transfer $6370 from General to TH Reserves?

A – TH Reserves is a protected fund and must always be fully funded per Article VI.

Q – Why is TH Reserves in Shortfall now?

A – TH Reserves is in shortfall because contributions from income were less than required – a budget deficit.

Q – Why is General Reserves in Shortfall now?

A - Cost of replacements such as Tot-Lot Equipment has exceeded inflation by nearly 300%.

Q – Why don’t we remain in shortfall or gradually make it up?

A – Transfer of the $6370 does not impact this budget or affect assessment increase. It is a between-fund transfer.

Q – Why don’t we ignore it like we do the General Reserves deficit?

A – It violates Article V1 and therefore is not legal. Our auditor wants the fund to be fully funded at all times.

Q – Were other budgets and percentages evaluated?

A – Yes, 5 other complete budgets were drafted, evaluated and rejected as too expensive (All 5 displayed).

Q – What upgrades are single family homes getting?

A – Cul-de-Sac Upgrades in process. This budget upgrades remaining Tot-Lots, entrance lighting, spring flowers etc

Q –How can we afford Cul-de-Sac upgrades now?

A1 – We cashed a surplus operating fund CD.

A2 - We knew we were presenting a revised budget with a 13.2% default increase minimum.

Q – Why are townhome items 6&7 in the general assessment column?

A – Typo – does not impact this budget or assessment because of the offset noted after item 51. Will be corrected

H. REVISED 2004 BUDGET WITH 24% INCREASE APPROVED: A motion was made from the floor to cast vote. President requested a wind-down to significant questions allowing another 10 minutes. After ten minutes another motion was made, seconded and passed. Ballot committee handed out official ballots in exchange for validation certificates handed out at sign-in (one per address and 1 for each proxy). Five minutes was allowed to vote. Ballot committee collected ballots and counted outside the room. Results were 44 cast ballots: 27 for approving the 24% increase, 17 against. 22 required to pass. The revised budget is passed.

I. ADJOURNMENT: President adjourned the meeting at 9:30 pm. Next planned meeting of membership is annual meeting in November 2004.