July 8, 2014

Mr. Porter Trimble

Chairman of the Board of Directors
Vaquero Club
2300 Vaquero Club Drive
Westlake, Texas 76262

Re: Vaquero Club

Porter,

I hope you had a good Fourth of July weekend.

I want to thank you for hosting the Town Hall last Thursday. After the meeting, you found
me and assured me you are trying to help the club. I take you at your word. Please take me
at mine that I wish to do the same.

The following is my understanding of the board’s fiduciary duties, my takeaways from the
Town Hall meeting, four observations and conclusions based on the takeaways, and what I
believe are four realistic member expectations.

This letter is offered in good faith. My guess is the board has likely arrived at many, and
perhaps all, of the same conclusions that I have. If so, consider this a litmus test of whether
messages the board intended to convey at the Town Hall were received and understood.

Fiduciary Duties

The board of directors has been entrusted to exercise its expertise and judgment on behalf
and in the interests of the membership at large. There are, of course, four fiduciary duties
which the directors, individually and collectively, legally owe all Vaquero members:

• Duty of loyalty: fiduciaries must act in the best interest of the membership at large.

• Duty of care: fiduciaries must make honest, informed, good faith decisions.

• Duty to act prudently: fiduciaries are bound to act with prudence, discretion,
intelligence, and regard for the safety of capital as well as income.

• Duty of disclosure: fiduciaries must disclose all information that may be material to
members at large.

1
Takeaways from the Vaquero Town Hall Meeting last Thursday, July 3rd

Following are my takeaways from the July 3, 2014 Town Hall presentation. I ask that you
please correct me where my takeaways are wrong; the positioning of many issues was so
discreet that it was, at times, difficult to discern what had truly transpired.

Regarding the 2011 Capital Assessment:

• The 2011 capital assessment was $4.2 million. Of that total, $2.4 million capital was
to be spent on golf course renovation, and $1.8 million capital to be spent for
clubhouse renovation. The assessment was approved by member vote and the
capital collected and entrusted to the board early in 2012.

Regarding Golf Course Renovation:

• All $2.4 million capital approved for the golf course renovation has been spent.

• In addition to the approved $2.4 million capital, an incremental $0.5 million capital
was also spent on golf course renovation. Expenditure of the incremental $0.5
million implies a +20% cost overrun was incurred renovating the golf course.

• Notwithstanding the incremental $0.5 million capital expended on the golf course,
the sixth and seventh holes were renovated neither according to plan, nor to
management’s satisfaction.

• The incremental $0.5 million capital spent on golf course renovation was sourced
from the $1.8 million capital that membership approved for clubhouse renovation.
Prior to the July 3, 2014 Town Hall meeting, membership was neither asked to
approve this reallocation, nor advised the reallocation had occurred.

As an aside, one Town Hall presenter commented that “it is impossible to say the
incremental money spent on the golf course came from clubhouse renovation funds,
as all Vaquero funds are held in one account.” This is disingenuous at best.
Accounting would certainly have separate accounts receivable and payable to
manage the two projects. But, more importantly, co-mingling capital funds from a
member assessment and income from annual club dues in one account is a breach of
fiduciary duty to act prudently; this experience is a case-in-point why.

Regarding Clubhouse Renovation:

• The $1.8 million capital approved for clubhouse renovation was not spent to
renovate the clubhouse.

• During and prior to 2011, Vaquero Club accrued approximately $0.8 million in
delinquent member dues, creating a $0.8 million shortfall in income from dues.

2
 • Approximately $0.8 million of the $1.8 million capital approved for clubhouse
renovation was used to pay club cash operating expenses. In other words, capital
was used for payroll and to pay vendor invoices for income accounts. Membership
was neither asked to approve this reallocation, nor advised the reallocation had
occurred.

• Approximately $0.5 million of the $1.8 million capital approved for clubhouse
renovation was used to pay outside consultants to critique and improve the
clubhouse renovation plan which members had already approved.

• And approximately $0.5 million of the $1.8 million capital approved for clubhouse
renovation was used to pay for over-runs on the golf course renovation project.

• The club should have $1.8 million capital in an account earmarked for clubhouse
renovation. The clubhouse has not been renovated. The $1.8 million capital is gone.

Regarding the 2014 Operating Plan:

• Halfway through the year, the club is $24 thousand worse-than-plan on the top line,
and $440 thousand worse-than-plan on the bottom line.

• Unchecked, this trend will translate to an $880 thousand worse-than-plan bottom

line performance full year. The recent +5% increase in annual dues may help buffer
the bottom line, assuming the increase was not in the original operating plan.

• We are 16 members short of the 350-member break-even point for the club at
current dues level. This creates an annual income shortfall of approximately $320
thousand for the club, assuming $20 thousand dues and fees per member. It is
unclear whether a wage increase was factored into this breakeven analysis.

• A wage increase was not built into the 2014 operating plan. Our employees have not
had a wage increase in two-to-five years. Given inflation and employment trends, it
will be difficult to retain our best hourly employees without a wage increase.

As an aside, the answer you were given when you requested clarification of timing
for the last wage increase was, again, disingenuous at best. Following the Town Hall,
I asked an employee inside the clubhouse at random. He reluctantly told me his last
wage increase was three-and-one-half years ago; another had told me five years.

Regarding the 2013 Capital Assessment:

• In December 2013, some 94 percent of members voting approved a new capital

assessment to fund renovation of the clubhouse. The board supported and lobbied
for this assessment.

3
 (For the record, I voted against the assessment because it did not fund either
improvement or expansion of the most heavily utilized clubhouse asset: the gym.)

• In February 2014, you issued a letter stating the new capital assessment, approved
by 94 percent of members voting, had been shelved. As I recall, you stated that the
assessment was shelved because some members found fault with the plan.

• I offer you an apology for my comment suggesting you and our President had both
elected not to execute the law. In light of all the above, it appears you were
diplomatic in your explanation: you provided one reason, yet had quite another.

Regarding the Board Investigation of Alleged Misconduct:

• You did not provide an update on the board’s investigation into a director’s actions
after being informed of an act of alleged misconduct; nor were you asked.

One Member’s Observations and Conclusions

The takeaways above lead me to four observations and conclusions:

1. Vaquero Club does not appear to currently have in place adequate financial controls,
a sufficiently competent financial manager, or an appropriately aggressive auditor.

I can arrive at no other explanation for how capital funds from a capital assessment
were co-mingled with income from annual dues in a single account; how a finance
manager cannot explain the sources of funds used; how auditors failed to flag the
inappropriate use of capital funds to pay operating expenses in audit reports.

My conclusion is that the club needs and would benefit from an independent review
of current financial controls, a new and more capable financial executive, and a new
and more aggressive independent auditor.

2. Current club bylaws will not prevent a recurrence of the diversion of almost two
million dollars in capital from uses approved by members to uses unintended.

Neither you nor your presenter ever clarified whether the board sanctioned the
diversion of $1.8 million in capital funds from uses approved to uses unintended.

If the board did not approve the diversions, multiple fiduciary duties were breached.
If the board sanctioned the diversions, the fiduciary duty of disclosure was breached.
For surely $1.8 million capital constitutes a material amount of money.

4
 A rational person would conclude that club bylaws must be reviewed and amended
to prevent any future diversion of material amounts of capital from uses members
approve to uses unintended.

3. The club’s current operating plan math is unsustainable without an increase in dues.

We are 16 members short of operating breakeven at current dues, and it is not clear
whether the breakeven calculation assumes wage increases. Hourly employees have
not had a wage increase in two-to-five years, and the 2014 operating plan does not
provide one. And we are $440 thousand worse-than-plan halfway through the year.

It appears that past annual plans worked with nominal dues increases because $0.8
million in capital funds were diverted to pay operating expenses. That gambit, if
played, is over. The $1.8 million capital approved for clubhouse renovation is gone.

Operating plan math doesn’t appear viable without an upward adjustment to annual
dues; or, alternatively, without reducing staff headcount and quality-of-service. The
authority to decide between the two paths lies with the members; responsibility for
developing the alternatives and facilitating member decision lies with the board.

4. The board is clearly trying to avoid ripping the community apart.

Words are being carefully chosen to disclose fact but not cause. One of your most
ardent supporters is shouting down members in Town Halls, derisively offering to
buy memberships from those who are trying to discern truth, yelling that it does not
matter how we got where we are.

How we got where we are matters. If we, the members, cannot understand truth, we
cannot from fact derive cause and ensure appropriate actions are taken to prevent
potential breaches of trust. Absent truth, the board cannot be held accountable.

My wife and I live in Southlake. We joined Vaquero to play golf, use the gym, and
occasionally eat dinner. We are members of the club; we like virtually every member
we have met; but we are not, by geography and choice, members of the community.
And we do not respond well to intimidation.

I am concerned that money we paid in a capital assessment was used for ends other
than that approved. But I am more concerned that steps be taken to ensure it does
not happen again; and that the board tells members the truth regarding future dues
required to sustain current quality-of-service.

5
One Member’s Expectations

I have only four expectations when it comes to Vaquero:

• One: that the board abides by its four fiduciary duties and acts with integrity.

• Two: that assessments be used for ends approved and not ends unintended.

• Three: that we derive full value for the annual dues we pay.

• Four: that the issues in #1 and #2 above are addressed in full and not half measure.

If the board believes those expectations are unreasonable, please let me know.

If the board fails to meet them, I’ll let you know.

Sincerely,

Craig Jung

cc: Mr. Larry Corson

Mr. Scott Cruickshank
Mr. Wade Hundley
Mr. Derrell Johnson
Dr. Mary Brian
Mr. J.M. Barnish
Mr. Darcy Anderson
Mr. Chuck Greenberg