Between a Rock and a Hard Place

Perspectives on the Future of Telemark Resort & the TIOA

With the receipt of the 2009 maintenance fees, it is clear to the membership of the TIOA that the operation of the Telemark Resort continues to place an extraordinary burden on the individual members of the association. The questions and comments received into our mailboxes, email inboxes and telephone answering machines regarding the latest fee bill mailing clearly show that the membership is concerned with the financial situation of the association. Why do the fees continue to rise? What lies in the future for Telemark Resort? How can I get away from this payment I can no longer afford? What is going on with the sale negotiations? What is the Board of Directors doing to solve the problem? With this perspective, we hope to shed some light on the past and current situation and outline some of the considerations for the future for the TIOA.

First a bit of history.

The dynamic of the TIOA maintenance fee structure began to change greatly following the 1998 bankruptcy of the developer and the 1999 decision by the association to purchase the amenity base that he had abandoned, Telemark Resort.

At this fork in the road, we became not just time share unit owners but owners of the largest hospitality entity in northern Wisconsin. While we had high hopes of moving Telemark Resort to a position of profitability, over the ten years we have owned it, this has not happened. The level of Resort Support that each of us pays with our maintenance fees has grown over the years impacting the level of our fees to an all time high in 2009.

The fee increase dynamic is fed by a number of factors: actual and anticipated operational loses due to our inability to grow the business sufficiently to make a profit, rising costs of running the business including ever increasing energy costs, declining numbers of fee paying owners which puts an additional burden on those who do pay and the general economic climate that impacts our ability to attract transient and group business in sufficient levels. This is a simple financial outline touches on just a few major items that impact our annual operational budget and fee structure.

In answer to the question of what lies ahead for the TIOA and Telemark Resort and what is being done to find solutions to bring some relief to the TIOA membership, the following items have been on and continue to be on the Board of Directors discussion table:

Continue with the Status Quo.

Based on the feedback on the past and current level of fees, it is clear that the status quo for the TIOA to continue operating the resort in the present fashion is not a viable path to success. Without sufficient capital resources to impact the condition of the physical property or to augment the recreational opportunities or to market to greater potential business, it is clear that the TIOA can not continue to do business as usual.

Fees are high, which causes members to drop out into the collection process which in turn causes additional burden on those who pay their fees. The resort continues to depreciate without any ability by the TIOA to stop and/or reverse that depreciation. The size of the operations and the cost to maintain them are beyond our ability to raise the revenues to continue without further owner support. Bottom line, a change is needed. So what are some of the possible changes that are being discussed?

Sale of the Resort

The sale of the resort to a qualified buyer would enable the TIOA to get out of the resort operation business and become solely a timeshare ownership association. This would greatly impact our fees in the long run as we worked through a reliable relationship with a new owner. To give the TIOA the best opportunity to explore this option the resort must stay operationally. While the fees to maintain this operation to provide time to find a buyer are uncomfortably high, those fees do provide the support needed to move toward this solution over time.

To this end, we continue our discussions with the development group with whom we've formulated a comprehensive purchase and maintenance agreement over the past few years. As noted at this annual meeting, while those discussions were optimistically headed to a conclusion resulting in bringing the agreements to the membership for a vote, the recent loss of a key development team equity component and the plummeting economic outlook has brought these negotiations to a current stand still. Discussions still ensue with both parties working through ways to bring the deal to a conclusion but the success or timely achievement of this solution is not predictable.

As an alternative, the discussions with a previously contacted, interested and qualified commercial real estate broker have been started again in earnest. At this writing we are exchanging emails and phone calls with the goal that a viable commercial listing will result in broadening the opportunities for other sale possibilities in the near future.

Finally, there is one other individual representing a development group who has previously expressed interest in the Telemark Resort property. With our current negotiations on hold, we are considering opening up discussions with that individual and his group again.

The sale of the resort opportunity would provide the TIOA with the preferred alternative to what lies in the future. By finding a buyer who would purchase the resort for a redevelopment opportunity while maintaining a viable relationship with the TIOA, we as an organization could find ourselves in a much better future position. Again, it is imperative that Telemark Resort remain operational to provide the best case for our movement on the sale of the resort question. Of course, surrounding all of these sale discussions is the general downturn state of the economy that has impacted many segments of many industries.

Voluntary Resort Closure Scenarios

Some have suggested that the resort be closed, either partially on a seasonal basis or permanently to relieve the burden of its operations from the membership. In considering this alternative a number of factors must be considered including:

• Closing the resort would eliminate all the revenues from accommodations, food, beverage and recreation; however it would not eliminate all the expenses. If the resort were closed there would still be expenses for energy to heat and light the building, insurance, security, maintenance, administration of the association affairs and the like. Bottom line closing the resort would not eliminate the resort support by the membership, perhaps it would lower the amount of support, but there would still be resort support.
• Closing the resort would eliminate the required amenity base for RCI affiliation. TIOA members would no longer be able to exchange their weeks through RCI because RCI would not exchange others into Telemark Resort.
• Partial seasonal closure of the resort would interrupt the resorts ability to book groups and conventions, the foundation of our hotel business during the closed period. Again the operations could be closed however the need for staffing to handle administration, security, maintenance and like would still be needed.
• Partial seasonal closure of one wing or the other would also present the consideration that the west wing contains the Lodge Suites and offices and the east wing contains the hotel rooms and meeting spaces. Which would be closed to save expenses and what impact would those closures have on timeshare use or ongoing resort business?
• Closure of the food and beverage departments has been considered. While closing these departments would eliminate most of the expenses related to these departments it would also eliminate all the revenue from food and beverage. By closing the food and beverage functions, our ability to attract group business would be nullified as well as our ability to retain RCI affiliation. Again, there may be some cost savings but at the expense of losing amenities and other owner expectations.
• Closure of the resort would greatly impact the use of the Lodge Suites by the owners of those suites.

Involuntary Closure of the Resort

The question arises, what would be the outcome if the Telemark Resort were forced into a financial failure that would cause the closure of the resort and dispersal of the assets to satisfy the lenderŐs liens?

As a possible scenario, this alternative would result in the loss of the majority of assets owned by the TIOA to satisfy the existing liabilities without any compensation or viable alternative for more positive action in the future.

A financial failure scenario would make the Lodge Suites unavailable for use for those owners, restricting the usage of the condos to the Christiana Villas and Telemark Pointe without the ability to maintain the amenities required for RCI affiliation.

Involuntary closure would present some operational considerations as it relates to the wastewater treatment facility and telephone service that would have to be maintained to allow operation of the Christiana Villas.

Alternative Amenity Opportunities.

Another suggestion on the table for discussion and further quantification is the concept of building a separate recreation building with a swimming pool, check in and check out facilities and perhaps a snack bar to create a new amenity base that would allow retention of the RCI affiliation without the burden of supporting the resort to do so.

This particular concept would involve raising the funds for the construction that would occur on the 10.11 acre plot that contains the current Christiana Villas buildings.

In considering this alternative, the status of the resort building and its maintenance and security while closed would need to be considered.

What the Board of Directors is doing for you the membership. Those who have stepped up to represent the TIOA membership on the Board of Directors face a challenging and complex task of finding ways to improve the situation of the TIOA.

We continue to explore opportunities, weighing them against each other, looking for the one(s) that provide the best opportunity for the TIOA. Whether a solution will be found by the Board of Directors in a timely fashion or whether the future will be predetermined by our financial health and well being is a question that will be answered in the months to come. In the meantime, we will continue to focus our efforts on solutions that will bring us to a better financial place.

A final note - you the members have a great deal of input on what our future will be. If you choose to pay the fees that are needed to continue our operations, you will give us time to realize some of the positive solutions for the TIOA. If you do not pay your fees, for what ever reason you individually decide, then our possible financial futures will be limited and may be self-determined for us.

No one likes the high fees, not you as owners, nor the members of the Board of Directors who are also dues paying owners. The fact is that those fees provide us with the financial wherewithal to have additional time to find solutions. We can't promise that it will all come out roses for the TIOA, however, we can promise that we will not stop trying to get to a better place in the near future.

Thank you for your understanding, patience and support as we continue our efforts on behalf of the TIOA and Telemark Resort.

The Members of the Board of Directors of the TIOA
11-12-08

Update on Potential Sale Transaction 10-18-08

Note: The following text is from the commentary presented at the TIOA Annual Membership meeting on October 18, 2008. The commentary is from the agenda item that dealt with an update on the sale negotiations. Items referred to in the commentary yet not included in the commentary are available via email request to the Board of Director's President, Gary Crandall.

Sale Negotiations Review and Q & A.
An important topic of the day is the status of the sale negotiations with the development entity that is committed to the purchase and redevelopment of Telemark Resort

Brief History of the Parties Involved.
The basic discussions began in April of 2005, when David Thie came to Darrell Buchmann and Gary Crandall to present an idea for the future of Telemark. He had no equity source to complete the project, but expressed a strong vision for the future development that would provide a vital economic boost to the area.
From that first encounter, over the years that have passed, the entity we have negotiated with has changed as partners were added to the principal group and their equity search proceeded. First we talked with David Thie & Associates regarding the conceptual formulation of an agreement. Then as partners were added we continued with the Telemark Holding Company with more detailed discussions and development of purchase and maintenance agreements. The next negotiating entity was the Lodge Management Group, a previously existing LLC that absorbed the members of the previous group into a new partnership.
Eight weeks ago a major equity member was added to the LMG group. This missing component, that of the major source of equity was a welcome development as this addition signaled that perhaps we could actually get this negotiation to the next steps of approval and a membership vote.

Purchase & Maintenance Agreement development.
This is by no means a simple real estate transaction. It includes a detailed relationship agreement that defines payments for services rendered over time. It includes a comprehensive retained trail easement agreement with many maps detailed maps describing trail locations and uses. Throughout our negotiations, the basic nuts and bolts of what was to be sold for how much haven't altered to any great extent. But the details of the agreement have been in a state of flux as each party developed the concept further. Many versions have been volleyed back and forth, detailing the finer points. Why has it taken so long?? One thing we learned was that each change in the document took a minimum of 4 to 6 weeks as each group discussed the change, then sought their side's legal opinion, then formulated a response to the other side. And the cycle continued over many exchanges. As they say, we have been close but no cigar. Within the last 9 months, on several occasions both sides felt they were within several clauses of Agreeing to Agree. Once we agreed to agree and signed the agreement, and received the earnest money check, we could bring the agreement to the membership for a vote. We thought we were going to get there for the last annual meeting, but could not rush the process. We thought at the time of the spring/summer newsletter we would get there, but again not all the ducks were in a row. We thought we would make the vote announcement in this fall's newsletter. We worked to the goal of having a vote at the annual meeting. Then the adding of the fourth partner, the equity source to the discussion, opened up a whole new due diligence discussion period. Finally, as reported in the last newsletter we were working diligently toward the goal of finalizing the purchase and maintenance agreement in time for this annual meeting, agreeing to agree if you would and moving the process along with an announcement of such at this meeting. As you read in your meeting packet that goal was not reached.

Most Recent status.
The most recent discussion, some call it a ripple, others a tidal wave occurred when a third party simultaneous resale of the land agreement fell through. This third party land sale was to provide the equity portion of the LMG purchase of the resort, allowing them to begin their ownership without a mortgage. The purchaser withdrew from his agreement with LMG, on a contingency that involved a road running through the property he was about to purchase being granted a designation as an ATV trail.
If you refer to your meeting packets, we have included an article from this weeks Sawyer County Record that details the issue at hand as it relates to the ATV trail designation and its impact on the Telemark Resort negotiations.
We point this out not to point a finger at the Town of Cable, for they like all volunteer boards are tasked with the important task of decision making on difficult topics, nor to lay blame on the motor sports advocates for their trail development endeavors are worthy and reasonable. We include this article to characterize the impact of that decision on the negotiations to date.

The Latest.
Again turning to your meeting packets, the latest correspondence from LMG is included. In this letter they make reference to: the status of their reply to our latest volley of the Purchase and Maintenance Agreements, the status of the land sale equity portion of the deal, the general state of the economy as it relates to borrowing at this time, and importantly they comment that they are committed to the process moving forward.

Why have we persisted in this negotiation for so long??
That is a good question, and there are a number of reasons why we have stuck with it:
This is a complex negotiation due to the interrelationship of lodge operations and condo owner amenities with the potential purchaser. Indeed we are trying to complete the sale but we are not leaving once the sale is concluded. The buyer has been willing to work out a relationship agreement with the TIOA for maintenance and access to the amenities following the potential sale.
The buyer has agreed to grant permanent and recorded trial easements.
The buyer is willing to heavily reinvest in the redevelopment of the lodge.
The buyer is willing to accept the clouded ownership of the Hytte building and the land it sits on.
The buyer has accepted the fact that because of the Lodge Suites we could not deliver clear title to the entire building.
The buyer has a track record of successfully owning and operating Northwood's themed resorts.

Where do we go from here??
As this new board meets we will examine the other alternatives to this sale that have been part of our ongoing discussions for quite some time. At our morning Board of Director's session, we approved an action plan, supported by the entire board, to pursue a listing with a real estate broker with whom we have had previous discussions, augmenting our efforts to bring a sale of the lodge to the forefront.
Considering the state of the economy this may or may not be the most opportune moment to make this move, but it is a step that we may be able to initiate shortly. However, rather than sit on the sidelines to wait for our Bird in the Hand to develop further, we will move in earnest to find alternative opportunities or develop the current one.

Conclusion and Transition to Question & Answer Session.
With that I feel we have brought you the membership up to date on the potential sale of the resort. At this time I like to open up the floor for a short time for a few questions on this topic.
Please remember if we can not get to your question, you have an opportunity to bring it up at our break out session following the regular meeting. Any questions?

Update on Potential Sale Transaction 10-02-08

As a follow up to the latest round of exchanges between the potential buyers and the TIOA, I am providing this sale negotiation update for you today.

As noted in our Fall 2008 newsletter, the prospective buyers group added a fourth person to their team creating a new bargaining entity. The addition of this fourth person was a welcome one as his company's role will be to provide the equity needed for the redevelopment phases of the post sale Telemark Resort.

After a period of due diligence entailing further legal review of the Purchase Agreement in progress, this new bargaining group presented the TIOA Board of Directors with a revised purchase agreement for consideration at our September 20 director's meeting. The Board of Directors reviewed the new document, noted items that were either acceptable, not acceptable, needing legal clarification or needing further discussion. The TIOA Board of Directors presented their reply to the revised purchase agreement to the buyer's team on Monday September 29, 2008. At this time we await their response.

The process continues as we narrow the points of discussion in the purchase agreement documents to hopefully achieve the final document that will come before the Board of Directors for final review in the near future.

Our focused goal is to finalize the agreement between the parties, sign it and accept the earnest money into escrow prior to the October 18, TIOA Annual Membership meeting. Of course this may or may not occur.

Should we accomplish this goal, the membership will be informed of the agreement signing at the Annual Meeting and the dates set for the vote of the membership on the agreement at a later date.

As in all previous updates on the sale negotiation progress, there is no set deadline for accomplishing our goals, other than the parties strive to come to an agreement as soon as possible so that the process can move toward completion.

We will continue to update you on the progress of these discussions as updates are warranted.

As always thank you for your patience, understanding and continued diligent efforts to support the day-to-day operations of Telemark Resort as we work toward the goal of bringing the sale question to a vote of the membership.

Gary Crandall
10-02-08

Update on Potential Sale Transaction 8-19-08

As a follow up to the August 16 Board of Directors meeting, I thought I'd provide an update on the sale negotiations to date. The good news is that the process continues with the discussions with the potential buyers. Recently, we were informed that the development group has added a new partner whose presence strengthens their approach to the project. As this partner has been just added to their team, some additional time will be required for them to review the existing purchase and maintenance agreements. It is our hope that the process will continue to a positive outcome.

The focus of both parties continues to be that of coming to an agreement that will provide success for all involved. At which time the TIOA and potential buyers come to a mutual agreement, that agreement is signed and the earnest money deposited into the escrow account, the TIOA membership will be notified of a special meeting to vote on the agreement.

We do not have that accepted and signed agreement yet. Without a reliable crystal ball we cannot at predict at which time we will have or if we will have an acceptable and signed agreement. In the meantime, the response to the question of "How is the sale going?" remains, "Both parties are working on it and hope to come to an agreement soon." Simply stated there are no more details to share than that.

We are in the process of preparing the Fall TIOA newsletter to officially announce the Annual Meeting on October 18, 2008. In consideration of the required notification of members for items to be voted on at the Annual Meeting it is evident that we will not be voting on the sale question in October. We do however hope to have further confirmed information about the sale process or other alternatives to present at the Annual Meeting.

Again, we thank you for your patience, support, confidence and continued good wishes as we work through this important item on the TIOA agenda.

Gary Crandall
8-19-08

Update on Potential Sale Transaction 6-16-08

Following the Saturday June 7, 2008 TIOA Board of Directors meeting, on behalf of the BOD, I am passing along an update of the status of the ongoing sale negotiations.

First bear in mind that while these negotiations have continued for quite some time and the process continues into the future, as that time goes by both parties continue to make forward progress toward the mutual objective of agreeing to agree and then bringing the question of the potential sale of the Telemark Resort to the TIOA membership for a vote.

We have had thorough discussion of the purchase and maintenance agreements that will make up the details of the potential sale. These are quite lengthy and detailed legal documents spelling out not only the potential sale terms but also the future relationship agreement between the potential buyers and the TIOA.

There have been offers, counter offers, reply to the counter offer, reply to the reply to the counter offer and then another revision to try to get to the document that both parties agree to sign. It has taken some time, continues to take time and we appreciate your patience as we work through the process to hopefully achieve our goal receiving a reasonable price and acquiring a win/win partnership that will sustain our timeshare operations well into the future.

At this point it appears that the two parties have come to at least a verbal agreement on the many detailed elements that will constitute the purchase and maintenance agreement. Our sincere desire and objective, is that this next go around of communications will finalize that legal paperwork to each parties satisfaction. It may or may not happen but we are focused on working toward that objective.

When and if both parties come to an agreement, both parties will sign the agreement. When and if this happens and the required earnest money is deposited in escrow, the process for notifying the membership of the special meeting for a vote will begin.

At this writing, two versions of the TIOA spring/summer newsletter are being prepared; one announcing a special meeting of the membership to vote on the sale and the other confirming that the process is still on going and we will keep you posted. When and if the time comes that we announce a Special Membership Meeting to vote on the sale, a second newsletter will be printed for first class membership mailing including details of the agreements and time and place for information meetings to be held prior to the Special Membership Meeting date.

Thank you for your continued faith, patience, understanding, and positive good thoughts as we continue to work toward our objective of sending out the Special Membership Meeting announcement.

Update on Potential Sale Transaction 4-18-08

Much time has passed since the 2007 TIOA Annual Meeting announcement and the first posting on the Telemark Resort web page of the ongoing sale negotiations. At that time, we indicated that as definite updates were available that new postings would be added.

In the past six months, the TIOA Board of Directors and the interested parties have meet in person, via telephone and via email. Both parties, with their legal council's guidance, continue to work toward finalizing a bilaterally acceptable final offer to purchase and maintenance agreement.

While we have made substantial progress in the negotiations and legal efforts to detail our understandings in the legal documents, we have not finalized those documents.

At which future time, the Board of Directors approves the language of the offer to purchase and maintenance agreement, the announcement for the special meetings at which the vote of the TIOA membership will take place will be sent via first class mail to the TIOA membership. While there is no definite guarantee that a mutually agreed upon agreement will be reached, both parties are working diligently to that end.

We thank you for your patience in waiting for a definitive announcement on these proceedings. We will continue to work toward finalizing the agreement as soon as possible.

Thank you all for your continued support of the Telemark Interval Owner's Association

For more information contact Telemark at telemark@cheqnet.net
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