Governance Report

[Gere]

I’ll start the discussion. Having attended the meeting and the
opportunity to here the presentation and discussion, it became quite
clear that the governance committee proved, as predicted at a Cottage
Owners Meeting, to be self-serving to those shareholders who own or
control large blocks of shares. During the discussion, it also became
obvious to many of us that the expenditure of company funds (paid
predominantly by the cottage owners for the benefit of the
shareholders) was unnecessary.
Stephen Cheheyl submitted the proposal for the change in governance.
He and his family own 179 shares of stock and stand to gain
substantially from the sale of stock at the highest possible price.
Several of us asked when the proposal was in its formative stages,
what price per share the Cheheyl family would accept. The purpose was
to determine if the concept was even financially viable for the
cottage owners before the company expended any funds.
However, the committee chose to engage two law firms and a commercial
real estate appraisal firm. At a cottage owners meeting last summer,
Dr. Eversmann stated that the appraisal firm that was hired on the
recommendation of the law firms was the best in Ohio and his
appraisals were considered “bullet proof.” Apparently, the committee
did not believe the lawyers and the appraiser.
The appraisal came in at $1865 for the land, “as is”. At the meeting,
Jack Seith indicated that that meant that it was the price of the land
as it sits today with the impact of the encumbrances of the leases.
The committee then decided to remove the appraiser’s bullet proof
vest, and shoot holes in it. They decided to base the value of the
land on the sale/lease of open land. The support for this was that
the Courts, in the latest decision, stated that the company had the
right to sell the land.
This presents an interesting question: when you buy land (which is
what we are doing if the governance project proceeds), do you purchase
it based on its current market value “as is” or do you offer a
purchase price based on what you may make if you develop part of the
land. For example, I am considering purchasing 100 acres of farm land
in a very desirable area. The seller is offering the land at $40,000
an acre. I know that if I buy that land for $4m, I can develop it by
subdividing it and increase the value to $80,000 per acre. Being the
nice guy that I am, I go to the owner and say “look, I know that I can
double the value of your land by developing it. So I will pay you
$80,000 per acre.” That folks is what the governance committee is
recommending we do!
Many of us believe that the committee had to increase the price per
share to meet the requirements of the Cheheyl family and chose to do
it with smoke and mirrors. In doing so, they have incurred
substantial costs. Our operating fees were increase by $100
($147,000) this spring. A substantial part of this increase resulted
from the governance committee.
I believe that the adulteration of the appraisal by the governance
committee was a blatant action to feather the nest of a few.
Remember, most of the members of the governance committee inherited
their shares. It is pure profit to them.

[Andy]

Hi Gere,

WOW!!! Your comments are insightful ... maybe I should say
"inciteful".

Hard to believe that TLPC actually paid $63,000 to get an appraised
share value of $1,865 per share. That's like three accountants
working full time for two months - must be a kevlar-complicated
analysis. My appraisal of $1,891/share based on the Erie County
property appraisals took about 15 hours (see my posting here dated 30
July 2008).

Due to a flaw in my analysis, the $1,891 appraisal resolves into
$1,277/share. I can't help but wonder if the Mollica "as is"
appraisal contains the same flaw (my guess is that it does).

Gere, your nice-guy example of paying "Potential Value" for something
seems incomplete. Should not the payout be equal to the potential
value minus the capital and/or effort needed to realize that potential
- that is, to-make-it-happen? Of course this assumes that one can
define the development that will realized the "potential".

As my MMBA Prof said, "If you don't know where you are going, any road
will get you there." Or, as I spouted out, "BS! ... no road will get
you there!"

Cheers,
Andy

P.S. Seems to me if TLPC wants to build value, it would be better to
borrow and rebuild the hotel instead of buying shares at a Mythical
wannabe value based on maybes du jour and hyperbola.