SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant Sec.240.14a-12
BELLAVISTA CAPITAL, INC.
--------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
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BellaVista Capital, Inc.
420 Florence Street Suite 200
Palo Alto, CA 94301
(650) 328-3060
Proxy Statement
Special Meeting of Shareholders
To Be Held March 14, 2005
GENERAL INFORMATION
The Board of Directors of BellaVista Capital, Inc., a Maryland corporation, is
furnishing this proxy statement in connection with its solicitation of proxies
for use at the special meeting of shareholders to be held on Monday, March 14,
2005, at 10:00 AM Pacific Standard Time, at the Palo Alto Elks Lodge, 4249 El
Camino Real, Palo Alto, California, and at any adjournment or postponement
thereof. Shareholders were notified of the meeting on or about December 7, 2004
and this proxy statement and the accompanying proxy are being provided to
shareholders beginning on or about February 11, 2005.
Shareholder Proposal
The meeting will be held for the sole purpose of voting on the following
proposal (the "Proposal") made by shareholders Jeff Black and Michael Johnson,
record holders of an aggregate of 311,341 of the Company's shares of common
stock (less than 2% of the oustanding shares as of February 7, 2005):
PROPOSAL: That the Corporation cease making new investments, and immediately
reduce its administrative expenses associated with making new investments. The
Board of Directors shall adopt a detailed plan to sell the Company's remaining
assets and distribute cash proceeds to its creditors and shareholders as such
proceeds become available for distribution, after allocating adequate reserves
to meet current and contingent liabilities.
The Board of Directors interprets this proposal as a proposal to liquidate the
company. Under Maryland law, such a proposal requires the affirmative vote of
66.67% of the outstanding shares.
Voting of Proxies
The only class of the Company's capital stock currently outstanding is its
common stock. Shares of the common stock represented by all properly executed
proxies received in time for the scheduled meeting will be voted in accordance
with the choices specified in the proxies. If multiple proxies are received with
respect to the same shares, the latest dated proxy will be voted with respect to
those shares. See "Revocability of Proxies" below.
In the event that a quorum is not present at the time the special meeting of
shareholders is convened, or if for any other reason the Company believes that
additional time should be allowed for the solicitation of proxies, the
shareholders entitled to vote at the meeting, present in person or represented
by proxy, will have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting. If the Company proposes to
adjourn the meeting by a vote of shareholders, the persons named in the enclosed
form of proxy will vote all shares of stock for which they have voting authority
in favor of such adjournment. If a quorum is not present, in person or by proxy,
the Company may elect to terminate the meeting and the Proposal will be deemed
to have not been approved.
The Company has not been notified of any other matter subject to shareholder
vote to be proposed and voted upon at the special meeting of shareholders, and,
consequently, no matters other than the Proposal will be brought to a vote at
the special meeting.
Voting Rights
Holders of shares of BellaVista Capital, Inc.'s common stock, par value $0.01
per share, at the close of business on March 1, 2005, the record date, are
entitled to notice of, and to vote at, the annual meeting, provided that only
shares that remain issued and outstanding as of the date of the meeting will be
entitled to vote, in person or by proxy, at the meeting. Shares that are
repurchased by the Company pursuant to the Company's tender offer prior to that
date will not be deemed issued and outstanding for purposes of voting at the
meeting. As of February 1, 2005, 18,304,068 shares of the Company's common stock
were outstanding. Assuming the Company acquires all 3,314,917 shares currently
subject to its tender offer, a total of 14,989,151 shares would be outstanding
immediately after the tender offer and prior to the special meeting. Each share
of common stock outstanding on the record date is entitled to one vote on the
matter presented at the meeting. The presence, in person or by proxy, of
shareholders representing 50% or more of the issued and outstanding stock
entitled to vote constitutes a quorum for the transaction of business at the
meeting. The affirmative vote of 66.67% of all outstanding shares is required to
approve the Proposal and direct the board and management to commence the
liquidation of the Company.
As approval of the Proposal requires the affirmative vote of 66.67% of the
outstanding shares, the failure to by any shareholder to vote his or her shares,
in person or by proxy, will have the same effect as a vote against the Proposal
with respect to such shares.
Solicitation of Proxies
The costs of this solicitation by the Board of Directors will be borne by
BellaVista Capital, Inc. Proxy solicitations will be made by mail. They also may
be made by personal interview, telephone, facsimile transmission, and telegram.
BellaVista Capital, Inc. does not expect to engage an outside firm to solicit
votes, but if such a firm is engaged subsequent to the date of this proxy
statement, the cost is estimated to be less than $5,000, plus reasonable
out-of-pocket expenses.
Revocability of Proxy
The giving of the enclosed proxy does not preclude the right to vote in person
should the shareholder giving the proxy so desire. A proxy may be revoked at any
time prior to its exercise by delivering a written statement to the Company's
Secretary that the proxy is revoked, by presenting a later-dated proxy, or by
attending the annual meeting and voting in person.
Additional Materials
A form of Proxy is included with the mailing of this proxy statement. A copy of
the Company's Annual Report to Shareholders on Form 10-K as filed with the
Securities Exchange Commission, which includes the Company's audited financial
statements for the year ended December 31, 2003, as well as its Quarterly
Reports for the quarters ended March 31, June 30 and September 30, 2004, will be
furnished without charge to beneficial owners of shares or shareholders of
record upon request to Connie Paris, 420 Florence Street, Suite 200, Palo Alto,
California 94301; or by calling Ms. Paris at (650) 328-3060.
Beneficial Ownership of Capital Stock by Large Security Holders
To the Company's knowledge, no person beneficially owns more than 5% of
Company's outstanding common stock.
Beneficial Ownership of Capital Stock by Directors and Management
As of February 1, 2005, the Company had 18,304,068 issued and
outstanding shares. As of September 1, 2004, all of the Company's outstanding
shares of its Class A Convertible Preferred Stock were automatically converted
to common shares pursuant to the terms of the Company's Articles Supplementary,
and the common shares thus currently represent the only class of the Company's
capital stock outstanding.
The following table presents information regarding the beneficial
ownership of the Company's capital stock as of February 1, 2005 of: (1) each of
our directors and executive officers; and (2) all of our directors and executive
officers as a group. The beneficial owners named have, to our knowledge, sole
voting and investment power with respect to the shares beneficially owned,
subject to community property laws where applicable.
Number Percent
Title of Class Beneficial Owner of Shares of Class
Common Shares Michael Rider 12,164 *
Eric Hanke 2,170 *
Robert Puette 405,241 1.8
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Total 419,575 2.29
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o Represents less than 1% of the total number of outstanding shares.
Forward-Looking Statements
These proxy solicitation and accompanying materials contain forward-looking
statements. All statements other than statements of historical fact may be
forward-looking statements. These include statements regarding the Company's
future financial results, operating results, business strategies, projected
costs and capital expenditures, products, competitive positions, and plans and
objectives of management for future operations. Forward-looking statements may
be identified by the use of words such as "may," "will," "should," "expect,"
"plan," anticipate," "believe," "estimate," "predict," "intend" and "continue,"
or the negative of these terms, and include the assumptions that underlie such
statements. The Company's actual results could differ materially from those
expressed or implied in these forward-looking statements as a result of various
risks and uncertainties, including, without limitation, the following:
|_| Risks inherent in real estate lending, including the risk of default,
the risks inherent in seeking to realize on collateral upon a default,
and the risks of fluctuation in the value of collateral;
|_| Risks related to fluctuations in the real estate markets, which may
affect both the demand for real estate financing provided by the
Company and the terms available for such financing, as well as the
demand and prices for real estate held by the Company;
|_| Construction loan risks, including the risk that the completed property
may not have the market value projected prior to construction and the
risk that the property may not be completed at the cost and in the time
initially projected;
|_| Risks relating to general economic conditions, which may affect the
supply of and demand for capital and the rates of return available to
lenders;
|_| Risks relating to environmental liability, which may affect the value
of real estate and create potential liability to tenants or neighboring
properties and cause the Company to incur cleanup costs; and
|_| Risks relating to legislation and regulation, which may affect the
Company's ability to conduct its operations or increase the costs of
operations.
IN ADDITION, PLEASE REFER TO OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2003, AND QUARTERLY REPORTS ON FORM 10-Q FOR THE
QUARTERS ENDED MARCH 31, JUNE 30 AND SEPTEMBER 30, 2004, FOR INFORMATION ON
THESE AND OTHER RISK FACTORS. EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO
OBLIGATION TO MAKE ANY REVISIONS TO THE FORWARD-LOOKING STATEMENTS CONTAINED IN
THIS DOCUMENT OR TO UPDATE THEM TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING
AFTER THE DATE OF THIS DOCUMENT.
Liquidation Analysis
The following liquidation analysis was prepared solely for the purpose
of assisting management and the Company's board of directors in determining a
fair purchase price to be used in its current tender offer, and is based on what
each shareholder might expect to receive upon liquidation of the Company. The
analysis relies on estimates and assumptions of the Company's real estate
investments and other assets. The estimated valuations of investments in real
estate include management's best estimates of the amounts we expect to realize
on the sale of our investments. The estimates are based on an analysis of the
properties, including certain inherent assumptions and estimates that are
involved in preparing such valuations. While management believes that its
assumptions are reasonable, there can be no assurance that the assumptions will
prove to be accurate, or that other factors might not have a material affect on
what might actually be realized from the Company's assets. Accordingly, the
amounts the Company might ultimately realize from liquidation of its assets
could differ materially from management's estimates.
For a description of the Company's current portfolio of real estate
investments, please see the information under "Investment Portfolio" below.
Liquidation Analysis Assumptions
We have used the following assumptions in preparing our analysis of the
timing and amount of proceeds available from a liquidation of the Company. The
application of different assumptions could lead to materially different results.
1. No new investments. No additional investments would be made with cash
in the bank or cash generated from the liquidation of assets, income
from performing assets or collections of receivables.
2. Existing investments would be completed and sold. We have generally
assumed that real estate investments currently under construction would
be completed and sold in order to maximize their value. The application
of this assumption provides less proceeds available for distribution
during the early portion of the liquidation time horizon, but provides
for a greater amount of total proceeds since the completed investments
are expected to generate higher sale prices. There are two exceptions
to this assumption. For purposes of this analysis, we have assumed that
property 2518 would be sold in its existing condition and that Loan
2525 (see "Investment Portfolio" below) would be sold at par, to an
independent buyer.
3. Timing of liquidation of real estate assets. We have made assumptions
about the timing for completion and ultimate sale of each of our real
estate assets. The timing for completion of these assets is reasonably
within our control and is expected to be reasonably accurate. However,
since the sale of the assets are subject to market conditions, and a
large portion of the assets are high priced custom homes, the actual
timing for the collection of sales proceeds could vary substantially
from our estimates. The delay in collection of proceeds from the sale
of these assets could substantially affect the estimates for timing of
liquidating distributions to shareholders.
4. Operating expenses would be minimized. We have assumed that staff not
essential to the liquidation of the company would be reduced in an
expeditious manner.
5. Establishment of liability reserve. We have assumed that $4 million
would be set aside to provide a reserve fund for payment of legal
expenses and contingent liabilities. The fund represents approximately
5% of our estimated collectible assets. These funds would be held for a
period not less than 3 years from the date we cease operations.
Proceeds from the fund, if any, remaining after the expiration of
appropriate legal statutes would be returned to shareholders. We have
assumed that the proceeds from this fund would be completely exhausted
and would not be distributed to shareholders.
6. Distributions of cash to shareholders. We have assumed that cash
generated from the liquidation of our assets would be distributed on a
quarterly basis. The maximum amount of cash in excess of the liability
fund reserve would be distributed at the beginning of each quarter
after the quarterly cut off period.
7. Legal Settlement Receivables. We are currently owed $4.1 million, net
of collection expenses, from former borrowers in connection with legal
settlements we have made. These receivables are due to be collected
between January 2005 and January 2006. On January 14, 2005 the obligor
under one of our receivables totaling $3.276, net of collection
expenses, defaulted on a payment of $150,000. In accordance with the
terms of our settlement, we recorded a judgment against the defendants
in the amount of $5.9 million. Due to uncertainties in the ultimate
collectbility of these assets we have not accrued them on our financial
statements. For purposes of this liquidation analysis we have assumed
that we will collect 30% of the receivables, approximately $1.23
million.
Liquidation Sources and Uses of Cash
The following table sets forth the estimated sources and uses of funds during
the period from January 1, 2005 through June 30, 2006 based on our liquidation
analysis.
Sources Amount
(000's omitted) Per share
---------------- --------------
Cash in bank $ 6,673 $ 0.37
Proceeds from real estate investments
(net of completion costs) 69,770 3.81
Collection of legal settlement
receivables 1,240 0.07
Interest on cash deposits 195 0.01
---------------- --------------
Total sources 77,878 4.26
Uses
Salaries $ (810) $ (0.04)
Rent (172) (0.01)
General & administrative (446) (0.02)
Legal & accounting (1,025) (0.06)
REO property carrying costs (216) (0.01)
Contingent liability reserve (4,000) (0.21)
---------------- --------------
Total uses (6,669) (0.37)
---------------- --------------
Net proceeds $ 71,209 $ 3.89
================ ==============
Liquidation Cash Flows
Based on our assumptions about the value of our real estate assets and the
timing for completion and sale, we have summarized the estimated timing of cash
flows (in thousands, except per share amounts) per our liquidation analysis:
2005 2006
-----------------------------------------------------------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Payments from real estate $ 6,419 $9,006 $ 9,551 $ 14,403 $ 10,003 $ 202 $ 93 93
assets
Collection of legal
settlements 200 38 95 -- 907 -- -- --
Interest on cash deposits 25 45 31 24 35 17 9 9
Operating expenses (648) (485) (423) (421) (280) (210) (96) (106)
Shareholder distributions -- (18,672) (18,602) (9,253) (14,006) (10,676) -- --
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net change in cash 15,999 (68) (9,348) 4,753 (3,341) (10,667) 6 (4)
Beginning cash 6,673 22,669 22,601 13,253 18,006 14,665 3,998 4,004
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Ending cash $ 22,669 $22,601 $13,253 $18,006 $14,665 $ 3,998 $ 4,004 $4,000
=========== =========== =========== =========== =========== =========== =========== ===========
Distributions per share $ -- $ 1.02 $ 1.02 $ 0.51 $ 0.77 $ 0.58 $ -- $ --
=========== =========== =========== =========== =========== =========== =========== ===========
According to the liquidation analysis the Company would begin making liquidating
distributions to shareholders in the second quarter of 2005. Distributions would
continue on a quarterly basis in the amounts noted in the above table through
the second quarter 2006 at which time, all assets would have been liquidated and
all cash over the contingency reserve would have been distributed. The offer
price of $3.62 per share was determined using a present value calculation which
discounts the total amount of projected distributions using an 8% cost of funds
rate.
Investment Portfolio
Lending Contracts Secured by Real Estate
The Company's portfolio of mortgage loans secured by interests in real
property included the following assets as of December 31, 2004:
Loan 2503 - This loan is secured by an approximately 8,300 square foot home in
Carmel, California. The home is complete and we have no further obligation to
fund construction costs. As of December 31, 2004 the property was under contract
and closed escrow on January 4, 2005
Loan 2517 - This $4,135,000 loan is secured by a second deed of trust on 17
condominiums totaling approximately 31,500 square feet in San Mateo, California.
Our deed of trust is subordinate to our $11.0 million construction deed of
trust, Loan 2523. This note was issued on May 24, 2002, the proceeds were used
to acquire the property and provide funds for obtaining development approvals,
and was modified on August 3, 2003 as part of the agreement to provide funds
needed to construct the condominiums. The note bears interest at 21%, which is
accrued and payable August 4, 2005, the loan's maturity date. We have fully
funded the non-interest portion of our commitment. The project is currently
scheduled to complete construction in March 2005.
Loan 2523 - This $11,000,000 loan is secured by a first deed of trust on 17
condominiums totaling approximately 31,500 square feet in San Mateo, California.
The note was issued on August 4, 2003, the proceeds of which will be used for
construction of the condominiums. The note bears interest at 8.00%, which is
accrued and payable August 4, 2005, the loan's maturity date. As of December 31,
2004 we had $2,881,959 remaining to fund on the non-interest portion of our loan
commitment. The project is currently scheduled to complete construction in March
2005.
Loan 2524 - This $1,300,000 loan is secured by a third deed of trust on a
10.3-acre parcel in Colorado Springs, Colorado which will comprise 148
condominium units. The loan is junior to a deed of trust in the amount of
$2,392,000 and a revolving deed of trust totaling $4,000,000, both in favor of
Ohio Savings Bank. The note was issued on May 12, 2004, bears interest at 10%,
which is accrued and payable at the loan's maturity date, November 12, 2006. The
note provides for additional interest equal to 3% of the gross sales price of
each completed condominium unit. We have no additional funding requirement on
the non-interest portion of our commitment. The project is a phased development
with 20 units currently under construction. The first units should complete in
May 2005. Build out of the project is expected to continue through November
2006.
Loan 2525 - This $1,750,000 loan is secured by a first deed of trust on an
approximately 1.10 acre parcel in East Palo Alto California. The note was issued
on November 15, 2004, bears interest at 11%, which is accrued and payable at the
loans maturity date, November 15, 2005. Concurrent with the issuance of the
note, we entered into a memorandum of understanding with the developer in which
we agreed to convert our note into an equity interest in the project once
appropriate documentation could be drawn. We expect that conversion to occur
prior to the end of January 2005. The project is planned for 30 condominium
units over a 19,000 square foot retail building. The developer has secured a
development agreement with the Redevelopment Agency of the City of East Palo
Alto and is currently completing the remaining work to acquire full entitlement
to build the planned project.
Loan 2526 - This $3,300,000 loan is secured by a second deed of trust on a six
story, 32-unit condominium building in San Francisco. The note was issued on
December 7, 2004, bears interest at 12%, which is accrued and payable at the
loan's maturity date, March 15, 2006. The project will also contain 2,390 square
feet of retail space on the ground floor. Our loan is subordinate to a
$9,300,000 construction loan which provides the proceeds necessary to complete
the project. As of December 31, 2004 we had fully funded our obligation for this
loan. The project is entitled and construction mobilization is currently in
process.
Real Estate Owned
Real estate owned directly by the Company as of December 31, 2004
includes the following properties:
Property 2216 - This is an approximately 8-acre parcel which has been approved
for development of 72 townhomes and condominiums totaling approximately 123,372
square feet in San Jose, California. We have contracted with an outside party to
provide development and construction management services for this property. As
of December 31, 2004 grading and installation of site improvements had been
largely completed, foundations for the model homes were completed and framing
began on the model homes in early January 2005. The project is to be completed
in two phases with build out expected to continue through February 2006.
Property 2423 - This property is an approximately 4,200 square foot home in
Belvedere, California. We received title to the property through foreclosure on
September 29, 2004. As of December 31, 2004 the home was complete and was being
prepared for marketing in February 2005.
Property 2368 - This is an 8-unit condominium project totaling approximately
6,100 square feet in the South of Market area of San Francisco, California. The
units are loft style condominiums which are popular in that area of the city.
The project is currently under construction and is expected to be complete and
on the market in March 2005.
Property 2396 - This is a 2-unit condominium project totaling approximately
4,450 square feet on Russian Hill in San Francisco, California. As of December
31, 2004 the project had completed construction and was listed for sale in
January 2005.
Property 2407 - This property originally consisted of 6 subdivided and improved
lots in San Rafael, California. Two of the lots closed escrow on September 24,
2004. The purchaser of the two lots has an option to purchase the remaining four
lots which may be extended in six-month increments until May 4, 2006 with
further option payments.
Property 2443 - This project originally consisted of 3 lots for the construction
of single-family homes averaging approximately 4,000 square feet each. Two of
the homes had started foundation work before construction was halted while we
pursued our foreclosure action. No work had commenced on the third home prior to
beginning our foreclosure action. On August 27, 2004 two of the three lots
closed escrow. The remaining lot was under contract in September 2004, but did
not close escrow and the contract was terminated. The lot was marketed for sale
again in January 2005.
Property 2455 - This project is an approximately 8,850 square foot home in
Atherton, California. As of December 31, 2004 the project had completed
construction and was listed for sale in January 2005.
Property 2465 - This project is an approximately 8,900 square foot lot in
Oakland, California. Construction had not started prior to our foreclosure
action. We currently plan to sell the property in its existing condition and
have listed it for sale.
Property 2468 - This property is an approximately 4,000 square foot home in
Tiburon, California. We received title to the property through foreclosure on
September 29, 2004. As of December 31, 2004 construction was not complete. In
January 2005 we reactivated the expired building permits and we are currently
finalizing negotiations with a contractor to complete construction.
Property 2492 - This is an approximately 4,500 square foot home in Portola
Valley, California. The property is complete and was listed for sale in April
2004. In December 2004 the property was sold and escrow closed on January 14,
2005.
Property 2506 - This project is an approximately 6,400 square foot home in
Hillsborough, California. The property is nearly complete with final landscaping
to install in January 2005. We expect the property to be listed for sale in
February 2005.
Property 2518 - This property is an approximately 6,400 square foot home in
Tiburon, California. We received title to the property through foreclosure on
September 29, 2004. The property is in an uncompleted state of construction. We
are currently evaluating our options with this property.
Other Business
The Board of Directors knows of no other matters which may be lawfully presented
for shareholder action at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Palo Alto, California
February __, 2005
APPENDIX A
BellaVista Capital, Inc.
REVOCABLE PROXY
For Special Meeting of Shareholders on March 14, 2005
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned appoints Michael Rider with full powers of substitution, to act
as attorney and proxy for the undersigned to vote, as designated on this proxy,
all shares of the Common Stock of BellaVista Capital, Inc. (the "Company") which
the undersigned is entitled to vote at the Company's Special Meeting of
Shareholders to be held on Monday, March 14, 2005, at 10:00 AM Pacific Standard
Time, at the Palo Alto Elks Lodge, 4249 El Camino Real, Palo Alto, California,
and at any adjournment or postponement thereof, in the manner indicated.
THE BOARD RECOMMENDS A VOTE AGAINST THE PROPOSAL
PROPOSAL: That the Corporation cease making new investments, and immediately
reduce its administrative expenses associated with making new investments. The
Board of Directors shall adopt a detailed plan to sell the Company's remaining
assets and distribute cash proceeds to its creditors and shareholders as such
proceeds become available for distribution, after allocating adequate reserves
to meet current and contingent liabilities.
FOR AGAINST ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF YOU SIGN WITHOUT OTHERWISE MARKING
THE FORM, THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE MEETING.
PLEASE DATE AND SIGN THIS PROXY BEFORE RETURNING IT IN THE ENVELOPE PROVIDED.
Date: _____________________________, 2005
_____________________________ _____________________________
Name (please print) Signature
_____________________________ _____________________________
Name (please print) Signature
(Please sign exactly as name appears on stock certificate. Where stock is
registered jointly, all owners must sign. Corporate owners should sign full
corporate name by an authorized person. Executors, administrators, trustees or
guardians should indicate their status when signing.)
APPENDIX B
BellaVista Capital, Inc.
BALLOT
For Special Meeting of Shareholders on March 14, 2005
PROPOSAL: That the Corporation cease making new investments, and immediately
reduce its administrative expenses associated with making new investments. The
Board of Directors shall adopt a detailed plan to sell the Company's remaining
assets and distribute cash proceeds to its creditors and shareholders as such
proceeds become available for distribution, after allocating adequate reserves
to meet current and contingent liabilities.
FOR AGAINST ABSTAIN
_____________________________ _____________________________
Name (please print) Signature
_____________________________ _____________________________
Name (please print) Signature
(Please sign either as proxyholder with proxy(ies) attached or in person exactly
as name appears on stock certificate. Where stock is registered jointly, all
owners must sign. Corporate owners should sign full corporate name by an
authorized person. Executors, administrators, trustees or guardians should
indicate their status when signing.)
APPENDIX C
BellaVista Capital, Inc.
420 Florence Street Suite 200
Palo Alto, CA 94301
(650) 328-3060
Dear BellaVista Shareholder:
On March 14, 2005 BellaVista Capital, Inc. will hold a meeting of shareholders
in order to vote on the following proposal submitted by shareholders Jeffrey
Black and Michael Johnson with Jim Gafke and Phil Giurlani, Susan Fox's current
business partners, also in support of the resolution. Their proposed shareholder
resolution is as follows:
RESOLVED: That the Corporation cease making new investments, and immediately
reduce its administrative expenses associated with making new investments. The
Board of Directors shall adopt a detailed plan to sell the Company's remaining
assets and distribute cash proceeds to its creditors and shareholders as such
proceeds become available for distribution, after allocating adequate reserves
to meet current and contingent liabilities.
The Company urges you to vote AGAINST the proposal by marking the enclosed Proxy
Card, "AGAINST", signing and mailing it to the Company in the postage paid
envelope provided.
We urge all shareholders to review the complete proxy statement carefully.
The Board of Directors interprets this proposal as a proposal to liquidate the
company. Under Maryland law, such a proposal requires the affirmative vote of
66.67% of the outstanding shares. The law provided for this very high standard
in order to protect the value of a business as a going concern; value which
would be lost upon liquidation. The Board of Directors believes that BellaVista
Capital has substantial value as a going concern; a sound investment strategy; a
healthy pipeline of investment opportunities; an experienced management team;
and the ability to earn the Company's next $90 million in income tax-free. All
of these assets would be lost if shareholders vote to liquidate the company.
With our investment strategy we believe we can achieve double-digit returns to
shareholders from a diversified portfolio of real estate investments. We have
established rigorous underwriting and approval procedures to mitigate risk.
Using our new investment strategy and underwriting procedures we have already
made four new investments which are projected to provide annual returns in
excess of 22%.
During 2004 we received investment requests totaling over $500 million and we
currently we have over $50 million in our pipeline under review. With
approximately $40 million in capital to invest over the next 12 months, and new
investment opportunities requests coming in everyday through extensive network
of contacts, we will be able to choose from an ample supply of quality
investment opportunities.
Guiding these investment decisions is our experienced management team. With over
18 years experience in real estate development and finance, Michael Rider,
oversees all of our operations and is one of the three committee members
approving investments. Eric Hanke's 11 years' of real estate experience provide
him with the tools necessary to obtain and negotiate new investment
opportunities. Our staff are all real estate professionals with many years
experience. Our experience provides us with the productivity necessary to
achieve the anticipated annual returns.
Additionally, our $90 million Net Operating Loss carry forward will allow us to
retain more of the income we make from our investments, and therefore, we have
the potential to deliver a higher return to our shareholders. These higher
returns can allow the company to distribute a cash return to shareholders and
increase share value. Using current combined Federal and State corporate tax
rates, we calculate that we can save as much as $36.6 million in payment of
taxes on the Company's future income of $90 million. That amounts to
approximately $2.46 per share that would be lost in a liquidation of the
Company.
All of these assets are lost if shareholders vote to liquidate the Company. The
Company understands the need for some shareholders to liquidate their investment
in BellaVista. However, we believe that it is possible to provide that option
without liquidating the entire company. For that reason, the company allocated
$12 million, in January 2005, to repurchase shares at a value we determined to
be equivalent to the amount shareholders might receive in a liquidation of the
Company. The Company is also committed to funding additional repurchases in the
future to provide further liquidity.
Since our decision last year to sever ties with Susan Fox and her company,
Primecore Funding Group, we believe we have stopped the decline in share value.
Our four new investments, representing only 20% of our capital, are projected to
provide more than enough income to cover our continuing operating expenses.
Since new management was installed in 2004, we have focused on liquidating the
non-performing investments made under Susan Fox's management and making new
performing investments. We are confident that, through our continued hard work,
we can increase shareholder value.
We want you to know that the opinions expressed by Messrs. Black and Johnson in
their communications are not shared by the Board of Directors or Management. In
fact, we believe their proposal for liquidation is not in the best interest of
shareholders, and are concerned that some statements made in their
communications were incomplete, misleading or inaccurate. We will therefore
rebut these statements with the Company's position:
o Messrs. Black and Johnson mischaracterized a statement we made in a
recent letter to shareholders regarding prices for properties we have
recently sold. Their statement indicated that the prices we have
received for the properties sold have been "at higher prices than
previously estimated." We are concerned that the statement gives
shareholders the impression that we have deliberately undervalued our
properties for purposes of determining net asset value per share. Our
actual statement was that "the sale price was at or slightly above the
price we used to estimate our June 30, 2004 net asset value" (emphasis
added). In fact, since our June 30, 2004 estimate, we have sold and
closed escrows on eight properties with sale prices totaling $31.7
million compared to our estimates for those eight properties of $31.3
million, an increase of approximately 1% from our estimated values
which equate to approximately $0.02 per share. For the properties
remaining in our portfolio, the values we use to estimate net asset
value per share and which we used to determine the liquidation value
for our recent tender offer were supported by either third party
appraisals or an opinion of value by a real estate broker specializing
in that area.
o Messrs. Black and Johnson state that in order to maximize shareholder
value, the Company should liquidate its portfolio and distribute those
proceeds back to investors. As discussed above, the Board of Directors
believes that this action would more likely result in minimizing
shareholder value. Many of the Company's assets, including the $90
million net operating loss, the company's investment strategy, the
management team and the pipeline of new investment opportunities, would
be lost upon liquidation.
o Messrs. Black and Johnson state that operating costs are unacceptably
high. Actually, our projected continuing operating expenses of $1.25
million have been reduced substantially from the annual average of over
$9 million from Primecore's inception in 1999 through the end of 2003.
Our projected returns from the four new investments we made in 2004
will more than cover these expenses. The high legal and accounting
expenses pointed out in their letter result from legal issues related
to the investments made prior to our new management. These expenses
were unavoidable and would have been paid even in a liquidation of the
company. Indeed, we estimate approximately $650,000 of additional legal
expenses and carrying costs related to the non-performing investments
will be incurred during 2005 regardless of whether the company
liquidates.
o Messrs. Black and Johnson state that we should not have moved our
offices. We believed that moving from 7,000 square feet of office space
with gross rental expenses of approximately $300,000 per year, to a
location with approximately 2,300 feet of office space and gross rental
expenses of $84,000 per year, demonstrates a commitment to cost
savings. Regardless of the outcome of the vote to liquidate, the
company will need to maintain some staff and an office to manage the
liquidation of the assets over the next two years. The new offices with
a two-year lease fill that need at a reasonable cost and provide the
basis for ongoing operations if shareholders see value in the business
and vote against the liquidation proposal.
In summary, we believe that liquidating BellaVista Capital would decrease
shareholder value by forfeiting the company's following valuable assets:
o Our ability to earn the next $90 million in Company income tax-free;
o Our double digit return oriented investment strategy;
o Our healthy pipeline of investment opportunities; and
o Our experienced management team.
The Company therefore urges you to vote AGAINST the proposal to liquidate the
company by marking the enclosed Proxy Card, "AGAINST", signing and mailing it to
the Company in the postage paid envelope provided.
As always, please give us a call if you have any questions, or if you would like
to discuss our plans in further detail. We appreciate your support in working
through this difficult time.