EXHIBIT 20.1
Dear Fellow Shareholder,
This letter is sent to you by all of the members of the BellaVista Board of
Directors. By now you have received a letter from MacKenzie Patterson Fuller
(MPF) announcing their intention via proxy to take complete control of
BellaVista's operations, management and Board of Directors oversight. Please be
aware that this is a highly misleading document with numerous misrepresentations
and false allegations not only about the Board but also about the alleged cost
savings to the company and the benefits to you, the shareholder. You should also
know that upon completion of a detailed analysis of MPF's takeover proposal, the
Board clearly communicated to MPF where MPF's assumptions were incorrect; and,
as a result of their misunderstandings and incorrect assumptions, that there
would be no material operating cost savings derived from implementing their
proposal.
Therefore, once it became apparent that there would be no cost savings or
related benefits to our shareholders, the MPF proposal quickly reduces to
nothing more than a ploy to seize control of BVC and its assets while reaping
approximately $834,000 as an annual management fee and a 15% stock option payoff
in the future. The highly questionable alignment of interests of this private
equity group, combined with their ill defined agenda, makes the MPF takeover
proposal even more onerous to the individual BellaVista shareholder.
That said, the purpose of this letter is to respond to some of the
misrepresentations and false allegations contained in MPF's letter whose sole
purpose is to taint the image and performance of BVC's Board of Directors and
deliberately drive a wedge between the majority of BVC shareholders and the
shareholders serving as their Board. Furthermore, MPF appears to be attempting
to deceive you by weaving into their communication a misleading story of
enhanced shareholder alignment when MPF's interests are clearly not aligned with
those of the majority of BellaVista's shareholders. Highlighting this divergence
of interests are MPF's apparent objectives to:
o Take complete control of BVC's operations, management, assets and
Board while having never provided any sort of detailed business plan
or timeline to liquidity
o Increase the income of MPF's management company by approximately
$834,000 annually as a result of the 2% asset management fee charged
to BVC, while claiming their board service will be "free".
o Absorb excess overhead and defray a portion of the cost of MPF's
existing excess staff capacity
o Reward themselves with a stock option equal to 15% of the company
shares, thereby diluting all shareholders' ownership
o Provide liquidity in the form of dividends, which would be fully
taxable to BVC shareholders (versus the Board's plan for share
repurchase designed to generate more advantageous tax treatment)
o Reinvest BVC's approximately $5 Million of trust deed assets in
MPF-directed investment in real estate securities, which are typically
higher risk and less liquid than BVC's trust deed investments
As shareholders, you are the Board's employer and should make the ultimate
decision on the company's future path. With that in mind, we ask you to consider
3 very important points:
1. Carefully review the attached fact-based analysis of MPF's recent
communication and judge for yourself who will better serve your
interests.
2. Seriously consider the issue of whose interests are best aligned with
you as BVC shareholders:
a. Your current Board: all of whom are individual shareholders who
bought their stock at the same price as the majority of you have
($10/share), and have never sold a single share, or
b. MPF, a family-owned, private equity group that specializes in
taking advantage of holders of illiquid securities, which
acquired its BellaVista shares at a price-per-share significantly
lower than your purchase cost, that has its own shareholders to
serve, its own compensation and tax structures to optimize, and
an ill-defined agenda regarding control over BVC and its assets.
3. We strongly recommend that you do NOT sign or even return the MPF
proxy that you will shortly receive.
4. You will be receiving a proxy solicitation from the BVC Board strongly
recommending that you vote to OPPOSE the MPF takeover proposals. You
should be receiving this BVC proxy in several weeks, following the
mandatory SEC filing period.
We are preparing to file a Preliminary Proxy Statement with the Securities and
Exchange Commission ("SEC") opposing the MPF proposal to take over complete
control of BVC. After our Preliminary Proxy Statement has been on file for 10
days, and subject to any delay for SEC review, we will file and mail to you our
Definitive Proxy Statement together with proxy cards.
WE URGE YOU TO READ OUR DEFINITIVE PROXY STATEMENT WHEN IT IS AVAILABLE BECAUSE
IT WILL CONTAIN IMPORTANT INFORMATION ABOUT YOUR VOTE ON THESE PROPOSALS. WE
WILL BE MAILING EACH REGISTERED SHAREHOLDER A COPY OF THE DEFINITIVE PROXY
STATEMENT, AND YOU CAN OBTAIN COPIES OF ALL MATERIALS FILED IN CONNECTION WITH
THIS SOLICITATION FOR FREE AT THE SEC'S WEB SITE OR BY CALLING US AT (480)
563-3351.
In addition, you can obtain detailed information about the board members who are
soliciting your proxy to oppose the MPF proposals in the annual report
previously provided to you, copies of which also may be obtained for free at the
SEC web site or by calling us at the above number.
The entire Board wishes to sincerely thank you for all of your past support and
your continued faith and confidence in our efforts and actions on your behalf.
Sincerely,
William Offenberg Jeff Black
(408) 396-3971 (408) 499-0352
Patti Wolf Robert Puette
(480) 563-3351 (408) 309-3710
BellaVista Response to MPF's May 12, 2009 Letter to BVC Shareholders
--------------------------------------------------------------------
Excerpts from MPF's Letter are presented in quotes with "Red Font"
1. "We have tried to help, but our initial proposal to try to improve the
financial outlook of the company was flatly rejected by the current board"
A. This is simply not true. The Board did not flatly reject the MPF
proposal; rather we spent a significant amount of our time during the
very tight time frame (initially 11 days from receipt of their
proposal) that was imposed on us by MPF.
B. We conducted a thoughtful and thorough evaluation that included:
i. Providing MPF with a detailed list of questions and issues raised
(or entirely ignored) in the MPF proposal, which itself was
severely lacking in detail. Please note that the MPF proposal
consists of only a 1 page cover letter and a 1 1/2 page "plan"
that offered a 2 paragraph "Business Plan Summary", while the
remainder dealt with their "Fee Structure Summary" and
"Transitional Services". Clearly, MPF's proposal does not come
even remotely close to providing the level of detail necessary
for a responsible board of directors to make a decision on the
question of handing over total control of BVC and its duly
elected Board to a third party, private equity group, that is
currently a minority shareholder!!!
ii. A summary letter was sent to our shareholders to keep them
apprised of the proposal and the actions we were taking
iii. We had multiple phone calls with MPF to clarify various issues
iv. We provided financial information (the most current 6 months
Actual and the next 6 months Projected - See Chart Below) clearly
refuting MPF's claim of substantial cost saving. We reviewed this
information in a telephonic meeting with MPF. As best we can
tell, MPF's calculation of a $500,000 per year savings was flawed
by their using dated financials that included: costs from
employees no longer with the company, start up costs for
outsourcing asset management and carrying costs of certain REO
properties (which would have to be paid no matter who operates
the company). So, MPF ended up comparing apples to oranges as it
were.
v. We had a final conference call with MPF to discuss the reasons
why we could not recommend acceptance of their proposal. The two
basic reasons were:
a. A major misalignment between the interests of BVC's
shareholders (primarily individuals) and MPF, a private
equity group; with its own separate funds, shareholders
groups, tax structure and compensation plans
b. The lack of any real benefit from cost savings as shown in
the following table which summarizes what we presented to
MPF.
C. While MPF may not have agreed with or liked our response to their
proposal, we in no way flatly rejected it.
2. "Lowers total corporate G&A by nearly 40% from the current rate of
approximately $1.36 million to approximately $834,000 on an annualized
basis"
A. This statement demonstrates either how misleading MPF has chosen to be
in its proxy campaign or how little due diligence was done in
preparing its proposal.
B. The following table summarizes the real corporate G&A costs at BVC.
The detail behind this table was presented and explained to MPF well
before they chose to take their misleading campaign to seize control
of BVC to the shareholders.
C. This table presents the most recent 6 months of actual expenses and
the following 6 months of projected expenses. The total for the 12
months of expenses is $881,753. With one important exception, this
would equate to MPF's 2% asset management charge or "approximately
$843,000". So, on the face of it, an annual savings of about $39,000
or 4% by allowing MPF to take complete and unilateral discretionary
control over BVC and your investment. A far cry from the $500,000 or
nearly 40% savings promised in their proposal and letter.
i. Why such a huge difference? As best we can tell, MPF's
calculation of a $500,000 per year savings was flawed by MPF
having used dated financials that they really did not fully
understand. These financials may have included costs from
employees no longer with the company, start up costs for
outsourcing asset management and carrying costs of certain REO
properties (which would have to be paid no matter who operates
the company). So, MPF ended up comparing apples to oranges,
either intentionally or unintentionally.
D. But the story does not end there... Our numbers already include an
expense of $114,688 for Directors and Officers Liability Insurance, a
generally required and prudent coverage for any company.
E. In MPF's proposal as presented to the Board, they indicate that they
would not need that coverage. However, in MPF's own Preliminary Proxy
material, they state, "Also, upon election, the MPF nominees will be
covered by BellaVista's officer and director liability insurance, if
any."
F. Adding this insurance coverage alone would result in an increase in
expenses of about $100,000 annually, making the cost of MPF managing
BVC increase to $957,000, or $75,000 more than the current costs for
BVC.
- --------------------------------------------------------------------------------------------------------------------------
BellaVista Capital Expense Information
Provided to MPF on 04 20 09
Actual - 6 Month Projected - 6 Months Total - 12 Month
Oct 08 - Mar 09 Apr 09 - Sep 09 Oct 08 - Sep 09
---------------------------------------------------------------------------
Operational Expenses:
Salaries & Benefits 2,414 294 2,708
Legal: SEC public reporting 13,927 11,794 25,721
Legal: Other 7,099 9,000 16,099
Accounting - Review, Audit & Tax Return 41,921 130,000 171,921
Cupertino Capital Management Fee 130,511 135,000 265,511
Board of Directors Fees 90,500 61,001 151,501
Directors and Officers Insurance 57,646 57,042 114,688
CEO Consulting 57,914 45,000 102,914
General and Administrative 18,158 12,532 30,690
----------------- ----------------- -----------------
Total Expenses 420,090 461,663 881,753
Real Estate Owned (REO)
Income 429,508 338,653 768,161
Expenses 838,716 822,786 1,661,502
----------------- ----------------- -----------------
Net REO Income (Loss) (409,208) (484,133) (893,341)
- -------------------------------------------------------------------------------------------------------------------------
3. "We have put together a plan to take over management of BellaVista to save
costs and improve performance..."
A. The Board has yet to see this detailed plan. All we have received is
i. MPF's initial proposal consisting only of a 1 page cover letter
and a 1 1/2 page "plan" that provided a 2 paragraph "Business
Plan Summary" with the remainder describing their "Fee Structure
Summary" and "Transitional Services".
ii. Written responses to our questions
B. A Proposal and the underlying detailed plan to unseat a Board of
Directors and management, and take complete control of a company with
over $30 Million in assets would logically require something
substantially more than 2 1/2 pages of paper, answers to a few pages
of basic questions and a shareholder proxy. But in this matter, you,
the shareholder, need to be the judge. What level of planning and
documentation would you expect from a responsible organization? As a
point of reference, the agreement to implement Cupertino Capital as
BVC's Asset Manager was supported by a 6 page transition plan, a set
of explicit goals and a timeline for implementation and, finally, a 9
page contract with additional exhibits outlining scope,
responsibilities, authority and costs.
4. "We believe the inexperienced managers and directors of Bella Vista
continue to compensate themselves handsomely while wasting money on
administration and watching the value of your shares continue to plummet."
A. "Inexperienced Manager" Cupertino Capital is a leader in the
management, placement and administration of 1st and 2nd mortgages in
the real estate lending market. They manage a loan portfolio of
approximately $200 Million. As a consultant to the board for 2 years,
they have an intimate understanding of BellaVista and its portfolio.
They have been invaluable in navigating the difficult market
conditions we have been in. Bottom Line - Cupertino Capital can hardly
be called inexperienced.
B. "Inexperienced Board" The Board is comprised of members that have a
wealth of knowledge in residential and commercial real estate as well
as hands-on management of small and large public and private
companies.
i. Jeff Black has over 32 years in the Commercial and Investment
real estate field.
ii. Bob Puette has been on the BVC board for 9 years and has over 10
years of extensive experience in real estate acquisition,
development, and investment.
iii. Bill Offenberg was a consultant to BVC for 1 year prior to
joining the Board and has been an active investor in the
residential and commercial real estate and debt markets for over
18 years.
iv. Patti Wolf has over 30 years of business development and
management experience having successfully managed a variety of
companies in an executive capacity and brings a wealth of
experience in administration and systems to BVC.
v. Dan Shaw has been in the residential and commercial real estate
markets for over 18 years as both a developer and, for the last
12 years, in the private lending market (effectively in the same
market space as BVC). Due to this deep industry-focused
experience, Dan was brought on as a consultant to the board for 2
years, prior to his company (Cupertino Capital) taking over the
portfolio management for BVC.
vi. All of the board members are substantial shareholders and each
brings to BVC a broad base of skills and knowledge gained from
their prior corporate executive experiences.
C. "Wasting Money on Administration" The Board has worked diligently and
has been very effective at lowering the cost of the administration of
the company with great success since their having been elected 3 years
ago. As it became apparent that the market was deteriorating and our
focus would transition from actively seeking out new investments to a
more defensive role in managing and preserving the value of the
existing portfolio, we developed an outsource plan whereby we:
i. Eliminated all Bella Vista employees
ii. Closed the high-cost BVC office in Palo Alto
iii. Outsourced the asset management and administration of the BVC
real estate portfolio.
iv. To this end, we have shared both actual and projected operating
cost information with MPF that clearly demonstrates that the cost
savings presented in the MPF proposal, which MPF represents as a
critical reason for adopting their proposal, is totally
incorrect. (See section 2 above.) Therefore, the adoption of the
MPF proposal does not provide any material savings, but will
result in a significant divergence of interests as BVC
shareholders surrender total control and oversight to this
private equity group, a minority shareholder.
D. "Compensate themselves handsomely" We believe these insinuations are
inflammatory and indicative of the character and mentality of the
authors.
i. Everything you are about to read regarding compensation is and
has been routinely disclosed in a number of BVC's various public
filings.
ii. BVC hired a compensation consultant in 2006 to review the
company's compensation program. The results indicated that BVC
was well within the norm for a company of its asset base and
market.
iii. The Board and its officers are compensated in line with the
duties and responsibilities that they are tasked to perform. Over
the past three 3 years, the Board has met on a regular monthly
basis for 5 to 6 hours per meeting. In addition, as circumstances
arise the Board will hold additional meetings either in person or
telephonically. Additionally, since there are no longer any
employees at BVC, the Board and its officers have taken a more
active role and additional responsibilities in the management of
the company.
iv. The Board members receive $25,000 per year, plus $1,000 per
unscheduled meetings. These fees have not increased in over 5
years. Bill Offenberg receives an additional $5,000 per year for
his role as Chairman of the Board.
v. When Mike Rider left BVC, Bill Offenberg and Jeff Black
respectively were asked to assume the statutorily required CEO
and CFO fiduciary responsibilities including the mandatory review
and certification of the company's SEC and regulatory compliance
and formal quarterly and annual filings, as well as the material
potential personal liability associated with such roles. They
each receive a payment of $5,000 annually for these added
responsibilities.
vi. In October 2007, as the first step toward the restructuring plan,
Bill Offenberg was asked by the Board to assume the role of
Executive Chairman in order to develop the restructuring plan and
subsequently lead its implementation. Additionally, Mr. Offenberg
was asked to provide day-to-day hands-on management during the
period leading up to and after Mr. Hanke and Mr. Rider exited the
company. To that end, Mr. Offenberg was asked to assume the role
of CEO.
a. Mr. Offenberg does not perform the CEO role on a full time
basis but rather performs the role on a consulting basis as
needed. In this way the company is billed only for the time
that Mr. Offenberg spends as CEO on the required
operational, management and legal matters. He provides a
monthly report of his time spent on a daily basis to the
Board for review and approval. He is compensated at the rate
of $250 per hour (a rate that has not changed since he
assumed the role in 2007). Mr. Offenberg receives no
bonuses, overtime or any other benefits such as vacation
pay, a pension plan, 401(k) or medical or life insurance
coverage. He is responsible for paying all of his own
self-employment taxes such as FICA and Medicare taxes. He is
only reimbursed for routine and approved business expenses
incurred in performing his various duties such as mileage
driven on company business.
b. In 2008, Mr. Offenberg billed the company for CEO consulting
for a total of 345 hours and $86,125.
c. Mr. Offenberg effectively replaced the functions of Mr.
Rider and Mr. Hanke. Their combined annual salaries and
targeted bonuses totaled $500,000, with their company
benefits accounting for about an additional $75,000; for a
grand total of approximately $575,000
d. Mr. Offenberg's compensation agreements have been routinely
and frequently disclosed in the Company's public filings.
vii. Contrary to MPF's claim, all other Directors are not reimbursed
for their expenses but rather pay for those board-related costs
personally.
5. "Catastrophic destruction of Value"
A. In its calculations, MPF conveniently overlooks that while the vast
majority of BVC shareholders purchased stock at $10 per share, a
return of principal of $1.50 was made by the end of 2003, thereby
reducing a shareholder's basis and, therefore, the calculated loss
percentage accordingly. This occurred well before this board was
elected.
B. MPF suggests that the board is responsible for the 73% decline in the
stock price of BVC, when in fact this Board was not elected until the
Fall of 2005
C. The drop in the price of BVC stock from $4.20 to $2.73, while an
unpleasant outcome and a major loss in value, tracks the drop in other
real estate related assets as a result of the financial meltdown that
started in the second quarter of 2008. We were not immune to the lack
of liquidity, but we have performed better than some of the related
sectors in the broader financial markets.
D. We are fortunate that we stopped making any new major real estate
investments by the end of 2006 and took a defensive position with the
balance of our assets.
6. "Failure to meet projections"
A. Yes, in February of 2007 we made certain projections. However, these
were based on a robust real estate market and our then performing
assets. Did we miss our projections as the severe and sudden downturn
hit the real estate market? Yes, but so did the rest of the financial
market.
B. Fortunately we wisely put new real estate asset acquisitions on hold
later in 2007, as the market started to show further signs of weakness
C. The decline in the value of BVC's NRV under the current Board is
directly linked to the worst financial crisis facing the real estate
and credit markets since the Great Depression. While this is not an
excuse for our performance, these adverse market conditions have
severely impacted virtually every company's asset valuations,
liquidity and share value across the entire gamut of financial and
real estate markets.
7. "...it (the current board) promised to provide a shareholder redemption
plan within three years. That promise has been ignored for three years and
then finally explicitly broken. How can this board be trusted with your
money?"
A. A misrepresentation, and patently untrue. The Board has consistently
said in words and print and presentations for the past 3 years that
implementing a shareholder liquidity program was and is a critical
priority. So MPF should get their facts straight. For the record:
i. Over the past 3 years the Board has consistently maintained the
position that we planned on implementing a shareholder liquidity
program via share repurchase in January 2009.
ii. As we said at our meeting in February, implementing that program
is one of our highest priorities. However, we indicted that we
had to delay the implementation due to lack of liquidity, mainly
due to the fact that the assets that we planned to liquidate had
in some cases been sold at lower than expected prices and, in a
larger number of other cases, the assets had yet to sell.
iii. As we have consistently communicated, a routine liquidity program
would have to be funded by income and sale of assets, both of
which have been severely impacted by the current market
environment.
iv. Implementation of the program is not being ignored as MPF falsely
alleges but rather it is subject to the practical and common
sense requirement that the company have sufficient liquidity. It
would not be prudent from a value perspective to initiate a
shareholder redemption plan that would require either massive
borrowing at unfavorable rates or having to fire sale assets in
the midst of one of the most distressed real estate markets since
the Great Depression.
v. The redemption plan remains a critical priority for the Board and
will be initiated, when we have the necessary liquidity through
the sale of various assets.
vi. The Board has established a strategy for each of our remaining
assets that we think will maximize their values and contribute to
our ability to implement the share repurchase program.
B. One major point that MPF has chosen to conveniently ignore is that BVC
has repurchased more than 3,818,000 shares during the past 3 years.
This is in addition to the more than 3,000,000 BVC repurchased in
early 2005. In all cases, BVC purchased these shares at higher prices
than offered by MPF.
8. "How can this Board be trusted with your money?"
A. This Board is made up of 4 individual shareholders who purchased all
of their shares at $10, like the majority of you.
i. The Board's total holdings are in excess of 930,000 shares, or
about 8% of outstanding shares.
ii. No one on the Board has ever sold any of their shares.
B. So, to the question MPF asks... As an individual shareholder, who
would you rather trust with your money? Who is more likely to have the
real interests of all individual shareholders at heart?
i. The choice is simple. And it is not MPF, a private equity group
with their own shareholders, compensation plan and undisclosed
agenda.
9. "High compensation for little Service"
A. "High compensation" Compared to what? As stated above, BVC hired a
compensation consultant in 2006 to review the company's compensation
program. The results indicated that BVC was well with in the norm for
a company of its asset base and market. Beyond that, BVC's method for
compensating its directors and officers and operating the company is a
viable and reasonably accepted model. The MPF proposal to pay itself a
2% asset management fee offers another option.
i. We have provided financial data to MPF that shows no significant
savings between the 2 models. Can one infer from this that the
MPF proposal would result in them being highly compensated?
B. "Little Service" The Board has developed and successfully implemented
a major restructuring of the company. The Board has
i. Substantially decreased Operating Expenses over the past 3 years
ii. Terminated all full time employees
iii. Closed the high cost Palo Alto office.
iv. Made very effective use of highly experienced outsourced
resources.
v. Begun a controlled liquidation of the company's assets with the
goal of maximizing realized value
vi. The goal of returning value to the shareholders in the most tax
efficient manner possible as a repurchase of your shares
vii. While not having any direct employees, the Board and the CEO on
an as needed consulting basis and Cupertino Capital, as our asset
manager, perform all of the operating and management functions in
an effective and professional manner at a cost equal to or less
than that proposed by MPF.
10. "Lack of Experience"
A. See section 4 B.
B. Mr. Black's long and distinguished career in California real estate
speaks for itself.
C. In aggregate, Mr. Puette, Mr. Shaw and Mr. Offenberg have extensive
and very successful real estate experience in project development,
build out, and lending that are in full alignment with the types of
projects the BVC has and is invested in.
11. "MPF is Uniquely Positioned to Increase the Value of BellaVista and its
Assets"
A. Sounds great but when one examines the facts here is what comes to the
surface relative to this private equity group's unstated agenda.
i. Complete control: Take complete control of BVC's operations,
management, assets and Board while providing no detailed business
plan or timeline to liquidity
ii. Incremental income: Increase the income to MPF's management
company by approximately $834,000 annually as a result of the 2%
asset management fee charged to BVC
iii. Absorb existing overhead: Absorb and defray a portion of the cost
of MPF's existing excess staff capacity
iv. Dilute existing shareholders: Reward themselves with a stock
option equal to 15% of the company shares
v. Satisfy MPF's tax structure: Provide liquidity in the form of
dividends, which would be fully taxable to BVC shareholders
(versus the Board's plan for share repurchase that would likely
provide shareholders with potential tax savings)
vi. Access to BVC capital: Reinvest BVC trust deed assets in
MPF-directed real estate investments, which are typically higher
risk and less liquid
12. "Aligns Incentives"
A. MPF cannot possibly simultaneously represent both their shareholders
and BVC's shareholders without a major conflict of interest
B. While everyone will agree that it is in the interest of all
shareholders to maximize the value of BVC assets; we believe that BVC
shareholders and MPF shareholders (through the 19 MPF entities that
own BVC shares) have divergent interests. Some examples are:
i. Most BVC shareholders bought their stock for $10/share. MPF
bought BVC stock in 19 separate entities at substantially lower
prices (in the $1.00 to $2.25 range). A precipitous sale of BVC
assets may well provide profit and liquidity to MPF shareholders
at the appropriate time, but it would provide either a loss or a
forgone opportunity for BVC shareholders to benefit from future
price increases.
ii. MPF suggests in their 1 1/2 page business plan that they would
put forth a dividend program. While a dividend program would not
have an adverse affect on MPF shareholders, it would have major
adverse tax impact on BVC shareholders that would end up paying
taxes on dividend interest, instead of receiving a capital loss
on their BVC shares through a share repurchase plan.
iii. How will MPF balance the needs of its 19 individual funds that
could likely have investment objectives, liquidity needs and
other interests that are divergent from those of BVC
Shareholders? For example, an MPF fund may have certain capital
and liquidity needs that are in direct conflict with BVC
shareholders which could lead to inopportune BVC asset sales.
13. "BellaVista's current asset manager owns zero BVC shares. How does that
create any alignment with BVC shareholder interests?"
A. This is a red herring at best, again meant to do nothing more than
create a false impression relative to the real circumstances relating
to alignment of interests.
B. Cupertino Capital's quarterly management fee is based solely and
directly on NRV performance quarter-to-quarter. How can this not be
totally aligned with BVC shareholders and their share price which is
directly determined from NRV.
C. Cupertino Capital made substantial investments in personnel and
systems upgrades in preparation for the transitioning of the BVC
administration and asset management functions. Nevertheless, the
Cupertino Capital contract is subject to annual review by the BVC
Board and is subject to non renewal pursuant to such review.
14. "Upgrades shareholder and investor relations"
A. Yes, MPF has an entire department dedicated to this. BVC shareholders
are in direct contact with a member of the Board responsible for
shareholder communications and relations as well as complete access to
the CEO.
B. Over the past several years, we have provided updated summaries and
overviews of the various properties in the portfolio. We have been
constrained as a public company from making certain selective
disclosures. In every case we must file an 8-K to the world. Also, we
have been constrained in what details could reasonably be shared due
to the various specific negotiations and foreclosure processes that
were ongoing. It makes little sense to communicate something as simple
as our expectation of the real sale price of a property if by
disclosing that information potential bids would be driven lower.
C. The Board believes it made the correct decisions after consulting with
counsel that there were periods where disclosure would negatively
impact either ongoing legal actions or negotiations for sale.
D. We recognize and commit that we will do a better job in communication
going forward as a variety of negotiations and sales are about to be
concluded and we can operate under fewer constraints.
15. "Line of Credit"
A. MFP briefly mentioned the existence of a relatively small, prime
rate-based line of credit of $2.8 Million, but offered no commitments
as to how or even if this line would be used to assist with BVC's
working capital needs or REO property carrying costs.
B. MPF has mentioned providing additional equity, if needed. However, MPF
indicated that their targeted return for equity would be "20% or
greater".
C. During 2008, BVC foreclosed on or took control of a number of projects
that had cash needs ranging from capital needed for project completion
to cash needed for operating expenses such as property taxes and
insurance.
i. In early fall, BVC recognized the need to borrow against several
of its properties to fund these incremental REO project and
operating cash requirements. At that time, the credit markets
were virtually shut down and the associated underwriting
standards had severely constrained the possibilities for any
traditional commercial or bank financing.
ii. During this time, we had positive discussions and preliminary
applications underway with several commercial lenders that were
suddenly rejected in the final stages of approval.
iii. Therefore, in order to meet the short-to-medium term cash
requirements, we went to the private placement market, through
Cupertino Capital, to seek $1.5 Million lines of credit on both
our Brighton and Pulgas properties, for a total borrowing of up
to $3 Million.
iv. We were successful in that financing effort with the assistance
of several of our Board members. To that end, we successfully
avoided having to resort to raising additional equity which
likely would have carried a much higher cost and would have
diluted our shareholders.
v. We are now in the final phases of replacing a large portion of
that higher cost private placement debt with conventional bank
financing.
16. "Lower total corporate general and administrative costs by nearly 40%..."
A. While this is addressed in section 2 in detail, it is very worthy to
note that:
B. We have demonstrated to MPF that their cost saving claim is blatantly
not true.
C. Again, MPF attempts to compare apples and oranges. We have provided
them financial data that shows that the savings under their proposal
for the first year would be about $37,000 on a budget of $882,000 or a
4% savings. The problem with this comparison is that MPF has not
included the cost for Directors and Officers insurance which currently
has an annual premium cost of $114,688
D. With Director and Officers insurance, there is no cost savings but
rather an increase of approximately $75,000 annually with their
proposal over the current BVC budget. For your information, D& O
insurance is really an important and almost mandatory coverage for
public companies and which MPF, in a rather obscure manner in their
preliminary proxy material, now seems to believe will be needed. Bait
and switch or simply a miscalculation? Only you can judge.
E. Further, even if there were to be a modest savings, it would likely be
consumed based on the time and efforts that MPF would need to get up
to speed on the particulars of the various BVC assets
F. Over time, assuming the NRV of BVC stock grows, the MPF compensation
would increase based on their asset management fee of 2%. This
increase would be at twice the rate of the current 1% fee BVC pays
Cupertino Capital. Again, this difference would quickly wipe out any
minor savings suggested by MPF and over time, and, in fact, BVC
shareholders might actually pay more under MPF management.
G. Extremely worrying - Nowhere in MPF's boasts of cost savings does MPF
reveal the impact of the 15% stock option that MPF has stated they
would grant themselves once in complete control. At a minimum, it
represents a direct dilution of all existing BVC shareholders'
ownership positions.
17. "New Board Members at No Cost to BellaVista"
A. We believe this is one of the most misleading statement in MPF's
material
B. All the MPF proposed board members are partners or employees of MPF's
various companies, from which they receive salaries and benefits from
these positions; so to assert that they will be BVC board members at
"no cost" is incredibly misleading.
C. MPF will pay their salaries and their costs will be reimbursed in
effect through the asset management fee paid to MPF by BVC.
D. Apparently, all of these proposed board members have an interest in
the MPF management company so it appears that they will also
individually benefit from the management fee BVC pays to MPF as well.
E. Does this all really add up to "No Cost to BellaVista"?
18. "MPF is Uniquely Positioned to Increase the Value of BellaVista and its
Assets"
A. Really? Or is the real agenda of MPF, as a private equity group:
i. Take complete control of BVC
ii. Earn incremental income and profit
iii. Absorb existing MPF overhead via the 2% management fee charged to
BVC
iv. Dilute existing BVC shareholders while expanding MPF ownership
via a 15% stock option
v. Ignore the majority of BVC shareholders' tax position, by
providing liquidity in the form of dividends that will be fully
taxable to BVC shareholders
vi. Reinvest BVC capital in MPF-directed real estate investments,
which are typically higher risk and less liquid
B. In the final analysis, this clearly does NOT represent a unique
opportunity for BVC shareholders, but certainly does for MPF and its
owners.
19. Where was MPF during the past 3 years while the BellaVista Board:
A. Successfully prevailed in 2 major shareholder suits brought against
prior management
B. Foreclosed on or took control of a variety of projects
C. Completed those projects
D. Restructured the company
E. Substantially reduced expenses
F. Began the process for a controlled liquidation of the portfolio with
the goal of implementing a share repurchase program.
G. It appears MPF
i. Sat on the sidelines
ii. Showed little interest and offered no assistance
iii. Made a number of very low-priced tender offers from time to time
iv. Bided their time until now...