EXHIBIT 20.1
Dear Fellow Shareholders:
The Board of Directors had not planned on responding to MPF's second letter of
June 2 and their third letter and proxy statement of June 5. However, over the
past several weeks as we have been trying to personally contact each and every
shareholder, many of you have not only voiced your strong support of the Board
but also have asked us to respond directly to the seriously misleading
statements MPF continues to raise. We not only apologize for taking more of your
time but also for the Board being distracted from what should be our primary
focus, managing the Company.
We believe it is obvious that:
o MPF desires to takeover BellaVista, having complete control of the
Company's operations from the Board of Directors on down to the
management of BVC's assets.
o MPF prefers having no accountability to the BVC's individual
shareholders for the term of their election to the board as they will
command the voting majority by populating their 5 seats with MPF
partners and employees.
o MPF will pay themselves an annual management fee equal to "2% of
assets" and decide for themselves how to calculate the assets, what
items are included in their fee, and what expense items are
extraordinary and, therefore, not included, such that BVC would have
to pay these extraordinary items in excess of the annual management
fee.
o MPF is, in our opinion, hoping that the current Board of individual
shareholders will eventually resign under the stress and distraction
of dealing with MPF's self-serving actions.
o MPF is planning to operate the Company without Directors and Officers
(D&O) insurance. While this incredibly irresponsible action would
effectively force your current Board of Directors to resign due to
resulting personal liability exposure, it clearly puts YOUR share
value at risk, as BVC without insurance would be exposed to the costs
and liabilities associated with any related lawsuits brought against
the Board going forward.
o MPF demonstrates little regard for the SIGNIFICANT expenses (and the
associated negative impact on share price) the Company has been
compelled to incur to deal with this hostile takeover attempt.
o Dealing with MPF's self-serving actions, including responding to
their initial takeover demand, their multiple shareholder letters
and their recent proxy solicitation has cost the Company an
estimated $72,000 to date.
o MPF's overreaching attempt to seize control of the Company and the
Board will:
o Create no value
o Put in jeopardy the property sales that we currently have under
negotiation as the buyers "smell blood in the water".
o Decrease BVC's share price
What is not clear is:
o How MPF plans to manage the assets.
o How MPF plans to maintain an alignment of interests with the vast
majority of BVC's individual shareholders.
o To whom will MPF be accountable? We suppose MPF will be accountable
only to themselves and the thousands of investors in their many
shareholder funds, as MPF will be the asset manager, the company's
management, "investment advisor" and control the Board of Directors,
which results in a situation that effectively provides for no checks
and balances of their decisions and actions. Further, there will be no
oversight.
Given MPF's continued deluge of misleading statements and misinterpreted
financials, we, as individual shareholders are quite concerned. And, while we
would urge you not to return the MPF proxy, we recognize that the choice in this
matter up to you, our shareholders, to whom your current Board is accountable.
We strongly suggest that you review the following clarifications and corrections
to the misinformation that MPF has provided. Then, you must decide who can and
will better serve your interests as individual shareholders.
That said, regardless of how you choose to proceed, we ask that you wait until
you receive the BellaVista definitive proxy material which we are in the process
of developing. We anticipate these materials will be available in approximately
3 weeks, following the mandatory SEC filing period.
WE URGE YOU TO READ THE 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.
By way of an update on the Company, while in the midst of dealing with all of
the distraction and expense MPF has instigated with its proxy efforts, we
continue to make real progress toward our long stated goal of a controlled
liquidation, which we have discussed in detail at the past two annual meetings
and in several of our previous communications. We will be sending each of you an
update on all of the REO properties BVC controls and operates in the upcoming
weeks. We believe you will be pleased with the significant progress that has
been made with each property.
In the interim, we encourage you to contact any of us on the Board with your
questions and comments.
We, as your Board and as your fellow individual shareholders, sincerely
appreciate your time, consideration and continued support during this trying
time.
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 June 5, 2009 Proxy Cover Letter
------------------------------------------------------------
Excerpts from MPF's Letter are presented in quotes with "Red Font"
1. "Improve your chance of profits" with a bet on MPF
A. Review page 6. There are no guarantees of performance... But "bet on
MPF"
i. Whose share costs range from $1.00 to $2.25
ii. Who holds their BVC shares spread across some 17+ of their
investment funds.
iii. Who will earn an annual management fee of $834,000 using a large
portion to defray current overhead
iv. Who will award themselves a 15% stock option, and thereby dilute
your shares by 15%
v. Who will have total control of the Company, its assets and Board
of Directors.
B. Sounds like "a stacked deck" against the individual BVC shareholders.
2. "BellaVista has squandered 73% of the value of your investment,..."
A. 73% is certainly a large number but that is about all one can say
about it other than 73% is both totally misleading and incorrect.
i. MPF calculates this 73% incorrectly based on the original share
price of $10.
ii. MPF conveniently overlooks the public fact that all of the
distributions made to shareholders in 2002 and 2003 were actually
returns of capital. These distributions totaled approximately
$1.52 and effectively lowered the tax basis for all then current
shareholders to approximately $8.48.
iii. The NRV when this Board took office was $4.20. So, over 50% of
the real decline in NRV occurred before the current Board took
office.
iv. Now, when the current Board took office, we inherited a business
model and an investment strategy that had been approved and
implemented by the prior board and management. During the first
year of our tenure we determined that the risk/return profile
inherent to that model and strategy; which included significant
components of mezzanine and equity/joint venture investments, was
no longer advisable, given the incipient market conditions and
declining project valuations.
v. By that time BVC had already made a number of these investments,
the majority of which having been approved by the previous board,
where BVC had a mezzanine, second mortgage or equity/joint
venture investment that was either junior or subject to a large
first mortgage or construction loan. Therefore, the new Board
decided to stop making these types of investments and determined
that the existing investments were at risk, and that risk was
increasing as the market downturn and valuation decreases
continued.
vi. This Board, despite the likely negative reaction and
disappointment of shareholders, chose to take the necessary and
responsible action of impairing these investments based on
appropriate and conservative valuation methods in a timely and
responsible fashion. If that decision to appropriately value the
existing assets is something to be faulted for, we are "guilty as
charged".
B. Has there been a decrease in NRV under the administration of the
current Board?
i. Yes, there has.
ii. It is nowhere near the 73% which MPF so erroneously continues to
"beat the drum" about.
iii. Not an excuse, but some decrease in value is understandable and
not unexpected as this decrease has occurred in what many view as
the worst real estate market since the Great Depression.
iv. More important to note is that a significant portion of the
decrease in NRV from $4.20 to the current $2.73 is directly
attributable to the impairments that the current Board elected to
take for the mezzanine, second mortgage and equity/joint venture
investments that were subject to large first mortgages or
construction loans. It should be noted that these investments had
been made well over 2 years ago, primarily by the previous board.
C. Going forward the Board will continue to assess asset values
conservatively as we feel that is a responsibility we have to our
shareholders.
i. Would our job be easier if we were less conservative in our
approach? Yes, but that would not be consistent with our
fiduciary obligation to our shareholders.
3. "Lowers corporate general and administrative costs by nearly 40% from the
past year's annual cost of approximately $1.36 million to approximately
$834,000."
A. We believe 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 table below summarizes the real corporate G&A costs at BVC. The
detail behind this table was presented in detail and explained to MPF
well before they chose to take their misleading campaign to seize
control of BVC directly to BVC's shareholders. The real facts simply
did not support MPF's claims or goal to seize control so MPF
apparently chose to ignore the information we provided.
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
$834,000". Therefore, an annual savings of about $48,000 or 5% would
be realized by allowing MPF to take complete and unilateral control
over BVC and your investment. This is a far cry from the $500,000 or
nearly 40% savings promised in their proposal, their letter, and their
most recent proxy.
i. Why such a huge difference? As best we can tell, MPF's initial
calculation of a $500,000 per year savings was flawed by MPF
having used financials that they did not fully understand. These
financials 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). However, as stated
above, we then provided MPF with the appropriate data, yet MPF
still continues to "hammer away" as one of MPF's main points for
their takeover, with a comparison and cost saving calculation
that MPF knows is grossly incorrect.
ii. We would also point out that the MPF Proxy materials now
expressly state that, IN ADDITION TO THE 2% ANNUAL FEE, MPF would
take "reimbursement of extraordinary and property level expenses
incurred on behalf of BellaVista." So MPF would add REO level
expenses, consistent with our analysis, and would reimburse
themselves for any "extraordinary" expenses (as they would
unilaterally determine). The comparable amounts that would have
been paid to MPF could therefore be far in excess of the $843,000
they indicate in their materials. In this regard, we would point
out that BVC has expended significant amounts over the past
several years with its responses, mandated by federal securities
laws, to two tender offers by MPF affiliates in each year. We
assume those costs would have been deemed "extraordinary" by MPF
along with any number of other costs we have historically
incurred.
D. But the story does not end there... The real BVC financial 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 first proposal, as presented to the Board, they indicate that
they would not need that coverage. However, in MPF's own Preliminary
Proxy material, they then stated, "Also, upon election, the MPF
nominees will be covered by BellaVista's officer and director
liability insurance, ..."
F. Adding the cost of this Directors and Officers insurance coverage
would result in an increase in expenses of over $100,000 annually,
making the cost of MPF managing BVC to increase to $957,000, or
$75,000 more than the current costs to operate BVC.
G. Now, as MPF has become aware of the adverse impact of D&O insurance to
their boasts of cost savings, MPF has changed their story yet again,
and now indicate that they will allow the current BVC insurance to
lapse, which they can easily do given their control of the Board.
However, consider the impact of BellaVista having no Directors and
Officers insurance.
i. The immediate impact would be to effectively force the
resignation of all of the non-MPF board members, who as
individuals and shareholders would not and should not accept the
personal liability of being a director of a company that provides
no D&O insurance.
ii. Consistent with applicable state law, the BVC articles and bylaws
permit indemnification of the Board. As a result, without
insurance the Company would be at risk as BVC and, ultimately,
you, through your share price, would be exposed to the costs and
liabilities associated with any and all related lawsuits brought
against the Board going forward.
H. Another ill defined factor: Nowhere in MPF's boasts of cost savings
does MPF reveal the real cost and 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 current
individual BVC shareholders' ownership positions by 15%.
- --------------------------------------------------------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------------------------------------------------------
4. "Eliminate the cost of Board Members"
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 (and four of the five are family members)
so it appears that they will also individually benefit from the
$834,000 management fee BVC will pay to MPF as well.
E. Does this all really add up to "No Cost to BellaVista"
i. Or is this just another example of ignoring the facts and a slick
accounting slight of hand?
5. "Lower BellaVista's interest payment costs"
A. MPF briefly mentioned the existence of a relatively small, prime
rate-based line of credit of $2.8 Million, but offers no commitments
as to how or even if this line would be used to assist with BVC's
working capital needs or the REO property carrying costs.
B. MPF indicated to the BVC Board, in MPF's written responses to the
Board's questions related to MPF's takeover demand, that MPF could
provide 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 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 that we
could draw on monthly as needed and secured by trust deeds to
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 avoided having
to resort to raising additional equity which likely would have
carried a much higher cost and would have diluted our existing
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.
6. "Upgrade investor relations"
A. Yes, MPF has an entire department dedicated to this. On the other
hand, BVC shareholders are in direct contact with various members 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 which perhaps MPF, a privately-held, company does not
understand or have to concern itself with. We at BVC must file
information with the SEC in a Current Report on Form 8-K that is
available to the public, rather than simply communicating with
shareholders.
C. Also, we have been constrained in what details could reasonably be
shared due to the various specific negotiations and foreclosure
processes that were ongoing.
i. 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.
D. 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.
E. We will strive for improved communication going forward as a variety
of negotiations and sales are about to be concluded and we can operate
under fewer constraints.
i. A complete update on all of the REO properties is currently being
developed and will be published later this month.
7. "(7) BellaVista will grant MPF an option to acquire up to 15% of the stock
of BellaVista..."
A. Conveniently buried in their proxy on page 7, in Section 5, as item
number 7.
B. Once MPF takes total control of BVC, MPF will grant itself a 15% stock
option which will immediately result in a potential dilution of all
current individual BVC shareholders' ownership positions by 15%. Thus
MPF, holding shares purchased for $1.00 to $2.25 per share, will enjoy
the benefits of diluting the other 85% of shareholders who typically
purchased their shares for $10.
8. Page 6 of MPF's June 5 letter
A. As individual shareholders, we strongly encourage you to read page 6
of MPF's June 5 Proxy Cover Letter.
B. We believe that MPF was required to "clarify" (i.e. retract) a number
of their misleading statements about the current Board, Management and
Company performance.
C. However, consistent with their methods, these "clarifications" are
never referenced anywhere in the first 5 pages of their letter, but
rather are buried completely out of any context on the last page as an
attachment following the end of the letter and several pages of
resumes of their board nominees, four of whom are family members.
D. The following highlights a sampling of the items that they felt
obligated to (or more likely were made to) "clarify" from their
previous communications.
i. "Catastrophic Destruction of Value" and BellaVista had
"Squandered 73% of the value"...
a. Clarification: "one cannot prove, of course, that BellaVista
Management "caused" such declines..."
ii. "MPF's investing has historically produced gross returns of over
20%,.."
a. MPF has routinely failed to mention (until now) the fees and
expenses related to their investment fund that MPF takes
"off the top" of any returns and would appear to amount to
25% of the gross return (on a relative basis). So, in the
best of circumstances with a cooperative real estate market,
it would seem that returns to investors are more likely to
be substantially lower.
iii. "But there is no guarantee from us (MPF), or current management,
that you (the shareholder) will receive $2.73 per share or less
or more."
a. So much for any guarantee representing MPF as "a better bet"
iv. "We can make no prediction, and are not making a prediction,
about the future net realizable value of BellaVista stock under
our management."
a. Another retraction required for the proxy material
v. "We (MPF) believe it's a better bet" giving MPF total control of
BVC
a. A "better bet" - an interesting choice of words.
b. Is this offered as assurance that it would be better to
place your bet with MPF versus relying on the current Board
of 4 individual shareholder, who bought their shares at $10
with their personal funds and have never sold any shares, as
opposed to turning the Company over to MPF, a private equity
group that "makes bets" mostly with other people's money and
who bought their shares at prices ranging from $1.00 to
$2.25 and will award themselves a 2% management fee and a
15% stock option.
BellaVista Response to MPF's June 2, 2009 Letter
------------------------------------------------
Excerpts from MPF's Letter are presented in quotes with "Red Font"
1. "If I vote "yes" for MPF proposals, what will MPF's relationship with
BellaVista be after the proposals are approved?"
A. MPF, a private equity group and minority share holder in BVC, will be
in total control of the Company. Specifically, MPF, with control of
the board of directors, will have complete operational, decision
making and approval authority over all of BVC's administration,
operations, management, and assets. Further since MPF will have
control of the BVC Board of Directors, MPF will have total oversight
and control over all functions and decisions made at BVC. The voice of
the individual shareholder will cease to have any influence on the
Board which would be controlled by the 5 vote majority of MPF partners
and employees.
B. The current BVC Board is made up of 4 individual shareholders, who
like most of you are individuals who purchased their shares at $10 and
have sold none of them. These 4 people were recruited several years
ago as "outside" directors when it became apparent that the company
needed a change in direction and management. They were not the former
PrimeCore board responsible for any "destruction of value" that MPF
continues to erroneously hammer on. In addition, our 4 board members
have extensive board-level management experience with a number of
public and private companies, as well as a long history of real estate
and development experience.
C. Despite all of MPF's misleading statements and scare tactics, the real
question that you, as an individual share holder, must ask is "Who
would I rather have watching out for my interests: 4 long-time,
individual shareholders, who like you bought BVC shares at $10 or a
private equity group, that bought in at less than $2.25 and has its
own family of 50 investment funds and over 5,000 shareholders?"
2. "After implementing the immediate cost-saving measures, what are MPF's
plans for BellaVista?"
A. There are no cost saving, immediate or otherwise. MPF has chosen to
repeatedly ignore the actual financial data we provided and reviewed
with them several months ago. We shared this with each of you in our
last mailing. MPF continues to erroneously base all of their so-called
cost savings claims on a year where our financials included salaries
and benefits of 2 executives, Mr. Hanke and Mr. Rider, and an
accounting professional, none of whom are now employed by the Company.
Additionally, there were various REO property carrying costs included
in those financials as well. We have pointed this out to MPF numerous
times, but MPF still continues to make their highly misleading claims
of cost savings.
B. MPF states clearly (but has buried in its full Proxy Statement) that,
IN ADDITION TO ITS 2% FEE, it will pay or reimburse itself for all REO
operating costs and any "extraordinary" costs. Who do you think will
determine the categories and amounts of expense included in that
loophole? MPF's "guarantee that BellaVista's overall corporate G&A is
lower the year after we (MPF) take control..." is really no guarantee
at all given the financial data they continue to misrepresent as
comparable.
C. You have all heard the expression "you cannot compare apples and
oranges." Well MPF is trying to confuse the math by doing exactly that
and feeding us all fruit salad.
D. In our shareholder letter of May 27, we included actual financials for
the first 6 months of this year and the budget for the second 6
months. This data clearly shows there is no cost savings; and in fact,
there would be an annual cost increase under the MPF proposal when one
includes Directors and Officers insurance ($114,000 annually) which
MPF has conveniently excluded as an item covered under their 2%
management fee. In this regard, MPF has changed its tune from its own
preliminary proxy materials, in which it clearly stated that it would
continue D&O coverage for its newly appointed members of the Board.
After we pointed out the issue of the cost of D&O insurance, MPF's
proxy materials now state that they intend NOT to renew such D&O
coverage when its current term ends. One significant and , we believe
intended, consequence of this could be to discourage the current Board
from continuing service without this standard protection of their
personal assets from liability for claims relating to the company.
3. "The current asset manager (Cupertino Capital) actually has a disincentive
to pay out any distributions because that would only serve to reduce their
fees..."
A. This is absurd and incredibly misleading as Cupertino Capital has no
control or voice in the decision making process regarding
distributions. The Board makes these decisions. Of course, this is
likely a projection by MPF because, if MPF's proposals are approved,
MPF will be both the asset manager collecting a fee and the Board
determining distributions. Interestingly, with the MPF management fee
of 2% versus the current asset manager's fee of 1%, MPF loses twice as
much annually if the Board decides to make a distribution or, any
decision for that matter, which results in a decrease in asset value.
Of course, MPF wins either way, because any distributions will reduce
the price of their 15% option, potentially down to $0 per share.
4. "The current board is, once again, simply wrong. ...we have concluded that
cash dividends can be tax efficient for all investors."
A. When is a half truth ultimately a lie? As to the question of the tax
benefits of a share repurchase versus a dividend classified as a
"return of capital", MPF continues its tactics to obfuscate and
mislead. Making distributions as dividends serves MPF's agenda and
structure; and, unlike redemption, it creates no immediate capital
loss on the redeemed shares that an individual shareholder can take
advantage of immediately in that tax year. BVC's plan to repurchase
shares will trigger an immediate capital loss for most shareholders in
that tax year, depending on how shares are held by the individual
shareholder.