Date: July 6, 2009
Dear Fellow Shareholders:
During the past month, the Board has had numerous conversations with many of you
in an effort to keep all shareholders informed of MPF's efforts to advance its
hostile and complete takeover of BellaVista. After receipt of MPF's most recent
letter of June 24, many of you have called and asked us to yet again respond to
the misinformation MPF continues to spew. As a result of these requests, the
Board has prepared a point-by-point response to MPF letter and this response is
attached for your review.
It was also brought to our attention this past week by a number of shareholders
that they have been receiving calls from individuals whom they thought were MPF
employees. However, upon further questioning of the callers, our shareholders
uncovered the fact that these callers were not MPF employees at all. Rather,
these callers were employees of a telemarketing/solicitation company hired by
MPF. In comparison, the 4 members of the BellaVista Board have personally made
over 325 calls and personally spoken with over 250 shareholders thus far.
Many of you have indicated that you are disturbed by the latest tactic MPF is
using to further its campaign to take over BellaVista and compared MPF's third
party solicitation firm to the companies that pester you at dinner time trying
to convince you to change your long distance or cable TV service.
What is more disturbing, however, is that the telemarketing firm's personnel are
advising shareholders who indicate that they are supporting BVC (i.e. who
express that they are against the MPF take over proposals) to at least complete
and return MPF's proxy that calls for a special meeting. Accordingly, and like
the shareholder requests for the Board to provide the attached point-by-point
response to MPF's recent letter, we have had numerous calls from shareholders
expressing their displeasure at being "telemarketed" by these MPF-hired third
party solicitors. Also, you have asked us for clarification on how to handle the
MPF proxy.
Because we believe MPF and their agents are attempting to mislead you, you need
to be aware that:
o You are not obligated in any way to sign or return any proxy to
anyone.
o By merely signing and returning the MPF proxies, you are giving MPF the
rights to vote your shares for their own purposes for almost 1 year.
o By voting "NO" and sending the proxy back to MPF, you likely will get
on the MPF telemarketing "repeat call list".
Finally, as to a basic rule about proxy voting, you may complete as many proxy
forms as you like (either from MPF or BVC) and the latest dated (most recently
dated) proxy is the only one that will count, and you may revoke any proxies up
to the time a vote is actually held. So, if you have returned an MPF
proxy and, either because you have changed your mind or feel in anyway
misinformed by their phone solicitations or misleading letters, you can change
your vote to support BellaVista by completing and returning the BVC proxy when
you receive it in several weeks. We all need to remind ourselves of the
deceptive tactics MPF has continued to employ when each of us decides who we
would rather have representing our interests and our investments.
To be clear, the BVC Board recommends that you do not return any of the MPF
proxies. You will be receiving the BellaVista proxy material shortly.
The Board would like to take this opportunity to express our appreciation for
the overwhelming support we have received from the vast majority of our
shareholders in our conversations concerning this matter. If you have any
questions regarding this correspondence, the attached response to the MPF June
24, 2009 letter, or any issue related to the MPF takeover proposal, please
contact board member, Patti Wolf, who is in charge of shareholder
communications, and can be reached at 480-563-3351. You may also feel free to
contact any of the other board members as well.
Sincerely,
William Offenberg Jeff Black Patti Wolf Robert Puette
(408) 396-3971 (408) 499-0352 (480) 563-3351 (408) 309-3710
BellaVista Response to MPF's June 24, 2009 Letter to BVC Shareholders
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Excerpts from MPF's Letter are presented in quotes with "Red Font"
1. "The board revealed what we believe is its true concern about the D&O
insurance: personal liability of the current board members!"
- MPF continues to mislead you. And on top of that impugn the current
Board members' character. So it appears that MPF has been reduced to
mudslinging to obfuscate reality.
- The fact is that when someone (e.g. supplier, employee, customer, or
shareholder) sues a company, an officer of the company or the board of
directors, any and all of the corporate entities and all persons
associated with those entities (generally directors and officers) can
also be named in these complaints. In fact these complaints usually
add some number of "John Does" just in case the plaintiffs overlooked
anyone, especially someone with deep pockets.
- Due to this reality and the litigious nature of our society, a review
of public company filings shows that virtually all publicly listed
companies indemnify directors and officers and also carry some form of
Directors and Officers insurance coverage.
- It is likely that even MPF, in one or all of its corporate entities
has some form of coverage for these sorts of liabilities which covers
the company as well as their officers, partners and directors. That
coverage may likely extend to the 5 officers that MPF has nominated to
the BVC board. Ask MPF whether their 5 nominees are covered by errors
and omissions policies and whether or not they are entitled to
indemnification by the dozens of private investment funds that they
manage, such as those that hold BellaVista shares. Why is this
coverage or indemnification prudent for MPF, but becomes the basis for
MPF's hurling sinister accusations at the BellaVista Board for
maintaining the same standard protections?
- MPF is simply attempting, once again, to misstate the real issue.
a. It is highly likely that MPF's officers have some form of similar
coverage or indemnification from MPF so MPF's officers personally
do not need that coverage as BVC board members.
b. It is highly unlikely that BVC as a company would be covered by
MPF's coverage and MPF has never offered this coverage.
Therefore, this leaves BellaVista, as a company and its assets,
completely exposed, which puts your share value at further risk.
- This would be a much less contentious and misleading issue had MPF
provided either the Board or you, the BVC shareholders, with a well
thought out and detailed plan that would have normally included the
answer to this issue.
- We have checked with several corporate attorneys whose specialty is
corporate governance and supporting corporate boards. All of these
experts indicated that:
a. It would be foolhardy and extremely ill-advised for any company
(especially one publicly listed) to not have this type of
coverage
b. A company would have a great deal of difficulty recruiting
officers and board members if it did not provide the normal
indemnifications and insurance coverage due to the personal
liability issue.
c. All of the bluster from MPF on the issues of "free" directors and
BVC not needing D&O insurance is MPF's attempt to cover for the
lack of a well thought out and detailed plan as well as covering
up another oversight on their part.
d. The issue has nothing to do with MPF's misleading and salacious
implication relative to the Board's fiduciary responsibilities.
- Finally, this issue has nothing to do with the Board being worried
about carrying out their fiduciary duties. This is just another
example of MPF presenting half truths and slinging mud.
a. Reread this point in their last letter and it becomes quite
obvious.
b. MPF should simply admit that the officers MPF has nominated are
in some form or fashion indemnified and covered through MPF.
2. "MPF's proposal will save BellaVista money in the coming year, and, most
importantly, will likely save BellaVista even more in the years to come."
- In a meeting with MPF we shared the financials properly categorized
and not inflated by the REO expenses which our auditors required us to
do in 2008 prior to assuming control of certain of the entities
controlling those REOs.
- In April we presented ACTUAL expense data (not estimates) for the
first 6 months (October 2008 through March 2009). We also sent this
data to you in our first letter related to MPF. This data showed that
MPF had made the wrong assumptions in developing their fee proposal
and their boast of huge cost saving.
- Now faced with a better understanding of the financials, MPF realizes
that their boasts of substantial cost savings were erroneous and one
might conclude even misleading. So what does MPF offer now, a price
cut and a low price guaranty. We would expect something like this at a
used car dealer or when buying a TV at Best Buy!
- As to our expenses, as the REO properties are sold and the management
needs of the portfolio decreases, our expense will decrease
commensurately.
a. The outsourced asset management fee of 1% of asset value will
drop proportionately.
b. The number of CEO hours needed should drop substantially once the
few, more complex properties are sold and the last several
litigation matters relating to certain REO properties are
settled.
c. We have already decreased the size of the Board by 1 last year in
the restructuring. We plan to continue on that path of decreasing
either the board size or the compensation as the number of
properties decreases and issues facing the company become less
complex.
d. In the final analysis our plan of controlled liquidation is on
track and will better serve our shareholders at operating costs
that today are on par with what MPF promises.
3. "MPF and BellaVista are saying contradictory things about the relative tax
efficiency of share redemptions versus dividends. What is the truth?"
- Now MPF has finally defined how they would structure using dividend
distributions and has explained that these distributions would be
treated as a return of capital. A return of capital is not taxable.
- However, and more importantly, a distribution on shares characterized
as a return of capital will NOT create a capital loss and, therefore,
will not be deductible.
- On the other hand, BVC's plan to repurchase shares will create a
capital loss which for a large number of BVC shareholders would be
deductible against any capital gain from other sources, and, subject
to annual limitations, against ordinary income from other sources.
- The BVC Board is neither ignorant nor lying but simply stating a basic
tax fact. From what we have been told, MPF has no plan to liquidate
the company in the foreseeable future, nor to effect share redemptions
at estimated asset value. So your shares may be locked up, with no
ability to realize capital losses on your initial investment, for an
indefinite period of time.
- This is simply another instance of MPF having not fully thought out
and developed a plan prior to March when MPF demand we resign and let
them take complete control.
- It was only after we raised this issue multiple times both in our
written questions and verbally to Rob Dixon, Chip Patterson and Glen
Fuller, did MPF finally decide that they needed to investigate the
issue of the taxability of the dividend.
- By now you should all realize that MPF continues to play catch-up by
creating issues based on selectively presenting "the facts".
4. "The board has implied that changes in MPF's proxy that were suggested by
the SEC mean that MPF's statements were misleading. Is that true?"
- MPF explains away a few of the clarifications made in their June 5
letter MPF after SEC comments. However, the fact remains that MPF
seems to have been somehow externally motivated to "clarify" (i.e.
retract) a number of their misleading statements about the current
Board, Management and Company performance.
- The following is a sampling of the items that MPF "clarified" after an
extended review period at the SEC. Excerpts from MPF's Letter are
presented in quotes with "Red Font"
a. "Catastrophic Destruction of Value" and BellaVista had
"Squandered 73% of the value"...
--> MPF Clarification: "one cannot prove, of course, that
BellaVista Management "caused" such declines..."
--> The 73% is incorrect as most shareholders tax basis is
approximately $8.50 per share and not $10.
b. "MPF's investing has historically produced gross returns of over
20%,..."
--> MPF has routinely failed to mention (until now) the fees and
expenses that MPF takes "off the top" of any returns from
their investment funds. Further, these fees and expenses
would appear to add up 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.
c. "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."
--> Well, So much for any guarantee representing MPF as "a
better bet"
d. "We can make no prediction, and are not making a prediction,
about the future net realizable value of BellaVista stock under
our management."
--> Another retraction required in the proxy material
e. "We (MPF) believe it's a better bet" giving MPF total control of
BVC
--> A "better bet" - an interesting choice of words.
--> 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 shareholders, who bought their shares at $10
with their personal funds and have never sold any of these
shares.
--> The alternative MPF offers is a complete takeover with
accountability only to MPF, a private equity group that
"makes bets" mostly with other people's money and who have
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.
5. "Has BellaVista really spent over $72,000 fighting this proxy so far, before
it has even filed its preliminary proxy statement?"
- On March 17 MPF began this disruptive, distracting and costly process
by sending the BVC Board a one page take over demand letter, a one and
a quarter page "business plan" that dealt mostly with their fee and
stock option and some nice brochures.
a. MPF demanded that the entire BVC Board immediately agree to
resign in favor of the MPF nominees and
b. Hand over complete management of BVC and its assets to MPF.
c. MPF gave the BCV Board 10 business days to respond or MPF would
deem their proposal rejected.
- How much effort and thought went into those not quite 3 pages that MPF
sent?
- As to MPF's lower cost and being more efficient than BVC at this game,
well, of course, MPF can play out these takeover attempts at
relatively low costs as compared to their "targets" like BellaVista.
This is an element of MPF's business strategy and they have done this
numerous times. MPF already has the in-house staff necessary including
an attorney and all of the expertise and documentation required.
- BVC is not in the business of dealing with these types of
extraordinary actions nor do we have any full time staff to grind
through the issues that this type of hostile action generates. We use
outside counsel and advisers where we feel appropriate and cost
effective.
- To date we have likely spent $72,000 from March through the completion
of the BVC proxy material. However, that includes the substantial time
and effort expended, prior to this proxy battle, to respond to MPF's
initial proposal, to communicate through correspondence with our
shareholders and to make the required SEC Current Report filings
regarding those communications.
- It is unfortunate. Some of this expense might have been avoided had
MPF accepted our invitation (as offered at the conclusion of our
meeting on April 20) to submit further questions or to meet again and
work collaboratively to a solution. Unfortunately, MPF chose a
different path and escalated the take over attempt by going directly
to the BVC shareholders.
6. "MPF's motivations and incentives as a shareholder are exactly the same as
yours--to maximize the value of our investment."
- The facts certainly do not support this claim.
- MPF is a closely held private equity group that has its own family of
50 investment funds and over 5,000 shareholders
- MPF purchased their BVC shares at prices approximately 80% less than
the majority of the individual BVC shareholders, including all the
members of the current Board.
- MPF and their partners and officers have compensation programs and a
tax structure that could very well be at odds with the best interests
of the individual BellaVista shareholder
- MPF would have little to no accountability to you, BVC's individual
shareholders, as MPF will have total control of all decision making
and of all the usual checks and balances that would normally provide
accountability.
- MPF will function as BVC's asset manager, BVC's administrative
management, BVC's "investment advisor" and control BVC's Board of
Directors, which effectively results in a situation with zero
accountability and no real checks and balances.
- MPF can unilaterally determine the basis for the annual 2% management
fee MPF will pay themselves as well as what "extraordinary expenses"
will not be covered by this fee.
- As shareholders, draw your own conclusions. Who is better aligned with
your interests as individual BVC shareholders, a Board of 4 fellow
shareholders or MPF, a private equity group, which will be in total
control?
7. "Why are we proposing to give ourselves an option to purchase 15% of the
outstanding shares, and how would this affect me?"
- Again, MPF tells only half the story.
- The additional shares issued against this option would equal 15% of
the total number of shares outstanding, which today would be 1,675,715
shares additional shares issued. There is no question that this will
be dilutive to the existing BVC shareholders.
- Also, understand that this is just an additional opportunity for MPF
to collect another fee, albeit related to share value. It is another
fee none the less.
- The current Board has no such incentive or bonus.
- Effectively MPF has awarded itself the potential of taking another 15%
bite out of the ultimate return to the BVC shareholders.
- Yes, the current Board and officers receives reasonable compensation
for the time and the work we perform on behalf of all shareholders of
the company. This compensation has been disclosed in detail in
numerous BVC SEC filings.
- In the context of rewards, please think about MPF's offer of "free"
directors.
a. The key point - MPF (directly) and the "free" MPF nominees to the
BVC Board (indirectly) will be compensated for their time through
the 2% annual management fee MPF will pay its management company
and the stock option MPF will award itself.