<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------------
SCHEDULE 14D-9
------------------------------------------------
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.,
A DELAWARE LIMITED PARTNERSHIP
(Name of Subject Company)
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.,
A DELAWARE LIMITED PARTNERSHIP
(Name of Person(s) Filing Statement)
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class of Securities)
N/A
(Cusip Number of Class of Securities)
-----------------------
CARROLL D. VINSON
PRESIDENT
DAVIDSON DIVERSIFIED PROPERTIES, INC.
ONE INSIGNIA FINANCIAL PLAZA
GREENVILLE, SOUTH CAROLINA 29602
(864) 239-2747
(Name, Address and Telephone Number of Person Authorized to
Receive Notice and Communications on Behalf of the person(s) filing statement)
------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Davidson Diversified Real
Estate III, L.P., a Delaware limited partnership (the "Partnership"), and the
address of the principal executive offices of the Partnership is One Insignia
Financial Plaza, Greenville, South Carolina 29602. The title of the class of
equity securities to which this statement relates is the units of limited
partnership interest ("Units") of the Partnership.
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to an offer by Cooper River Properties,
L.L.C., a Delaware limited liability company (the "Purchaser"), to purchase up
to 300 of the outstanding Units at a purchase price of $3,000 per Unit, net to
the seller in cash, without interest, upon the terms and subject to the
conditions set forth in an Offer to Purchase dated August 27, 1998 (the "Offer
to Purchase") and related Assignment of Partnership Interest (which
collectively constitute the "Offer"). A Tender Offer Statement on Schedule
14D-1 with respect to the Offer has been filed by the Purchaser, Insignia
Properties, L.P., a Delaware limited partnership ("IPLP"), Insignia Properties
Trust, a Maryland real estate investment trust ("IPT") and Insignia Financial
Group, Inc., a Delaware corporation ("Insignia") (collectively, the "Bidders").
The address of the Purchaser's principal executive offices is
One Insignia Financial Plaza, Greenville, South Carolina 29602.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Partnership, which is
the person filing this statement, are set forth in Item 1 above.
(b)(1) The Partnership's managing general partner is Davidson
Diversified Properties, Inc., a Tennessee corporation (the "Managing General
Partner") and an affiliate of the Purchaser. The other general partners of the
Partnership, Freeman Equities, Ltd., David W. Talley and James T. Gunn, are
prohibited by the Limited Partnership Agreement from participating in the
activities of the Partnership.
The Managing General Partner of the Partnership is a direct,
wholly-owned subsidiary of IPT. The Purchaser is a recently formed,
wholly-owned subsidiary of IPLP, which is the operating partnership of IPT. IPT
is the sole general partner of IPLP (owning approximately 66% of the total
equity interests in IPLP), and Insignia is the sole limited partner of IPLP
(owning approximately 34% of the total equity interests in IPLP). Insignia and
its affiliates also own approximately 68% of the outstanding common shares of
IPT.
For more than the past three years, Insignia Residential Group,
L.P. ("IRG"), which is an affiliate of Insignia and the Purchaser, has provided
property management services to the Partnership, and Insignia (directly or
through affiliates) has performed asset management, partnership administration
and investor relations services for the Partnership.
By reason of the relationships described in the three preceding
paragraphs, the Managing General Partner has conflicts of interest in
considering the Offer.
The Partnership paid IRG property management fees for property
management services in the amounts of approximately $284,000, $277,000 and
$261,000 for the years ended December 31, 1997, 1996 and 1995, respectively,
and has paid IRG property management fees
2
<PAGE>
equal to $147,000 during the first six months of 1998. The Partnership
reimbursed the Managing General Partner and its affiliates (including Insignia)
for expenses incurred in connection with asset management and partnership
administration services performed by them for the Partnership for the years
ended December 31, 1997, 1996 and 1995 in the amounts of $130,000, $174,000 and
$114,000, respectively, and has reimbursed them for such services in the amount
of $85,000 through June 30, 1998. The reimbursement amounts for the years ended
December 31, 1997 and 1996, and for the six months ended June 30, 1998, include
$2,000, $46,000 and $18,000, respectively, which amounts were paid to an
affiliate of the Managing General Partner for costs incurred in connection with
construction oversight services. For the period January 1, 1996 through
December 31, 1996, the Partnership insured its properties under a master policy
through an agency and insurer unaffiliated with the Managing General Partner,
and through an agency affiliated with the Managing General Partner for the
period January 1, 1997 through August 31, 1997. An affiliate of the Managing
General Partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which was later acquired by the agent who
placed the current year's master policy. That agent assumed the financial
obligations to the affiliate of the Managing General Partner who received
payments on these obligations from the agent. Insignia and the Managing General
Partner believe that the aggregate financial benefit derived by Insignia and
its affiliates from such arrangement was immaterial.
As described above, the Purchaser and the Managing General
Partner are affiliates of and controlled by IPT, which is controlled by
Insignia. The Managing General Partner has conflicts of interest with respect
to the Offer, including conflicts resulting from its affiliation with IPT and
the Purchaser. The Managing General Partner also would have conflicts of
interest (i) as a result of the fact that a sale or liquidation of the
Partnership's assets would result in a decrease or elimination of the fees paid
to the Managing General Partner and/or its affiliates and (ii) as a consequence
of the Purchaser's ownership of Units, because the Purchaser (which is an
affiliate of the Managing General Partner) may have incentives to seek to
maximize the value of its ownership of Units, which in turn may result in a
conflict for the Managing General Partner in attempting to reconcile the
interests of the Purchaser (which is an affiliate of the Managing General
Partner) with the interests of the other Limited Partners. In addition, the
Purchaser (which is an affiliate of the Managing General Partner) is making the
Offer with a view to making a profit. Accordingly, there is a conflict between
the desire of the Purchaser (which is an affiliate of the Managing General
Partner) to purchase Units at a low price and the desire of the Limited
Partners to sell their Units at a high price.
As described in the Offer to Purchase, the Purchaser (which is
an affiliate of the Managing General Partner) expects to pay for the Units it
purchases pursuant to the Offer with funds provided by IPLP as capital
contributions. IPLP in turn intends to use its cash on hand and, if necessary,
borrowings from its credit facility with a commercial bank and financial
institution to make such contributions. See Section 12 of the Offer to
Purchase. It is possible, however, that in connection with its future financing
activities, IPT or IPLP may cause or request the Purchaser (which is an
affiliate of the Managing General Partner) to pledge the Units as collateral
for loans, or otherwise agree to terms which provide IPT, IPLP and the
Purchaser with incentives to generate substantial near-term cash flow from the
Purchaser's investment in the Units. This could be the case, for example, if a
loan has a "balloon" maturity after a relatively short time or bears a high or
increasing interest rate. In such a situation, the Managing General Partner may
experience a conflict of interest in seeking to reconcile the best interests of
the Partnership with the need of its affiliates for cash flow from the
Partnership's activities.
3
<PAGE>
If the Purchaser is successful in acquiring a significant number
of Units pursuant to the Offer, the Purchaser (which is an affiliate of the
Managing General Partner) will have the right to vote those Units and thereby
significantly influence all voting decisions with respect to the Partnership,
including decisions concerning liquidation, amendments to the Limited
Partnership Agreement, removal and replacement of the Managing General Partner
and the other non- managing general partners and mergers, consolidations and
other extraordinary transactions. This means that (i) non-tendering Limited
Partners could be prevented from taking action they desire but that IPT (which
is an affiliate of the Managing General Partner) opposes and (ii) IPT (which is
an affiliate of the Managing General Partner) may be able to take action
desired by IPT but opposed by the non-tendering Limited Partners.
Under the Limited Partnership Agreement, Limited Partners
holding a majority of the Units are entitled to take action with respect to a
variety of matters, including removal of the Managing General Partner or the
other non-managing general partners and in certain circumstances election of a
new or successor managing general partner or non-managing general partners, the
sale of all or substantially all of the assets of the Partnership, dissolution
of the Partnership and most types of amendments to the Limited Partnership
Agreement. In general, IPLP and the Purchaser (which are affiliates of the
Managing General Partner) will vote the Units owned by them in whatever manner
they deem to be in the best interests of IPT, which, because of their
relationship with the Managing General Partner, also may be in the best
interest of the Managing General Partner, but may not be in the best interest
of other Limited Partners.
To the best knowledge of the Managing General Partner, except as
described in this Schedule 14D-9, there are no other material agreements,
arrangements, understandings or any actual or potential conflicts of interest
between the Partnership, the Managing General Partner and their affiliates and
the Bidders, their executive officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
Because of the existing and potential future conflicts of
interest described in Item 3 above, the Partnership and the Managing General
Partner are remaining neutral and making no recommendation as to whether
Limited Partners should tender their Units in response to the Offer.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Neither the Partnership nor any person acting on its behalf has
employed, retained or compensated, or intends to employ, retain or compensate,
any person or class of person to make solicitations or recommendation to
Limited Partners on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTEREST WITH RESPECT TO SECURITIES.
(a) Except as described in Schedule I attached hereto, no
transactions in the Units have been effected during the past 60 days by the
Partnership or the Managing General Partner or, to the knowledge of the
Managing General Partner, by any of its current or former executive officers,
directors or affiliates.
(b) To the knowledge of the Partnership, neither the Managing
General Partner nor any of its current or former executive officers, directors
or affiliates intends to tender pursuant to the Offer any Units beneficially
owned by them.
4
<PAGE>
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
None.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Litigation. On March 24, 1998, certain persons claiming to own
limited partner interests in certain limited partnerships (including the
Partnership) whose general partners (the "General Partners") are affiliates of
Insignia (the "Partnerships") filed a purported class and derivative action in
California Superior Court in the County of San Mateo (the "San Mateo
Complaint") against Insignia, the General Partners (including the Managing
General Partner), certain persons and entities who purportedly formerly
controlled the General Partners, and additional entities affiliated with and
individuals who are officers, directors and/or principals of several of the
defendants. The San Mateo Complaint contains allegations that, among other
things, (i) the defendants breached their fiduciary duties to the plaintiffs by
selling or agreeing to sell their "fiduciary positions" as stockholders,
officers and directors of the General Partners for a profit and retaining said
profit rather than distributing it to the plaintiffs; (ii) the defendants
breached their fiduciary duties by mismanaging the Partnerships and
misappropriating the assets of the Partnerships by (a) manipulating the
operations of the Partnerships to depress the trading price of limited
partnership units (the "Units") of the Partnerships; (b) coercing and
fraudulently inducing unitholders to sell Units to certain of the defendants at
depressed prices; and (c) using the voting control obtained by purchasing Units
at depressed prices to entrench certain of the defendants' positions of control
over the Partnerships; and (iii) the defendants breached their fiduciary duties
to the plaintiffs by (a) selling assets of the Partnerships such as mailing
lists of unitholders; and (b) causing the General Partners to enter into
exclusive arrangements with their affiliates to sell goods and services to the
General Partners, the unitholders and tenants of Partnership properties. The
San Mateo Complaint also alleges that the foregoing allegations constitute
violations of various California securities, corporate and partnership
statutes, as well as conversion and common law fraud. The San Mateo Complaint
seeks unspecified compensatory and punitive damages, an injunction blocking the
sale of control of the General Partners to AIMCO and a court order directing
the defendants to discharge their fiduciary duties to the plaintiffs. On June
24, 1998, the Managing General Partner filed a motion seeking dismissal of the
action. IPT and Insignia believe that the allegations contained in the San
Mateo Complaint are without merit and intend to vigorously contest the
plaintiffs' action.
On July 30, 1998, certain entities claiming to own limited
partnership interests in certain limited partnerships (including the
Partnership) whose general partners are affiliates of Insignia, IPT and the
Purchaser (the "Affiliated General Partners") filed a complaint in the Superior
Court of the State of California, County of Los Angeles (the "Los Angeles
Complaint") against Insignia, the Subject Partnerships (defined below), the
Affiliated General Partners (including the Managing General Partner) and
additional entities affiliated with several of the defendants. The action
involves 44 real estate limited partnerships (each named as a defendant) in
which the plaintiffs allegedly own interests and which Insignia affiliates
allegedly manage or control (the "Subject Partnerships"). Plaintiffs allege
that they have requested from, but have been denied by each of the Subject
Partnerships, lists of their respective limited partners for the purpose of
making tender offers to purchase up to 4.9% of the units of limited partnership
interest in each of the Subject Partnerships. The Los Angeles Complaint also
alleges that certain of the defendants made tender offers to purchase units of
limited partnership interest in many of the Subject Partnerships, with the
alleged result that plaintiffs have been deprived of the benefits they would
have realized from ownership of the additional units. The plaintiffs assert
eleven causes of action, including breach of contract, unfair business
practices, and violations of the partnership statutes of the states in which
the Subject Partnerships are organized. Plaintiffs seek
5
<PAGE>
compensatory, punitive and treble damages. Insignia was only recently served
with the Los Angeles Complaint and has not yet responded to it. Insignia
believes the claims to be without merit and intends to defend the action
vigorously.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a) Form of cover letter to Limited Partners of the
Partnership dated August 27, 1998.
(b) None.
(c) None.
6
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: August 27, 1998
Davidson Diversified Real Estate III, L.P.,
a Delaware limited partnership
By: Davidson Diversified Properties, Inc.,
its Managing General Partner
By: /s/ Carroll D. Vinson
----------------------
Carroll D. Vinson
President
7
<PAGE>
SCHEDULE I
TRANSACTIONS IN THE UNITS
EFFECTED BY IPLP IN THE PAST 60 DAYS
NUMBER OF PRICE
DATE UNITS PURCHASED PER UNIT
---- --------------- --------
8/17/98 1.00 $2,375.00
8/17/98 0.50 2,375.00
8
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(a) Form of cover letter to Limited Partners from the Partnership dated
August 27, 1998.
(b) None.
(c) None.
9
<PAGE>
Exhibit (a)
-----------
Davidson Diversified Real Estate III, L.P.
August 27, 1998
Dear Limited Partner:
Enclosed is the Schedule 14D-9 which was filed by Davidson
Diversified Real Estate III, L.P. (the "Partnership") with the Securities and
Exchange Commission in connection with an offer (the "Offer") by Cooper River
Properties, L.L.C., a Delaware limited liability company (the "Purchaser"),
Insignia Properties, L.P., a Delaware limited partnership ("IPLP"), Insignia
Properties Trust, a Maryland real estate investment trust ("IPT"), and Insignia
Financial Group, Inc., a Delaware corporation ("Insignia," and together with
IPLP, IPT and the Purchaser, the "Bidders"), to purchase units of limited
partnership interest ("Units") in the Partnership.
The Partnership's managing general partner is Davidson
Diversified Properties, Inc. (the "Managing General Partner"), which is an
affiliate of the Bidders. Due to the affiliation between the Managing General
Partner of the Partnership and the Bidders, the Managing General Partner is
subject to certain conflicts of interest in connection with the response to the
Offer.
AS A RESULT OF THE EXISTING AND POTENTIAL CONFLICTS OF INTEREST,
NEITHER THE PARTNERSHIP NOR THE MANAGING GENERAL PARTNER EXPRESSES ANY OPINION
AS TO THE OFFER AND EACH IS REMAINING NEUTRAL AND MAKING NO RECOMMENDATION AS
TO WHETHER LIMITED PARTNERS SHOULD TENDER THEIR UNITS IN RESPONSE TO THE OFFER.
Limited Partners are advised to carefully read the enclosed
Schedule 14D-9.
Davidson Diversified Real Estate III, L.P.
