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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
(RULE 14D-101)
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D) (4) OF THE SECURITIES EXCHANGE ACT OF 1934
AETNA REAL ESTATE ASSOCIATES, L.P.
(Name of Subject Company)
AREA GP CORPORATION
AETNA/AREA CORPORATION
(Name of Person Filing Statement)
Limited Partnership Depository Units
(Title of Class of Securities)
008171 100
(CUSIP Number of Class of Securities)
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Mark J. Marcucci Daniel R. Leary
AREA GP CORPORATION AETNA/AREA CORPORATION
3 World Financial Center, 29th Floor 242 Trumbull Street
New York, New York 10285 Hartford, Connecticut 06103
(212) 526-3183 (860) 275-2178
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(Name, Address, and Telephone Number of Persons Authorized
to Receive Notices and Communications on Behalf of the Person(s) Filing
Statement)
Copy to:
Mark C. Smith, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3330
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ITEM 1. SUBJECT COMPANY INFORMATION
The subject company is Aetna Real Estate Associates, L.P., a Delaware
limited partnership (the "Partnership"). The general partners of the
Partnership (the "General Partners") are AREA GP Corporation, a Delaware
corporation ("AREA GP"), and Aetna/AREA Corporation, a Connecticut corporation
("Aetna/AREA"). The address of the principal executive offices of (i) AREA GP
is 3 World Financial Center, 29th Floor, New York, New York 10285 and (ii) each
of the Partnership and Aetna/AREA is 242 Trumbull Street, Hartford, Connecticut
06103. The title of the class of equity securities to which this statement
relates is the outstanding Limited Partnership Depositary Units of the
Partnership (the "Units"). As of July 14, 2000, there were 12,724,547 Units
issued and outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON
The names and business addresses of the General Partners, which are the
persons filing this statement, are set forth in Item 1 above.
This statement relates to the unsolicited tender offer being made by Oak
Investors, LLC, a Delaware limited liability company (the "Bidder"), disclosed
in a Tender Offer Statement on Schedule TO, dated July 5, 2000 (the "Schedule
TO"), to purchase from holders of Units ("Unitholders") up to 1,000,000
(approximately 7.9%) of the outstanding Units of the Partnership, at $8.00 cash
per Unit, without interest thereon, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated July 5, 2000 (the "Offer to
Purchase") and the Letter of Transmittal (the "Letter of Transmittal" and
together with the Offer to Purchase, the "Oak Offer"), provided that pursuant
to the Oak Offer, the tender offer price per Unit will be reduced by an amount
equal to any distribution declared or paid from any source by the Partnership
to the Unitholder after June 1, 2000 without regard to the record date or
whether such distribution is classified as a return on, or a return of,
capital. Neither the Bidder nor any of its affiliates are affiliated with the
Partnership or its General Partners and the Oak Offer was not solicited by the
Partnership. The Schedule TO states that the principal place of business of the
Bidder is located at 1650 Hotel Circle North, Suite 200, San Diego, California
92108.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
The Partnership does not have any directors or executive officers. The
General Partners responsible for the management of the Partnership's business
are AREA GP and Aetna/AREA. Except as described below, there are no material
contracts, agreements, arrangements and understanding or any actual or
potential conflicts of interest between the General Partners or their
respective affiliates and the Partnership, its executive officers, directors or
affiliates.
The General Partners are entitled to receive an investment portfolio fee
based on the net asset value of the Partnership's investments. The fee is
payable quarterly, in arrears, from available cash flow and may not exceed 2.5%
per annum of net asset value. The applicable percentage, for the purpose of
calculating this fee, declines to 2% per annum for investments in properties
held by the Partnership more than 10 years but less than 15 years, and to 1.75%
per annum for investments in properties held more than 15 years. Effective
March 15, 1999 each of the above rates was reduced by .25% per annum, and will
decrease another .25% per annum as of June 19, 2001 pursuant to the Settlement
Agreement discussed in Item 8 to this schedule. For the twelve months ended
December 31, 1999, Aetna/AREA and AREA GP earned fees of $2,029,436 and
$2,297,914, respectively. For the prior year, Aetna/AREA and AREA GP earned
fees of $2,265,203 and $2,574,862, respectively.
During the year ended December 31, 1999, $284,868 was paid, to Aetna Life
Insurance Company, an affiliate of Aetna/AREA, primarily as reimbursement for
insurance expense previously paid on behalf of the Partnership by Aetna Life
Insurance Company to entities not affiliated with the Partnership or Aetna Life
Insurance Company.
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AREA GP and Aetna/AREA, as General Partners, and their respective officers
and directors, are each entitled to indemnification under certain circumstances
from the Partnership pursuant to provisions of the Partnership Agreement.
The Bidder has suggested that it may seek to remove the General Partners.
Under the terms of the Partnership Agreement, upon the removal of the General
Partners by the Unitholders or upon the resignation of the General Partners
within 120 days after the occurrence of a "Removal Event," as described herein,
the General Partners will be entitled to receive termination compensation,
which will be payable with interest over a five-year period and will be secured
by the assets of the Partnership. The amount of such termination compensation
could be substantial. The Partnership Agreement deems a "Removal Event" to have
occurred if, without the consent of the General Partners, there occurs or is
approved, by the approval of Limited Partners or otherwise, (a) the merger or
consolidation of the Partnership, (b) the liquidation or dissolution of the
Partnership, (c) the disposition by the Partnership of any interest in a
property owned by the Partnership or a loan made by the Partnership to a
property, or (d) the election of any person as a general partner of the
Partnership. The holder or holders of a majority of Units may take any of the
above actions without the consent of the General Partners at a meeting of the
Partnership.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(A) Following receipt of the Oak Offer, the General Partners reviewed and
considered the Oak Offer and explored various possible alternative courses of
action which might be available to the Partnership in response to the Oak
Offer. THE GENERAL PARTNERS, IN LIGHT OF ALL RELEVANT CIRCUMSTANCES, DETERMINED
THAT THE OAK OFFER IS INADEQUATE, NOT IN THE BEST INTERESTS OF EITHER THE
PARTNERSHIP OR UNITHOLDERS AND STRONGLY RECOMMEND THAT UNITHOLDERS REJECT IT.
(B) The General Partners reached the conclusion set forth in Item 4(A) after
considering a variety of factors, including, but not limited to the following:
(i) The price per Unit offered by the Bidder does not reflect the value
inherent in the Units. The price being offered by the Bidder pursuant to
the Oak Offer is equal to approximately 49% of the NAV of $16.41 per Unit
as of March 31, 2000, the latest quarterly independent appraisal of NAV.
(NAV is the Partnership's net asset value calculated using Current Value
Reporting.) In addition, no independent person was retained by the Bidder
to evaluate or render an opinion with respect to the purchase price and the
Bidder made no representation as to the fairness of the purchase price. The
Oak Offer provides that the cash tender offer price per Unit stated in the
Oak Offer will be reduced by an amount equal to any distribution declared
or paid from any source by the Partnership to the Unitholders after June 1,
2000 without regard to the record date or whether such distributions are
classified as a return on, or a return of, capital. The Partnership's NAV
was calculated assuming a hypothetical sale at March 31, 2000 of all the
Partnership's properties at a price based upon independent appraisals of
the Partnership's properties as of March 31, 2000, adjusted for the
Partnership's current assets and liabilities.
(ii) To date, Unitholders who have owned their Units since the inception
of the Partnership have received total cash distributions of approximately
$18.20 per original $20 Unit. Unitholders who sell their Units to Oak will
lose their right to future distributions from cash flow as well as
distributions from any future sales of the properties.
(iii) The General Partners have commenced a plan to market the
Partnership's remaining properties. To date, seven of the Partnership's 14
properties and a building from another property have been sold. Five
properties were sold during 1999 and Unitholders received two special
distributions totaling $3.14 per Unit in 1999. In addition, two other
properties, Windmont Apartments and Lincoln Square Apartments, and one of
the three buildings at the Westgate property have been sold since the
beginning of this year. The properties were sold for net sales proceeds of
approximately $32.8 million. As a result of these sales, a special cash
distribution, in the amount of $2.10 per Unit, was paid to Unitholders in
April 2000. In addition, a special cash distribution in the approximate
amount of $.38 per Unit will be
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paid to Unitholders in the near future due to the sale of the Westgate
building. Unitholders who sell their Units to the Bidder will not receive
this distribution. With respect to the Partnership's remaining properties,
the General Partners are negotiating the sales of two properties and have
begun the process of marketing two additional properties.
(iv) The Bidder has stated that it is making the Oak Offer with a view
to making a profit. Accordingly, there is a conflict of interest between
its desire to purchase the Units at a low price and Unitholders' desire to
sell their Units at a high price.
(v) As stated by the Bidder in the Offer to Purchase, if the Oak Offer
is successful, the Bidder may be in a position to influence control over
the Partnership and to influence voting decisions and may seek to remove
the General Partners.
(C) Neither the Partnership nor either of the General Partners has effected
any transactions in the Units during the past 60 days. Except as described
below, the Partnership is not aware of any other transactions in the Units
during the past 60 days by any of the General Partners' executive officers,
directors, affiliates, or subsidiaries.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED
The Partnership has retained its administrative agent (the "Agent") to
assist with communications with Unitholders with respect to, and to provide
other services to the Partnership in connection with, ongoing investor relation
matters, including the Oak Offer. The Partnership pays the Agent a monthly fee
for services and reimburses it for reasonable expenses. The Partnership will
not pay the Agent any additional amount beyond the monthly fee in connection
with the Oak Offer. Neither the Partnership nor any person acting on its behalf
has employed, retained, or compensated or intends to employ, retain, or
compensate any other person or class of persons to make solicitations or
recommendations to Unitholders on its behalf concerning the Oak Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
Neither the Partnership nor, to the knowledge of the Partnership, any of the
General Partners' executive officers, directors, affiliates, or subsidiaries
intends to tender Units owned by them in the Oak Offer.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS
The General Partners have commenced a plan to market the Partnership's
remaining properties. To date, seven of the Partnership's 14 properties have
been sold. Five properties were sold during 1999. In addition, two other
properties, Windmont Apartments and Lincoln Square Apartments, and one of the
three buildings at the Westgate property have been sold since the beginning of
this year for net sales proceeds of approximately $32.8 million. With respect
to the Partnership's remaining seven properties, the General Partners are
negotiating the sales of two properties and have begun the process of marketing
two additional properties.
ITEM 8. ADDITIONAL INFORMATION
On August 11, 1998, the Bidder and Cedar Partners, L.P. (collectively,
"Oak"), filed suit against the Partnership in the Court of Chancery of the
State of Delaware in and for New Castle County (the "Complaint"). The Complaint
alleged that the Partnership failed to deliver a list of Unitholders upon Oak's
demand and that such failure constituted a breach of the Delaware Revised
Uniform Limited Partnership Act and a breach of the Partnership Agreement.
Subsequently, the Partnership and the General Partners contacted Oak and the
parties settled such litigation upon the terms and conditions set forth in the
Settlement Agreement attached as Exhibit 2 to this Schedule 14D-9 and
incorporated herein by reference. The Settlement Agreement provides that upon
the Partnership providing a list of Unitholders to Oak, Oak will dismiss the
litigation with prejudice. In addition, the Settlement Agreement provides that
upon any vote of Unitholders, Oak will vote its
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Units in the same manner and in the same proportion as all other Unitholders
who vote on such proposal. To the knowledge of the General Partners, except as
described above, there are no material contracts, agreements, arrangements and
understandings or any actual or potential conflicts of interest between the
Partnership or its affiliates and Oak, their executive officers, directors or
affiliates.
In November 1996, the Partnership and the General Partners were named as
defendants in two purported class action lawsuits filed in the Chancery Court
of Delaware in New Castle County, entitled Bobbitt v. Aetna Real Estate
Associates, L.P., et al and Estes v. Aetna Real Estate Associates, L.P., et al
(collectively, the "Class Action Complaints"). The Class Action Complaints
alleged, among other things, that management fees that had been paid to the
General Partners were excessive and that a standstill agreement with a then
tender offeror which had the effect of limiting the number of Partnership Units
that would be the subject of any tender offer was unlawful.
On March 15, 1999, the parties entered into a Stipulation and Agreement of
Compromise, Settlement and Release (the "Settlement Agreement"), which was
filed with and subject to approval by the Delaware Chancery Court. The court
approved the Settlement Agreement on May 19, 1999, and no appeal was filed
within the applicable period.
Upon the approval by the court of the Settlement Agreement, the Applicable
Percentage, as defined in Section 6.6 of the Partnership Agreement, used to
calculate the Investment Portfolio Fee per quarter which is paid to the General
Partners, was reduced by 0.0625% (the "First Reduction") . The First Reduction
was effective on June 19, 1999 (the "Final Date") and was applied retroactively
to March 15, 1999, the date of the execution of the Settlement Agreement. The
First Reduction resulted in a 0.25% reduction of the annual Investment
Portfolio Fee otherwise provided in the Partnership's limited partnership
agreement. Effective on the second anniversary of the Final Date, the
Applicable Percentage will be reduced by an additional 0.0625% per quarter (the
"Second Reduction"). The First and Second Reductions will apply cumulatively so
that the annual Investment Portfolio Fee from the second anniversary of the
Final Date through the termination of the Partnership will be a total of 0.50%
below the annual Investment Portfolio Fee otherwise provided in the
Partnership's limited partnership agreement.
Pursuant to the terms of the Settlement Agreement, the Partnership made a
special cash distribution out of Partnership cash reserves on April 14, 1999 of
$2,544,909 ($0.20 per Unit) to Limited Partners and $25,706 to the General
Partners. As part of the Settlement Agreement the plaintiff's attorneys were
paid fees and out-of-pocket expenses totaling $2,195,757 during the twelve
months ended December 31, 1999. In addition, legal expenses on behalf of the
Partnership and the General Partners amounting to $212,346 were paid or accrued
at December 31, 1999. The total legal expense of the litigation for the twelve
months ended December 31, 1999 aggregated $2,408,103.
ITEM 9. EXHIBITS
1. Letter from Aetna Real Estate Associates, L.P. to Unitholders, dated
July 18, 2000.
2. Settlement Agreement, dated as of August 20, 1998, among Aetna Real
Estate Associates, L.P., Oak Investors LLC and Cedar Partners, L.P.
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SIGNATURE
After due 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.
AETNA REAL ESTATE ASSOCIATES, L.P.
By: Aetna/AREA Corporation
General Partner
By: /s/ Daniel R. Leary
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Name: Daniel R. Leary
Title: President
By: AREA GP Corporation
General Partner
By: /s/ Mark J. Marcucci
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Name: Mark J. Marcucci
Title: President
Dated: July 18, 2000
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EXHIBIT INDEX
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Exhibit Description
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1. Form of letter from Aetna Real Estate Associates, L.P. to
Unitholders, dated July 18, 2000.
2. Settlement Agreement, dated as of August 20, 1998, among Aetna Real
Estate Associates, L.P., Oak Investors LLC and Cedar Partners, L.P.
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