<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant /x/
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Capital Realty Investors Tax Exempt Fund Limited Partnership and
Capital Realty Investors Tax Exempt Fund III Limited Partnership
- ------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Dominium Tax Exempt Fund L.L.P.
- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/x/ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$32,461
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2) Form, Schedule or Registration Statement No.:
Schedule 14A
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3) Filing Party:
Capital Realty Investors Tax Exempt Fund Limited Partnership and
Capital Realty Investors Tax Exempt Fund III Limited Partnership
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4) Date Filed:
March 18, 1996 and September 3, 1996
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MEETINGS OF HOLDERS OF BENEFICIAL ASSIGNEE CERTIFICATES OF
CAPITAL REALTY INVESTORS TAX EXEMPT FUND
LIMITED PARTNERSHIP
AND
CAPITAL REALTY INVESTORS TAX EXEMPT FUND III
LIMITED PARTNERSHIP
OCTOBER 29, 1996
--------------------------------------------------
PROXY STATEMENT
OF
DOMINIUM TAX EXEMPT FUND L.L.P.
--------------------------------------------------
IN OPPOSITION TO
THE PROPOSED MERGERS
OF
CAPITAL REALTY INVESTORS TAX EXEMPT FUND
LIMITED PARTNERSHIP
AND
CAPITAL REALTY INVESTORS TAX EXEMPT FUND III
LIMITED PARTNERSHIP
WITH AND INTO
AFFILIATES OF CAPITAL APARTMENT PROPERTIES, INC.
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<PAGE>
<TABLE>
<S> <C>
INTRODUCTION............................................................................ 1
REASONS TO VOTE AGAINST THE PROPOSED MERGERS............................................ 6
1. WE BELIEVE THE GENERAL PARTNERS HAVE SIGNIFICANT CONFLICTS OF INTEREST AND
INDUCEMENTS TO PROCEED WITH THE PROPOSED
MERGERS........................................................................... 6
2. WE BELIEVE THE GENERAL PARTNERS HAVE NOT ACTED IN A MANNER CONSISTENT WITH
MAXIMIZING BAC HOLDER VALUE....................................................... 9
3. THE STRUCTURE OF THE PROPOSED MERGERS DOES NOT ALLOW THE BAC HOLDERS TO TAKE
ADVANTAGE OF ANY IMPROVEMENT IN THE PROPERTIES' ABILITY TO GENERATE TAX-EXEMPT
INCOME............................................................................ 11
4. WE BELIEVE THE GENERAL PARTNERS HAVE NOT PROVIDED YOU WITH ALL THE INFORMATION
NECESSARY FOR YOU TO DETERMINE WHETHER THIS IS A GOOD DEAL FOR YOU................ 13
5. WE BELIEVE THERE ARE ALTERNATIVES WHICH MAY BE SUPERIOR TO THE PROPOSED
MERGERS........................................................................... 14
YOU SHOULD NOT RELY ON THE FAIRNESS OPINIONS AS A SUBSTITUTE FOR YOUR OWN ANALYSIS OF
WHETHER THE TRANSACTIONS ARE IN YOUR INTEREST......................................... 20
YOU SHOULD NOT RELY ON PLAINTIFFS' CLASS ACTION LAWSUITS AS A SUBSTITUTE FOR YOUR OWN
ANALYSIS OF WHETHER THE TRANSACTIONS ARE IN YOUR INTEREST............................. 21
INFORMATION ABOUT DOMINIUM.............................................................. 22
BACKGROUND TO THE PROPOSED MERGERS...................................................... 23
ADDITIONAL INFORMATION CONCERNING THE TRANSACTION PROPOSALS............................. 26
LITIGATION.............................................................................. 27
VOTE REQUIRED AND VOTING PROCEDURES..................................................... 27
SOLICITATION EXPENSES................................................................... 28
</TABLE>
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INTRODUCTION
This Proxy Statement, dated as of October 16, 1996, which is first being
mailed to holders ("BAC Holders") of Beneficial Assignee Certificates ("BACs")
on or about October 16, 1996, is furnished by Dominium Tax Exempt Fund L.L.P., a
Minnesota limited liability partnership ("Dominium"), in opposition to the
proposed mergers (each a "Proposed Merger" and collectively the "Proposed
Mergers") of each of Capital Realty Investors Tax Exempt Fund Limited
Partnership ("Fund I-II") and Capital Realty Investors Tax Exempt Fund III
Limited Partnership ("Fund III" and together with Fund I-II, the "Funds") with
and into two separate entities affiliated with Capital Apartment Properties,
Inc. ("CAPREIT").
Dominium owns 100 BACs in each of the two series of BACs issued by Fund I-II
and 100 BACs in Fund III. All of Dominium's BACs were acquired on or about
August 26, 1996. Dominium is affiliated with Dominium Management Services, Inc.,
a Minnesota corporation owned by Jack W. Safar and David L. Brierton. Mr. Safar
and Mr. Brierton are partners in Dominium, along with Paul R. Sween and Armand
E. Brachman. Mr. Sween and Mr. Brachman are employees of Dominium Management
Services. Messrs. Safar, Brierton, Sween and Brachman are the participants in
this proxy solicitation. The participants do not own any BACs individually.
As discussed further hereafter, Dominium previously attempted to acquire the
Funds through a transaction comparable to the Proposed Mergers, but at a price
net to the BAC Holders of approximately $165,305,000 as compared to the
approximate net to the BAC Holders of $156,500,000 being offered by CAPREIT at
the time of our proposal (which has subsequently been increased to approximately
$160.3 million (net of certain attorneys fees)). In our proposal, we had
included the cost of paying up to $9.5 million in termination fees and expense
reimbursements to CAPREIT and $2 million to lawyers in the plaintiffs' class
action lawsuits brought against the general partners of the Funds (the "General
Partners"), and others, in connection with the Proposed Mergers. To the extent
termination fees and expense reimbursements to CAPREIT were ultimately
determined to be less than $9.5 million, Dominium's proposal contemplated that
any savings would be payable to the BAC Holders. Dominium's proposal also
contemplated that any cash in the Funds at the time of closing in excess of
$12.4 million would be payable to the BAC Holders, with a corresponding decrease
in the amount payable to the BAC Holders if the cash in the Funds at the time of
closing were less than $12.4 million. In our proposal, we did not allocate the
approximately $165,305,000 among the Funds, but anticipated that we would
allocate such amounts along the lines that your General Partners are
recommending with respect to the Proposed Mergers. Dominium did not obtain
financing for its proposal within the timeframe it originally thought possible.
Dominium is not presently pursuing financing, nor does it have any present plans
to make a superior proposal.
Dominium is opposing the Proposed Mergers because it believes the Proposed
Mergers are not in the interest of the BAC Holders. Although it is not presently
pursuing financing or a superior proposal, Dominium believes that there may be
some opportunity to effect a transaction with the Funds if there is a "level
playing field" without these termination fees and expense reimbursement
obligations or that there may be some other opportunity to assist the Funds in
maximizing BAC Holder value if the Proposed Mergers are not approved.
Dominium believes that the value of the Funds and your interests in the BACs
are closely tied to the value of the real estate securing the eighteen
tax-exempt mortgage revenue bonds issued by various state or local governments
or their agencies or instrumentalities (the "Mortgage Revenue Bonds") owned by
the Funds. We believe this for the following reasons. Affiliates of CAPREIT are
seeking to acquire your BACs and gain the entire ownership interest in the
Funds. The only assets owned by the Funds are the eighteen Mortgage Revenue
Bonds. The only collateral for the Mortgage Revenue Bonds are non-recourse
participating mortgage loans on eighteen properties containing multifamily
residential developments (the "Properties").
The Properties generate income with which to pay base interest, contingent
interest and principal owing on the Mortgage Revenue Bonds. Nine of the 10
mortgage loans relating to the Mortgage Revenue
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Bonds owned by Fund I-II and 6 of the 8 mortgage loans relating to the Mortgage
Revenue Bonds owned by Fund III have not been paying the full amount of base
interest for some period of time. Because of this, these mortgage loans are in
default and are termed non-performing. By virtue of this default, under the
terms of the Mortgage Revenue Bonds and the mortgage loans, the Funds, as
holders of the Mortgage Revenue Bonds, have a right to foreclose on the
Properties.
When these fifteen Properties originally went into default between 1990 and
1995, ownership of these Properties was transferred via deeds in lieu of
foreclosure or other means from the original unaffiliated third party owners of
the Properties to partnerships (the "Owner Partnerships") which were organized
by and are owned entirely by affiliates of the General Partners. One of the main
purposes for establishing the Owner Partnerships was to prevent the loss of
tax-exempt interest on the Mortgage Revenue Bonds that would have resulted had
the Funds acquired legal title to the Properties securing the Mortgage Revenue
Bonds following foreclosure on such Properties. In connection with the transfer
of title, the Owner Partnerships assumed the existing indebtedness on these
fifteen Properties and the terms of the Mortgage Revenue Bonds were not altered
so as to change the rights of the Funds to foreclose in the event of default at
any time on account of the failure to pay full base interest (mortgages with
respect to two Mortgage Revenue Bonds held by Fund I-II were revised for reasons
that, to the knowledge of Dominium, do not affect the right of the Funds to
foreclose for failure to pay full base interest). The Funds agreed with the
Owner Partnerships that instead of receiving the full amount of interest and
principal owing on the non-performing Properties through the Mortgage Revenue
Bonds, the Funds would receive interest based on the cash flow of these fifteen
Properties. In addition, interest has been accruing on the unpaid base interest
at the base interest rate.
In connection with the Proposed Mergers, CAPREIT or its designee will have
the right to obtain title to the Properties owned by the Owner Partnerships.
Effectively, as a result of the Proposed Mergers, affiliates of CAPREIT will
acquire ownership of the Funds and CAPREIT or its designee will acquire or have
the right to obtain title to the non-performing Properties owned by the Owner
Partnerships.
Since the sole assets of the Funds are the Mortgage Revenue Bonds, we
believe that the value of the BACs is driven by the value of the Mortgage
Revenue Bonds. We believe that the value of the Mortgage Revenue Bonds in turn
is driven by the ability of the Properties to generate income to pay off the
interest and principal owing under the Mortgage Revenue Bonds. Since the value
of the Properties is driven by the ability of the Properties to generate income,
the more valuable the Properties, the more valuable the Mortgage Revenue Bonds
and the more valuable the BACs.
Dominium attempted to acquire the Funds beginning at the end of February
1996, concentrating its efforts in earnest beginning in May 1996. We first made
a proposal to the General Partners on June 28, 1996. However, we failed to
obtain financing for that proposal within the timeframe that we believed
possible. As previously noted, we are not presently pursuing financing for an
alternative proposal and, if the Proposed Mergers are not approved by the BAC
Holders, there can be no assurances that we would ever be able to obtain
financing or even have the opportunity to make another proposal. In connection
with our efforts, we concluded, however, that (1) we believed that you should
receive a higher price than that being paid by CAPREIT for the BACs in the
Proposed Mergers because of our belief regarding the value of the underlying
Properties securing the Mortgage Revenue Bonds and (2) the termination fees and
expense reimbursement provisions made it unlikely that we would be able to
complete a transaction even if we were able to obtain financing and they
represent substantial barriers to competing proposals.
In determining not to proceed with a proposal, Dominium concluded that the
termination fees and expense reimbursement provisions would effectively preclude
it from winning a bidding contest with CAPREIT. Because of the up to $9.7
million in termination fees and possible expense reimbursement obligations, even
to make a $165 million offer net to the BAC Holders, we effectively had to be
able to finance up to an additional $9.7 million of fees and expenses. As a
result, we concluded that if a bidding contest were to occur, CAPREIT would
always have a significant advantage over any proposal we could
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make. The reason we concluded that these provisions would likely prevent us from
being able to complete a competing proposal, even if we were able to obtain
financing, turned on our perception that there was sufficient value in the
Properties that CAPREIT would simply increase the price it was willing to pay
for the Funds to meet or exceed any proposal that we might make and that
ultimately CAPREIT would be able to bid more for the Funds than we could because
it would not owe us any termination fees or expense reimbursement obligations if
it was successful in its bid and, conversely, we would owe CAPREIT up to $9.7
million if we were successful. As a consequence, we concluded, given these
termination fees and expense reimbursement obligations, that it was unlikely
that we would be able to win a bidding contest with CAPREIT, notwithstanding our
view that the value of the Properties warranted paying a higher price for the
BACs.
Even though the sole assets of the Funds are the Mortgage Revenue Bonds, we
believe that the value of the Properties owned by the Owner Partnerships is
relevant to the BAC Holders in their consideration of the Proposed Mergers for
two reasons. First, we believe that it would be relevant to any prospective
acquiror who might be interested in acquiring the Funds on terms similar to that
proposed by your General Partners. Under the terms of the Proposed Mergers,
CAPREIT is effectively acquiring both the Funds in which you own BACs and title
to the fifteen Properties owned by the Owner Partnerships. There can be no
assurances if the Proposed Mergers are rejected that anyone else would be
willing to acquire the Funds, that Dominium would be able to make a proposal, or
that any such proposal would be for a higher price than that in the Proposed
Mergers. However, in assessing the likelihood of whether someone else would make
a proposal at a higher price we believe that the value of the fifteen Properties
owned by the Owner Partnerships as well as the value of the performing Mortgage
Revenue Bonds is material. Since, under a comparable transaction to that
proposed by CAPREIT, a potential acquiror would acquire both the Funds and the
underlying Properties owned by the Owner Partnership, it was our conclusion that
in assessing the price that could be paid for the BACs one must look primarily
to the value of the Properties. Second, we believe that the value of the
Properties owned by the Owner Partnerships is directly relevant to whether the
other alternatives that your General Partners considered and rejected might be
superior alternatives for the BAC Holders.
For example, if the Funds were to be liquidated in an orderly manner, the
value of the Properties owned by the Owner Partnerships directly affects the
liquidation proceeds that would be available to the Funds. Pursuant to the terms
of the Mortgage Revenue Bonds, the Funds retain the right at any time to
foreclose on the non-performing mortgage loans because of continuing defaults
and thus to acquire the non-performing Properties which are owned by the Owner
Partnerships. Consequently, in an orderly liquidation, the Funds would be able
to liquidate the Properties owned by the Owner Partnerships. Similarly, in a
scenario where the Mortgage Revenue Bonds are held to maturity and then
liquidated, the value of the Properties owned by the Owner Partnerships would
affect the amounts received by the BAC Holders.
If you vote against the Proposed Mergers, there can be no assurances that
your General Partners will pursue any of the alternatives that are discussed
herein in more detail or, if they pursue such alternatives, that you will be
able to achieve a higher price for your BACs. Nor can there be any assurances
that the value of the Properties or the cash flow generated by the Properties
and payable to the BAC Holders will not be impacted by adverse economic changes
or other changes in the real estate market or in the laws and regulations
governing tax-exempt financing. As discussed herein, there are risks associated
with not approving the Proposed Mergers as well as possible benefits. Your
General Partners do, however, have a fiduciary obligation to maximize BAC Holder
value. And in assessing whether to vote for the Proposed Mergers, we believe you
should consider both the history of these transactions and alternatives which
could be pursued in determining whether to support the Proposed Mergers. We
believe you also need information about the value of the Properties to assess
whether to support the Proposed Mergers. We urge you to read carefully the
CRITEF Proxy Statement, as well as this proxy statement.
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WE BELIEVE YOU SHOULD VOTE AGAINST THE PROPOSED MERGERS FOR THE FOLLOWING
REASONS:
- - WE BELIEVE YOUR GENERAL PARTNERS HAVE CONFLICTS OF INTEREST
-- YOUR GENERAL PARTNERS WILL RECEIVE APPROXIMATELY $4,500,000 IN DIRECT
PAYMENTS
- - WE BELIEVE YOUR GENERAL PARTNERS HAVE NOT MAXIMIZED PAYMENTS TO THE BAC
HOLDERS
-- NEVER EXPOSED PROPERTIES TO THE MARKET BEFORE AGREEING TO SIGNIFICANT
TERMINATION FEES AND EXPENSE REIMBURSEMENT PROVISIONS
-- NEVER USED THE SERVICES OF A REAL ESTATE BROKER
-- NEVER HAD THE PROPERTIES APPRAISED
-- SIGNED THE ORIGINAL MERGER AGREEMENTS WITHOUT THE BENEFIT OF ANY FAIRNESS
OPINIONS (ALTHOUGH SUBJECT TO DELIVERY OF A FAIRNESS OPINION)
-- AGREED TO TERMINATION FEES OF $4.5 MILLION ($2.25 MILLION PER FUND) AND
EXPENSE REIMBURSEMENT PROVISIONS OF A MAXIMUM OF $5.2 MILLION ($2.6
MILLION PER FUND)
-- THESE TERMINATION FEES AND EXPENSE REIMBURSEMENT PROVISIONS REPRESENT A
POTENTIAL $9.7 MILLION HANDICAP TO ANOTHER BIDDER
- - YOU WILL HAVE NO ABILITY TO PARTICIPATE IN UPSIDE POTENTIAL AND YOU WILL NO
LONGER RECEIVE TAX-EXEMPT INCOME FROM THE FUNDS
- - BECAUSE OF OUR VIEWS AS TO THE VALUE OF THE PROPERTIES, WE BELIEVE THE BACS
ARE WORTH SUBSTANTIALLY MORE THAN THE BAC HOLDERS ARE RECEIVING AND YOUR
GENERAL PARTNERS SHOULD CONSIDER OTHER ALTERNATIVES TO THE PROPOSED MERGERS
As discussed hereafter, for these and other reasons, we believe you should
clearly vote no on the Proposed Mergers and direct your General Partners to
pursue other alternatives which will maximize BAC Holder value.
THERE ARE, HOWEVER, CERTAIN RISKS IN NOT APPROVING THE PROPOSED MERGERS. WE
BELIEVE THE PRINCIPAL RISKS ARE THE FOLLOWING:
1. If the Proposed Mergers are not adopted, the per unit price at which the
BACs are traded on the American Stock Exchange may drop. As with any investment,
there can be no assurances that the price would recover in the short or long
term.
2. Your General Partners may choose not to pursue any alternatives to the
Proposed Mergers if the Proposed Mergers are defeated and there can be no
assurances that if they elect to pursue alternatives to the Proposed Mergers
that you will receive higher consideration for your BACs than that being offered
in the Proposed Mergers.
3. We believe in any event that no one is likely to close on an alternative
proposal for at least 270 days after termination of the Merger Agreements
because of the termination fees and expenses that would be due CAPREIT. We do
not presently have the financing to pursue an alternative proposal if that
opportunity were available. Given our views as to the values of the Properties
securing the Mortgage Revenue Bonds, we believe we would be interested in
pursuing such an alternative proposal. However, we
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are not committed to pursuing such a proposal nor can there be any guarantee
that we would be able to finance such a proposal.
4. Just as we believe there is a chance for appreciation in the value of
the BACs by positive changes in the economy, the value of the real estate market
generally or the value of the Properties securing the Mortgage Revenue Bonds
specifically, adverse changes in the economy, in the value of the real estate
market generally or the value of the Properties securing the Mortgage Revenue
Bonds specifically, could adversely affect the value of the BACs.
5. Although we are not aware of pending or proposed changes in tax laws or
regulations which would impact the tax-exempt status of interest on the Mortgage
Revenue Bonds, changes in tax laws or regulations could adversely affect the
value of the BACs. If the Proposed Mergers are not approved, remarketing the
Mortgage Revenue Bonds could be adversely affected by changes in tax laws or
regulations and there can be no assurances that the Funds will be able to
remarket the Mortgage Revenue Bonds prior to the time they come due if an
alternative transaction is not effected.
6. The costs and expenses of the Oppenheimer fairness opinions and related
legal and accounting fees, the legal and accounting fees incurred in negotiating
the Merger Agreements and reimbursement for certain overhead costs of the
General Partners and their affiliates will be borne by the Funds even if the
Proposed Mergers are not approved.
This Proxy Statement and the enclosed blue proxy card are being furnished to
BAC Holders in connection with the solicitation of proxies by Dominium to vote
against the Proposed Mergers and related matters at the meetings of BAC Holders
of Fund I-II and Fund III to be held at 9:00 a.m. and 10:00 a.m., respectively,
local time, on October 29, 1996 at the Doubletree Hotel, 1750 Rockville Pike,
Rockville, Maryland 20852 and at any adjournments or postponements thereof (each
a "Meeting" and collectively the "Meetings").
At the Meetings, BAC Holders of Fund I-II will vote on the Fourth Amended
and Restated Agreement and Plan of Merger, dated as of August 21, 1996, among
Fund I-II, CRITEF Associates Limited Partnership, a Delaware limited partnership
and the general partner of Fund I-II (the "Fund I-II GP") and Watermark
Partners, L.P., a Delaware limited partnership and affiliate of CAPREIT; and BAC
Holders of Fund III will vote on the Fourth Amended and Restated Agreement and
Plan of Merger, dated as of August 21, 1996, among Fund III, CRITEF III
Associates Limited Partnership, a Delaware limited partnership and the general
partner of Fund III (the "Fund III GP") and Watermark III Partners, L.P., a
Delaware limited partnership and affiliate of CAPREIT (each a "Merger Agreement"
and collectively the "Merger Agreements"). The aggregate consideration offered
to the BAC Holders under the Proposed Mergers (net of legal fees for certain
litigation) is approximately $160.3 million, subject to possible upward
adjustment. Also, BAC Holders of each Fund will vote on proposals (the "New
Partner Proposals") to approve, with respect to each Fund, (a) the sale of the
general partner interest held by each Fund's General Partner to a wholly-owned
subsidiary of CAPREIT in exchange for $500,000, and the substitution of such
wholly-owned subsidiary as general partner of each Fund and (b) the issuance of
a limited partner interest in each Fund to CAPREIT or its designee in exchange
for the contribution to such Fund of real property or other assets, in each
case, to occur concurrently with the Proposed Mergers, and certain amendments to
the respective Agreements of Limited Partnership of the Funds expressly to
authorize the foregoing. The Proposed Merger and New Partner Proposal for each
Fund are collectively referred to herein as the "Transaction Proposals" with
respect to each Fund.
We believe that the Transaction Proposals are not fair to or in the best
interest of the BAC Holders and that BAC Holders should vote against the
Transaction Proposals. We believe that there is no compelling reason to engage
in a transaction of this type at the present time. Even if some transaction
should be effected, we believe that the aggregate consideration to be paid to
BAC Holders in connection with the Proposed Mergers (the "Redemption Price") is
inadequate. We believe that the consideration to be paid in connection with the
New Partner Proposals is unwarranted, and that these payments, as well as
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certain other inducements for the General Partners to proceed with and advocate
for the Transaction Proposals, create a conflict of interest for the General
Partners. We believe these conflicts prevent the General Partners from
objectively evaluating the Transactions Proposals. We believe that you should
carefully review each General Partner's conclusion that the Transaction
Proposals are fair to and in the best interest of the BAC Holders and that the
consideration payable to the BAC Holders in connection with the Proposed Mergers
is fair. We believe that you should conclude after careful review of the facts,
as we have, that THIS DEAL IS NOT FOR YOU.
We urge you to vote against the Transaction Proposals by completing and
executing the enclosed blue proxy card in accordance with the instructions
contained therein. For a proxy to be effective a BAC Holder must deliver his or
her proxy at any time prior to the Meeting of the Fund, or any adjournment
thereof, addressed to:
Dominium Tax Exempt Fund L.L.P.
c/o Georgeson & Company Inc.
Wall Street Plaza, 30th Floor
New York, New York 10005
A self-addressed, stamped envelope for the return of the proxy has been
included.
REASONS TO VOTE AGAINST THE PROPOSED MERGERS
Dominium opposes the Proposed Mergers and is hereby asking for your vote to
oppose them as well. Dominium believes that the Proposed Mergers and the related
proposals are unfair to and not in the best interests of the BAC Holders and
that the Redemption Price is inadequate based on our view as to the value of the
Properties. Dominium believes you should vote against the Proposed Mergers and
the related transactions for five primary reasons:
(1) We believe the General Partners have significant conflicts of interest
and inducements to proceed with the Proposed Mergers;
(2) We believe the General Partners have not acted in a manner consistent
with maximizing BAC Holder value;
(3) The structure of the Proposed Mergers does not allow the BAC Holders to
continue to receive tax-exempt income or to take advantage of any upside
potential for the Funds;
(4) As discussed hereafter, we believe that the General Partners have not
provided you with all of the information necessary for you to determine
whether the Proposed Mergers are a good deal; and
(5) We believe that there are alternatives which may be superior to the
Proposed Mergers.
1. WE BELIEVE THE GENERAL PARTNERS HAVE SIGNIFICANT CONFLICTS OF INTEREST AND
INDUCEMENTS TO PROCEED WITH THE PROPOSED MERGERS.
Each of the General Partners of the Funds (and CAPREIT) maintain that the
proposed transactions are fair to and in the best interest of the BAC Holders
and that the Redemption Price payable to the BAC Holders of its respective Fund
is fair. However, you should be aware and take into consideration that each
General Partner has, we believe, significant conflicts of interest and
inducements to proceed with the Proposed Mergers. We believe the conflicts and
inducements include:
- CAPREIT has agreed to pay to each General Partner $500,000 ($1,000,000 in
the aggregate) in exchange for their general partnership interests. Absent
the Merger Agreements, if the Funds were liquidated as of June 30, 1996,
Fund I-II GP would have received only a nominal amount and Fund III GP
would have received nothing for its general partnership interests.
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- CAPREIT has agreed to pay to CRI, Inc. ("CRI") and CRIIMI MAE Services
Limited Partnership ("CRIIMI"), affiliates of the General Partners, at
least $3,479,925, for certain accounts receivable consisting of the
accrued mortgage servicing and administration fees ("Accrued Fees") owed
by certain affiliates of the General Partners which CRI and CRIIMI
probably would not get if the Transaction Proposals are not approved.
- At the time the General Partners commenced discussions with CAPREIT about
a possible transaction, affiliates of the General Partners held up to a
22% residual profits interest in AP CAPREIT Partners, L.P. ("AP CAPREIT"),
an affiliate of CAPREIT. The President of CAPREIT, Mr. Richard L. Kadish,
who, according to the proxy statement sent to you by the Funds (the
"CRITEF Proxy Statement"), first suggested a transaction with CAPREIT in
January 1995, was an employee of CRI working directly with the Funds until
January 1994.
- As admitted in the CRITEF Proxy Statement, William B. Dockser ("Dockser")
and H. William Willoughby ("Willoughby"), the sole shareholders of CRI,
finally broke off negotiations with CAPREIT on April 15, 1995 (after three
months of discussions) until the interest of CRI and certain of its
affiliates in AP CAPREIT was redeemed in order to "avoid even the
appearance of a conflict of interest". However, we believe the deal that
they ultimately struck with CAPREIT involves a direct conflict of interest
by your General Partners because completing the Transaction Proposals
could potentially save CRI affiliates over $1 million in certain
termination refunds described below.
$1,000,000 PAYMENT
Absent the Proposed Mergers, the general partnership interests of the
General Partners have at best nominal value. Yet, in connection with the
Proposed Mergers, the General Partners are scheduled to receive payments
totaling $1,000,000 for their General Partnership interests. These payments were
negotiated by the General Partners for their benefit in the context of striking
the Merger Agreement terms. Of the $1,000,000 that will be paid to the General
Partners ($500,000 to each of them), according to the CRITEF Proxy Statement,
Messrs. Dockser, Willoughby and Martin C. Schwartzberg, formerly a general
partner and currently a limited partner in the Fund I-II GP ("Schwartzberg"),
will each receive approximately 25%, CRI will receive a very small percentage
and the remainder goes to general partnerships comprised of current and former
employees of CRI, including the President of CAPREIT, Mr. Kadish.
$3,479,925 PAYMENT
CAPREIT has agreed to purchase from CRI and CRIIMI, affiliates of the
General Partners, for $3,479,925 in cash certain Accrued Fees on the effective
date of the Proposed Mergers (the "Effective Date"). The payments payable to
CRIIMI will increase each month after September 30, 1996 through the Effective
Date. These Accrued Fees have accrued pursuant to the limited partnership
agreement of each Fund and are subordinated on a current basis, loan by loan, to
payment of full base interest, plus any unpaid base interest and interest
thereon, on the Mortgage Revenue Bonds owned by the Funds. This means that, as
acknowledged in the CRITEF Proxy Statement, it is possible (and Dominium
believes likely) that in the absence of the Proposed Mergers, these affiliates
of the General Partners would not get substantial payments, if any, on these
Accrued Fees in the near future. Moreover, in order to receive these fees more
than $31 million of cumulative unpaid base interest (as of June 30, 1996), plus
interest thereon, would first have to be paid to the Funds.
The consideration payable to CRI for its Accrued Fees is, with respect to
Fund I-II, $511,680 in the case of Series I, and $770,835 in the case of Series
II, and, with respect to Fund III, $667,485. The consideration payable to CRIIMI
for its Accrued Fees is, with respect to Fund I-II, $332,460, in the case of
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Series I, and $489,120 in the case of Series II, and with respect to Fund III,
$708,345, representing 100% of the Accrued Fees payable to CRIIMI through
September 30, 1996.
Your General Partners negotiated these payments in the context of striking
the Merger Agreement terms. While we believe there is no basis for the payment
of over $3 million to these affiliates of your General Partners in connection
with the Proposed Mergers, you should be aware that your General Partners
originally agreed to terms which would have resulted in payments in excess of
$4.5 million to their affiliates for these Accrued Fees. These payments were
only reduced as a part of settlement of two plaintiffs' class action lawsuits
brought against your General Partners (the fees and expenses of which you are
being required to pay out of the Redemption Price).
CRI AND CAPREIT'S CLOSE RELATIONSHIP
CAPREIT was originally formed by CRI in late 1993 for the purpose of
acquiring, owning and managing a portfolio of multi-family real estate
properties. CAPREIT was acquired by AP CAPREIT on January 31, 1994 only months
after its founding. Within one year of AP CAPREIT's acquisition, CAPREIT was
"negotiating" to purchase the Funds. In January 1995, when your General Partners
were apparently first approached regarding the possible acquisition of the Funds
by CAPREIT, not only were CRI and certain of CRI's affiliates owners of a 22%
residual profits limited partnership interest (contingent on the occurrence of
certain events and meeting certain hurdle rates) in AP CAPREIT, but Messrs.
Dockser and Willoughby (the sole shareholders of CRI), were two of seven
directors of CAPREIT. Although CRI and CAPREIT share the same Maryland office
address and Mr. Kadish, the President of CAPREIT, was an employee of CRI until
1994, the CRITEF Proxy Statement states that they first discussed a possible
transaction in Phoenix, Arizona at a convention of the National Multi Housing
Council. We think this close relationship does not support your General
Partners' claims of arm's length negotiations.
TERMINATION REFUNDS
As a consequence of the Proposed Mergers, CRI and certain of its affiliates
are receiving a benefit in excess of $1,000,000 that they most likely would not
receive if a transaction were effected with any other party. Notwithstanding
your General Partners' stated concern to avoid "even the appearance of a
conflict of interest", on June 30, 1995, CRI agreed to sell its interest in AP
CAPREIT for an aggregate consideration of $4,750,000, subject to repayment of up
to $3,900,000 ("Termination Refunds") if certain property management contracts
are terminated under certain circumstances. Some of these property management
contracts allow an affiliate of CAPREIT called CAPREIT Residential Corp.
("CAPREIT Residential") to manage, on behalf of the Owner Partnerships, fourteen
of the Properties that secure the Mortgage Revenue Bonds. It is likely that a
comparable transaction between the Funds and anyone other than CAPREIT would
trigger Termination Refunds. This is because in a comparable transaction an
acquiror of the Funds would also acquire the right to acquire the Properties
owned by the Owner Partnerships. Pursuant to the terms of the management
agreements, the new owner could terminate these contracts (which is generally
permitted upon thirty days notice) and designate its own property management
company instead of CAPREIT Residential. However, CRI and CAPREIT agreed that the
portion of the Termination Refunds relating to the Properties that secure
certain Mortgage Revenue Bonds held by the Funds in the original aggregate
amount of $1,313,864 (which amount decreased after June 30, 1996 to $1,149,631,
and will continue to decrease after June 30 of each succeeding year) would not
be due if the Proposed Mergers were consummated with CAPREIT. As a consequence,
if the Proposed Mergers are effected, we believe CRI and certain affiliates of
CRI are receiving a benefit in excess of $1,000,000 that they most likely would
not receive in a transaction with any party other than CAPREIT. The Termination
Refunds will not be due if the Funds continue their present operations and
CAPREIT Residential continues to manage the fourteen Properties.
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THE OWNER PARTNERSHIPS
The Properties securing the Mortgage Revenue Bonds were originally owned by
unrelated third parties. Fifteen of these original unaffiliated owners defaulted
on their obligations under the Mortgage Revenue Bonds triggering foreclosure
rights by the Funds under the terms of the Mortgage Revenue Bonds. According to
the CRITEF Proxy Statement, because of these defaults, Messrs. Dockser and
Willoughby established the Owner Partnerships to acquire legal title to the
Properties in part to prevent the loss of tax-exempt interest on the Mortgage
Revenue Bonds that would have resulted had the Funds acquired title. The Owner
Partnerships acquired title from the prior owners via deeds in lieu of
foreclosure or otherwise.
The General Partners maintain that the Owner Partnerships, and their
respective owners (Messrs. Dockser and Willoughby), have never received any
material benefits, directly or indirectly, in connection with owning the
Properties that secure the Mortgage Revenue Bonds. The General Partners concede
that as the deal has been structured, if the fair market value of the Properties
were to substantially increase prior to the time CAPREIT exercises its options
to acquire such Properties, any such increase in value in excess of the
indebtedness and accrued interest owing on the respective Properties may benefit
the owners of the Owner Partnerships (i.e., affiliates of your General
Partners). Moreover, in connection with the Proposed Mergers, at the option of
CAPREIT, each of the Owner Partnerships has agreed to one of the following
courses of action: (a) to sell, assign or transfer the partnership interests in
or the real property and other assets of such Owner Partnerships to CAPREIT or
its designee for no additional consideration, (b) to admit CAPREIT or its
designee as the managing general partner, whereupon the general partner interest
of the current general partners will be converted into limited partnership
interests or (c) to sell all of the limited partnership interests to CAPREIT at
any time within five years from the Effective Date at the then fair market value
(based on the fair market value of the partnership property as encumbered by the
mortgage loans thereon).
Your General Partners have made no disclosure as to why they have structured
these transactions involving their affiliates in this complex manner, whether
any of the alternatives would result in material benefits to these affiliates or
which alternative CAPREIT presently intends to follow. While the Owner
Partnerships do not have a direct fiduciary duty to the BAC Holders, the General
Partners, who control the Owner Partnerships, do have a fiduciary duty to the
BAC Holders. Therefore, we believe the General Partners should explain to the
BAC Holders why they have negotiated the terms of the Merger Agreements
affecting the Owner Partnerships as they did.
We believe your General Partners have not adequately justified the
approximately $4.5 million in payments to the General Partners and/or their
affiliates. We also believe that these transactions constitute material
inducements for the General Partners to recommend the Proposed Mergers,
irrespective of whether these transactions are fair to the BAC Holders.
2. WE BELIEVE THE GENERAL PARTNERS HAVE NOT ACTED IN A MANNER CONSISTENT WITH
MAXIMIZING BAC HOLDER VALUE.
In addition to the conflicts of interest and inducements for the General
Partners to recommend the Proposed Mergers that we believe exist, we believe
that the General Partners have not acted in a manner consistent with maximizing
BAC Holder value. Consider the following:
- Your General Partners apparently conducted negotiations on an exclusive
basis with CAPREIT from January 1995 until September 11, 1995. During that
period they never actively solicited other purchasers for either the BACs
or the Properties, publicized that the Properties or the BACs were for
sale, contacted qualified real estate brokers or attempted to actively
market the Properties or BACs in any way. They did this in spite of what
we believe to be their conflicts of interest and the
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inducements being offered by CAPREIT to proceed with the Proposed Mergers
and notwithstanding that CAPREIT apparently did not propose an initial
Redemption Price until August 1995 and then offered only $145 million.
- Your General Partners entered into Merger Agreements with CAPREIT on
September 11, 1995 apparently without ever having valued the Properties
or, if they did value the Properties, they haven't advised you or their
investment banker of their views as to the values of the Properties.
- Your General Partners initially agreed to a Redemption Price of $150
million contingent upon obtaining a fairness opinion, but without ever
having received a fairness opinion or explaining to you their rationale
for why they believed this was a fair price for the BAC Holders.
- Your General Partners were promptly sued in two separate class action
lawsuits brought on behalf of the BAC Holders. An inactive general partner
of the Fund I-II GP, Martin C. Schwartzberg, also brought litigation
alleging, among other things, that the Proposed Mergers were not in the
best interest of the BAC Holders and filed a preliminary proxy statement
with the Securities and Exchange Commission urging that BAC Holders vote
against the Proposed Mergers. (As part of the settlement of the
litigation, Mr. Schwartzberg has agreed not to oppose the Proposed Mergers
and certain payments to Mr. Schwartzberg are conditioned upon your
approval of the Proposed Mergers.)
- Despite the fact that the $150 million Redemption Price in the September
11, 1995 Merger Agreements was so inadequate that it was unable to support
a fairness opinion, at the time your General Partners entered into the
Merger Agreements, they also agreed to termination fees of $4.5 million,
to reimburse CAPREIT for up to $4 million of expenses under certain
circumstances (which have now been increased to $5.2 million), and not to
solicit other proposals. They agreed to these termination fees, expense
reimbursement and nonsolicitation provisions even though CAPREIT did not
have committed financing and had not completed its due diligence
investigation. As revealed in the CRITEF Proxy Statement, at the time the
original Merger Agreements were signed, CAPREIT's financing was based on a
term sheet from a financial institution that after several months
ultimately declined to provide CAPREIT with financing.
- Notwithstanding that your General Partners were originally unable to
obtain a fairness opinion (although they have fairness opinions with
respect to the present Redemption Price), that they were sued in two
plaintiffs' class action lawsuits, that CAPREIT's initial financing fell
through and that we believe they had significant conflicts of interest,
your General Partners have repeatedly extended the termination date of the
Merger Agreements. Though these extensions have been accompanied by
increases in the Redemption Price in the aggregate amount of $10.3 million
(net of legal fees), your General Partners have also raised the hurdles
for other potential purchasers of the Funds by increasing the maximum
amount of expenses reimbursable to CAPREIT to $5.2 million. Considering
the termination fees and expense reimbursement provisions agreed to by
your General Partners, just to offer a net amount to the BAC Holders
equivalent to the amount being offered by CAPREIT, any other party
proposing an alternative transaction would have to offer up to $9.7
million more than CAPREIT while these provisions are in effect.
- In each instance in which the Redemption Price has been raised (except
possibly for the most recent $1.5 million increase and minor technical
adjustments) your General Partners have only been able to "negotiate" a
higher price when external pressure has forced the issue. They initially
raised the price by $8.5 million in negotiating a settlement to the
plaintiffs' class action lawsuits (although they agreed that up to 20% of
the improvements negotiated in connection with such lawsuits could go
directly to the plaintiffs' lawyers and not to the BAC Holders). They then
negotiated for another $2 million increase in the Redemption Price in
order to further induce the plaintiffs' lawyers to settle their class
action lawsuits after substantial delays caused by our failed efforts to
make a superior proposal.
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We believe that your General Partners' agreement to a transaction that caps
the amounts paid to BAC Holders for excess cash owned by the Funds, even though
such cash was earned during your ownership of the Funds, does not maximize BAC
Holder value. We believe that when you carefully review the CRITEF Proxy
Statement you will conclude, as we have, that the General Partners have not
acted in a manner consistent with maximizing BAC Holder value.
Moreover, we believe that the cumulative effects of the termination fees and
expense reimbursement provisions which your General Partners have agreed to, the
inherent conflicts of interest that we believe the General Partners have, the
fact that they have never revealed either their views or the views of CAPREIT or
its bankers as to the value of the Properties securing the Mortgage Revenue
Bonds, the complexity of the transactions, the informational advantages that
CAPREIT has because its affiliate is the manager of fourteen of the Properties
and the limited representations and warranties in the Merger Agreements
(particularly as to tax-exempt status) that CAPREIT is willing to accept, have
had a substantial chilling effect on other proposals. Under the termination fees
and expense reimbursement provisions in the Merger Agreements, any prospective
acquiror of the Funds must automatically offer as much as $9.7 million more than
CAPREIT just to compete on even terms with CAPREIT while these provisions remain
in effect. In addition, as a practical matter, any prospective acquiror has to
address how to overcome the incentives and inducements that we believe have been
provided to the General Partners and their affiliates to proceed with the
CAPREIT transaction. In assessing our ability to make a superior proposal, we
felt that we would need to not only be able to pay the termination fees and
expense reimbursement amounts, but, as distasteful as it may be, retain some of
the approximately $4.5 million in inducements for the General Partners to
proceed with a transaction.
Furthermore, given the potential for a bidding contest that a competing
offer would raise, this $9.7 million unlevel playing field also has the effect
of giving CAPREIT a double advantage. CAPREIT, unlike any other prospective
bidder, knows that if it loses the bidding contest, it will at least receive the
termination fees and its expenses. It can also reasonably anticipate that it
will be able to pay more than a competing bidder, because it will not be
responsible for paying the termination fees and expense reimbursement amounts
with respect to that competing bidder. Based on our experience, we believe that
regardless of the value of your BAC Holder interests, the reality is that the
transaction as structured by your General Partners has a virtual freezeout
effect on any other alternative proposals.
The only way to avoid this effect of the transaction as structured by your
General Partners and to preserve your right to get a better deal and to continue
to realize upside potential on your investment through potential increases in
the value of the BACs, is to reject the Proposed Mergers. Pursuant to the Merger
Agreements, if the BAC Holders do not approve the Proposed Mergers, the Funds
may terminate the Merger Agreements without liability for the termination fees
and expenses of CAPREIT, provided that there is no "Triggering Event", as
defined in the Merger Agreements, which results in the BAC Holders receiving
consideration in excess of the proposed Redemption Price within 270 days from
the date of termination. We believe that you should send a message to your
General Partners that you are not happy with the way that they have structured
the Proposed Mergers and insist that they maximize BAC Holder value.
3. THE STRUCTURE OF THE PROPOSED MERGERS DOES NOT ALLOW THE BAC HOLDERS TO TAKE
ADVANTAGE OF ANY IMPROVEMENT IN THE PROPERTIES' ABILITY TO GENERATE TAX-
EXEMPT INCOME.
Since their formation, over $260 million in aggregate capital contributions
have been made to the Funds by you, the BAC Holders. Now your General Partners
are presenting you with an opportunity to sell your investment at a price which
will net the BAC Holders only approximately $160 million; a loss of roughly $100
million in capital, 38.5% of the cumulative invested amount, in less than ten
years. The Funds currently generate tax-free income to you, the BAC Holders. In
the CRITEF Proxy Statement, your General Partners acknowledge that "[t]he
principal original objectives of the Funds were to preserve and protect capital
and to provide periodic distributions of tax-exempt interest income" over a 10
to 13 year period and that the Proposed
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Mergers will modify the original objective by accelerating the liquidity of the
BAC Holders' interests and terminating any future distributions. If the Proposed
Mergers are effected you will lose not only any opportunity to recover part of
this lost capital through possible improved performance of the Funds, but defeat
the second objective of continuing to receive tax-exempt interest income. We do
not believe that the "premium" over market price that you are being offered
justifies giving up the potential for future appreciation in the BACs and the
tax-exempt income generated by the Funds, particularly after you consider that
the Funds' income over the past few years has been increasing.
Holders of Series I and Series II BACs received cash distributions equal to
$1.00 per BAC in 1993 and 1994 and $1.08 per BAC in 1995. Holders of Series III
BACs received cash distributions equal to $1.63 per BAC in 1993 and 1994 and
$1.20 per BAC in 1995. The CRITEF Proxy Statement acknowledges that you may not
be able to replace this tax-exempt yield if the Proposed Mergers are effected.
It concludes, however, that "in light of the determination by the General
Partners that the [Proposed] Mergers are a fair alternative to holding the BACs
and the requirement that BAC Holders vote on the Transaction [Proposals], the
General Partners believed that any modification to the original objectives of
the Funds are not significant." We believe that these changes are significant
despite your General Partners' view as to fairness. Moreover, under the Proposed
Mergers you can lose these rights to continue to receive tax-exempt income and
potential appreciation in the value of the BACs by a simple majority vote of the
BAC Holders and if you object to the Proposed Mergers, under the Funds' limited
partnership agreements, you do not have the right to dissent and seek a judicial
declaration of the fair value of your interest.
Of course, there can be no certainty that the tax-free income stream will
continue or improve for BAC Holders, but it is certain that approval of the
Proposed Mergers will terminate the tax-exempt income stream immediately.
Similarly, there can be no certainty that general real estate economic
conditions will improve, but it is certain that approval of the Proposed Mergers
will foreclose any opportunity for BAC Holders to benefit from such improvement
via their investment in BACs. The only way for the BAC Holders to retain some
chance of upside appreciation on their investment is to vote against the
Proposed Mergers.
As discussed in the CRITEF Proxy Statement at pages 55-59, CAPREIT is
willing to take over the Funds in part because it intends to pool the Funds'
assets into a trust with certain other assets held by CAPREIT and its
affiliates. Under CAPREIT's plan, the Funds would contribute the Mortgage
Revenue Bonds and the Available Cash to the trust, an affiliate of CAPREIT would
contribute another mortgage revenue bond issue and CAPREIT would contribute
$16.5 million in additional equity. In addition, CAPREIT has arranged for
certain credit enhancement for the trust consisting of letters of credit or
similar instruments issued by financial institutions. CAPREIT intends to issue
securities secured by the trust and its assets using the Properties and the
additionally contributed properties to the trust (among other things) as
collateral. By making certain filings with the Internal Revenue Service and
making certain amendments to the Mortgage Revenue Bonds which require the
consent of the issuers, CAPREIT believes that it will be able to maintain the
tax-exempt status of the Mortgage Revenue Bonds contributed by the Funds through
these efforts.
The General Partners state in the CRITEF Proxy Statement that they are
uncertain whether they could refinance and maintain the tax-exempt status. Yet,
this is precisely what CAPREIT intends to do. CAPREIT obviously perceives value
in the Properties on which it is attempting to capitalize. According to the
CRITEF Proxy Statement they are willing to incur $22 million in transaction
expenses to do so. Although they have suggested that the additional collateral
and credit enhancements will make it easier to refinance the Mortgage Revenue
Bonds, we believe that the General Partners have not adequately explained why
the Funds are currently unable to effect a refinancing without additional
collateral or credit enhancements or what the costs of such a refinancing would
be to the Funds.
Although the General Partners and CAPREIT have carefully avoided commenting
on the value of the Properties or the profits which CAPREIT anticipates
generating from the proposed transactions, CAPREIT has consistently shown a
willingness to increase the Redemption Price when challenged. Basically, as a
result of the Proposed Mergers, you will be losing your ability to receive
tax-exempt income and any potential
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appreciation in the value of the BACs. CAPREIT, on the other hand, will be
acquiring the right to benefit from the tax-exempt status of income generated by
the Mortgage Revenue Bonds held by the Funds and any appreciation in the value
of the BACs. We believe CAPREIT wouldn't be incurring $22 million in transaction
costs to do that unless they thought there were significant benefits to be
gained from the Proposed Mergers.
4. WE BELIEVE THE GENERAL PARTNERS HAVE NOT PROVIDED YOU WITH ALL THE
INFORMATION NECESSARY FOR YOU TO DETERMINE WHETHER THIS IS A GOOD DEAL FOR
YOU.
We believe that the General Partners have not provided you with all the
information necessary for you to determine whether this is a good deal for you.
We urge you to review carefully the CRITEF Proxy Statement. Despite more than
100 pages of disclosure, we do not believe that you will be able to determine
what the General Partners' views, or CAPREIT's views, are as to the value of the
Properties securing the Mortgage Revenue Bonds. We find it incredible that the
General Partners or CAPREIT have not obtained appraisals of these Properties or,
if they or their sources of financing have obtained appraisals, that they have
not disclosed these appraisals to you or to the investment banking firm retained
by the General Partners.
When you cut through the complexity of these transactions, we believe the
value of your BACs turns on the value of the Properties. This is so because the
only assets of the Funds are the Mortgage Revenue Bonds. The only security for
the Mortgage Revenue Bonds is the Properties. The Properties generate the income
to pay the principal and interest on the Mortgage Revenue Bonds. If the ability
of the Properties to generate income increases, the value of the Properties
increases. If the ability of the Properties to generate income increases, the
value of the Mortgage Revenue Bonds increases. If the value of the Mortgage
Revenue Bonds increases the value of the BACs increases. Thus, the value of the
Properties directly impacts the value of the BACs. Although your General
Partners have disclosed that in late 1994 and early 1995 they received
indications of interest from two other parties regarding acquisition of the
Funds and they have disclosed that counsel to certain BAC Holders who opposed
the Proposed Mergers undertook an informal market review in an effort to
identify higher and better offers for the interest of the BAC Holders, your
General Partners have not disclosed their views as to the value of these
Properties.
There will be some cash held by the Funds at the Effective Date, the
Available Cash, which CAPREIT will be acquiring for its Redemption Price. But,
your General Partners have limited the amount of upward adjustments to the
Redemption Price that will be made based on the Available Cash (the "Maximum
Adjustment Amount"). As a result, if there is more Available Cash than the
Maximum Adjustment Amount, CAPREIT gets the cash, not you. Your General Partners
have not disclosed why the General Partners believe it was in your best interest
to cap the Maximum Adjustment Amount or for the Funds to accumulate substantial
cash reserves rather than make additional tax-exempt distributions to BAC
Holders.
The General Partners have suggested that one of the principal reasons they
believe the transactions are fair is that the Redemption Price represents a
substantial premium over the market price of the BACs immediately prior to the
first announcement of the Proposed Mergers. Yet, they have not disclosed what
the impact of accumulating such large cash reserves may have been on that market
price. While they have disclosed that CAPREIT Residential, an affiliate of
CAPREIT, manages fourteen of the Properties, they have not disclosed that
CAPREIT Residential through its management of the Properties has the ability,
among other things, to influence the cash flows from these Properties. By
setting the rent rates, by determining the levels and timing of repairs,
maintenance and capital expenditures, CAPREIT Residential's management of a
significant portion of the Properties can directly impact the value of the BACs
because the income flowing to pay the Mortgage Revenue Bonds is directly
affected. Your General Partners have not disclosed either their projections or
CAPREIT's projections as to the cash flows or values of the Properties after the
transactions have been effected, and they have not disclosed why CAPREIT is
purportedly willing to incur approximately $22 million in transaction costs to
effect the Proposed Mergers.
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Based on over 25 years of experience in owning and managing multifamily
housing projects, we believe you should, at a minimum, have the following
information before you are willing to vote in favor of the Proposed Mergers:
(1) A satisfactory explanation of why the General Partners haven't actively
marketed the Funds or the Properties by employing a broker.
(2) The appraised value of the Properties securing the Mortgage Revenue
Bonds.
(3) Projections as to the impact of CAPREIT's financing on cash flow from
the Properties and market value of the Properties.
(4) Given that the manager of most of the Properties is an affiliate of the
buyer, an independent review of the management of the Properties by CAPREIT
Residential to determine if the rent rates are at market value and whether
expenses and repairs have been structured and scheduled in a manner that would
adversely affect either the Available Cash or the value of the BACs.
(5) A satisfactory explanation of why the mechanisms through which CAPREIT
or its designee can acquire title to the Properties from the Owner Partnership
have been structured in the manner that they have and whether there is any
material advantage to the General Partners or their affiliates from one approach
versus another and whether there is any understanding, explicit or tacit, with
respect to the approach that CAPREIT will take.
(6) An explanation of how the General Partners could have given considerable
weight to and relied to a significant extent in reaching their fairness
determination on the estimates of the range of values developed by Oppenheimer &
Co., Inc. ("Oppenheimer") when the General Partners entered into Merger
Agreements and agreed on prices before having the fairness opinions in hand.
(7) Since your General Partners are primarily relying on the Oppenheimer
analyses which give little value to the availability of tax-exempt financing, an
explanation of why your General Partners apparently believe that the
availability of tax-exempt financing is not a valuable asset of the Funds.
(8) An explanation of why the General Partners and Oppenheimer decided that
in Oppenheimer's determination of fairness it was appropriate to exclude from
the scope of investigation the consideration to be paid or other benefits to be
received by the General Partners and their affiliates.
This is the type of information we believe that you need as a BAC Holder to
determine whether the Proposed Mergers are in your interests. We trust that if
you undertake the effort to review the very lengthy CRITEF Proxy Statement, you
will concur with our view that for some reason they have not disclosed the
information you need to make an informed decision.
5. WE BELIEVE THERE ARE ALTERNATIVES WHICH MAY BE SUPERIOR TO THE PROPOSED
MERGERS.
In the CRITEF Proxy Statement, your General Partners disclose that they
considered several alternatives to the Proposed Mergers in anticipation of the
upcoming mandatory remarketing date for the Mortgage Revenue Bonds when the
underlying mortgage loans mature in 1998 through 2000 if the loans could not be
extended at or before the time of the remarketing. These alternatives included
the following: (i) liquidating the Properties securing the mortgage loans
pursuant to foreclosures under the Mortgage Revenue Bond documents prior to the
mortgage loan maturities; (ii) holding the Mortgage Revenue Bonds until the
mortgage loans mature, and then liquidating the Properties securing the mortgage
loans pursuant to foreclosures under the Mortgage Revenue Bond documents; and
(iii) seeking to extend the loan maturities and continuing to hold the Mortgage
Revenue Bonds for extended periods.
As discussed below, we believe, based on over 25 years of experience with
multifamily housing projects and our views as to the value of the Properties
which secure the Mortgage Revenue Bonds, that the alternatives of either
liquidating the non-performing Properties now or liquidating the non-performing
Properties upon
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maturity of the Mortgage Revenue Bonds may well be superior alternatives to the
Proposed Mergers. Based on our views as to the value of the Properties which
secure the Mortgage Revenue Bonds and our experience with multifamily housing
projects, we also believe that if your General Partners were to undertake an
open, competitive bidding process after the Funds' obligations with respect to
termination fees and expense reimbursement expire, such a competitive bidding
process may well result in a superior alternative to the Proposed Mergers. While
there can, of course, be no certainty that such alternatives would be superior
or indeed that a superior alternative will occur if the Proposed Mergers are not
approved, we believe that if your General Partners had pursued any of these
alternatives, such alternatives WOULD NOT HAVE BEEN superior alternatives for
your General Partners. As you review the CRITEF Proxy Statement in which your
General Partners discuss their reasons for not pursuing any of these
alternatives, we think it is important that you focus on the following:
- Your General Partners largely justify their rejection of these
alternatives on the basis of the Oppenheimer fairness opinions. Yet, they
determined to do the Proposed Mergers with CAPREIT before they had any
fairness opinions.
- The alternative of extending the loan maturity dates and continuing to
hold the Mortgage Revenue Bonds for extended periods is exactly what
CAPREIT is doing. The difference is that they are getting all of the
future benefits of tax-exempt status and potential appreciation in the
BACs and the value of the underlying Properties (as well as risks of
depreciation).
ALTERNATIVE 1. LIQUIDATE NOW
Your General Partners have indicated in the CRITEF Proxy Statement that they
do not believe that you would receive greater net present value upon an orderly
liquidation of the Funds based on the results of Oppenheimer's capitalization
rate valuation analysis and discounted cash flow analysis. Once again, your
General Partners are relying, in part, on Oppenheimer's analyses as to the
fairness of the Redemption Price to justify why they did not pursue other
alternatives even though they had concluded not to pursue these alternatives
before they ever received Oppenheimer's analyses. They are careful to point out
that Oppenheimer is not opining as to the net present value that you would
receive upon an orderly liquidation. Moreover, we believe that an 8.0% to 9.0%
capitalization rate, rather than the 9.0% to 10.25% capitalization rate used by
Oppenheimer would be more appropriate. Short of an appraisal, we believe that a
capitalization rate analysis is the best indicator of liquidation value. As the
following table illustrates, using a lower capitalization rate would suggest
that an immediate orderly liquidation of the Funds could result in substantially
greater net present value to you, the BAC Holders.
15
<PAGE>
COMPARISON OF DOMINIUM CAPITALIZATION VALUATIONS TO OPPENHEIMER CAPITALIZATION
VALUATIONS
<TABLE>
<CAPTION>
OPPENHEIMER DOMINIUM
DIRECT CAPITALIZATION DIRECT CAPITALIZATION
------------------------------ ------------------------------
LOW HIGH LOW HIGH
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
SERIES I, FUND I-II
Properties-Real Estate.............. $ 28,366,230 $ 31,432,849 $ 32,305,984 $ 36,344,232
Performing Mortgages................ 1,571,926 1,591,890 1,571,926 1,591,890
Other Assets........................ 2,718,145 2,718,145 2,718,145 2,718,145
-------------- -------------- -------------- --------------
Total............................... 32,656,301 35,742,884 36,596,055 40,654,267
SERIES II, FUND I-II
Properties-Real Estate.............. 41,721,216 46,246,963 47,371,915 53,293,404
Performing Mortgages................ -- -- -- --
Other Assets........................ 3,787,207 3,787,207 3,787,207 3,787,207
-------------- -------------- -------------- --------------
Total............................... 45,508,423 50,034,170 51,159,122 57,080,611
FUND III
Properties-Real Estate.............. 54,295,302 60,226,437 61,138,153 68,925,408
Performing Mortgages................ 18,560,070 19,048,018 18,560,070 19,048,018
Other Assets........................ 5,438,490 5,438,490 5,438,490 5,438,490
-------------- -------------- -------------- --------------
Total............................... 78,293,862 84,712,945 85,136,713 93,411,916
Property Totals-Real Estate........... 124,382,748 137,906,249 140,816,052 158,563,044
Performing Mortgages.................. 20,131,996 20,639,908 20,131,996 20,639,908
Other Asset Totals.................... 11,943,842 11,943,842 11,943,842 11,943,842
-------------- -------------- -------------- --------------
Total................................. $ 156,458,586 $ 170,489,999 $ 172,891,890 $ 191,146,794
</TABLE>
In preparing the above table, we have used the same assumptions and analysis
as the Oppenheimer fairness opinions except that we have used capitalization
rates ranging from 8.0% to 9.0% as compared to the Oppenheimer capitalization
rates ranging from 9.0% to 10.25% for the non-performing mortgage loans. We
believe that an 8.0% to 9.0% capitalization is a more appropriate capitalization
rate based on three separate analyses prepared for us by Mardell Amundson
Johnson & Leirness, Inc., an independent real estate valuation and consultation
firm ("Mardell Amundson"). Copies of these analyses have been filed with the
Securities and Exchange Commission (the "Commission") and they may be obtained
from the Commission's Public Reference Room, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. Such materials also may be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
The first analysis is set forth in a letter dated April 10, 1996 from
Mardell Amundson to Dominium regarding capitalization rates for each of the
non-performing Properties securing non-performing Mortgage Revenue Bonds held by
the Funds. In connection with its analyses, Mardell Amundson analyzed income and
expense summaries, real estate tax summaries, and property information
concerning the Properties. It was familiar with the Properties in the
Minneapolis/St. Paul area and contacted appraisers and brokers familiar with the
other markets. Mardell Amundson concluded that capitalization rates for the
Properties ranged from 8.00% to 9.00% on a "free and clear" basis and 7.50% to
8.50% on a tax-exempt basis. In a liquidation analysis, we believe the most
appropriate capitalization rates are on a "free and clear" basis.
A September 20, 1996 letter analyzed the state of the Minneapolis/St. Paul
apartment market and apartment values. Mardell Amundson researched the recent
history of the Minneapolis/St. Paul market, analyzing trends over the past three
to four years in various apartment sectors in Minneapolis/St. Paul, including
Class A apartments. The September 20, 1996 letter concluded that in the
Minneapolis/St. Paul market recent Class A transactions indicated a
capitalization rate of between 8 and 9% on a "free and
16
<PAGE>
clear" basis and that the availability of tax-exempt bond financing would tend
to decrease capitalization rates further, by at least 50 basis points (again, we
believe that the "free and clear" capitalization rates are most appropriate for
a liquidation analysis). We believe that the Minneapolis/St. Paul Properties
owned by the Owner Partnerships are Class A properties. The letter also
indicated that vacancy rates in the Minneapolis/St. Paul market were between 2%
and 3% and that the combination of increasing rents and declining capitalization
rates has resulted in value increases of 15-20% for properties similar to the
Minneapolis/St.Paul Properties over the past 3-4 years.
In a September 26, 1996 letter Mardell Amundson conducted a preliminary desk
review of the Oppenheimer fairness opinion for the purpose of commenting on the
strengths and weaknesses of the Oppenheimer analysis. They researched
capitalization rates and looked at comparable sales analyses in the
Minneapolis/St. Paul market and concluded that more appropriate capitalization
rates on a "free and clear" basis, without tax exempt financing, for properties
in the Minneapolis/St. Paul market ranged from 8.4% to 9.1%. Mardell Amundson
also concluded that on a comparable sales basis, recent sales indicated a range
of value on a per apartment unit basis of between $48,000 and $61,000 per
dwelling unit with most activity for average Class A apartment properties at
approximately $50,000 per dwelling unit.
For the valuation of the three performing mortgage loans, Observatory, Paces
River 2 and Washington Ridge, Dominium used the values determined in the
Oppenheimer fairness opinions. Oppenheimer valued the performing mortgages by
first discounting the mortgage cash flows and the return of the principal
balances across a range of discount ranges. The ranges of the net present values
obtained, according to the fairness opinions, represent the valuation range for
the three performing mortgage loans.
Second, in the cases of Paces River 2 and Washington Ridge, contingent
interest balances remain associated with these two mortgages. In order to
estimate the value of the contingent interest, if any, Oppenheimer assumed a
scenario whereby the underlying properties were sold/foreclosed in 1998. Any
sale proceeds remaining after the return of principal and payment of accrued
servicing fees would be available to pay all, or a portion, of the outstanding
contingent interest. To determine the value for each of these two mortgages, the
net present value of contingent interest to be paid in 1998 was added to the
value of the mortgage loans estimated in step one above.
In determining the 1998 selling price of these two properties, the
Oppenheimer analysis applied a 9.5% capitalization rate to the 1998 adjusted
cash flow. The 9.5% capitalization rate represents the mid-point of the
capitalization range used in the rest of their property valuations. Since we did
not obtain capitalization rates for these two properties, we have used the same
capitalization rates for the performing mortgage loans as the Oppenheimer
fairness opinions.
Dominium's prospective lenders considered several real estate valuation and
consultation firms in connection with possibly providing financing to Dominium
and, after interviews and bids, engaged Mardell Amundson on behalf of the
lenders and Dominium in connection with Dominium's failed attempt to make a
superior proposal to the Transaction Proposals. In view of its familiarities
with the Properties, Dominium directly engaged Mardell Amundson in September in
connection with this proxy statement. Mardell Amundson is an independent real
estate valuation and consultation firm headquartered in Minneapolis. Dominium
has used Mardell Amundson from time to time in the past and it is one of a
number of independent valuation firms used by Dominium on a periodic basis. Over
the past two years, Dominium has paid Mardell Amundson approximately $22,000,
exclusive of amounts paid to Mardell Amundson in connection with the Proposed
Mergers. Dominium paid Mardell Amundson approximately $30,000 for services
provided in connection with the Proposed Mergers. Mardell Amundson was also
engaged by Dominium on October 10, 1996 to perform appraisals for Dominium on
eleven properties unrelated to the Proposed Mergers. Dominium estimates that the
fees for these appraisals will be approximately $28,000.
The individual who prepared the reports, Michael F. Amundson, has a Master's
of Science Degree in Real Estate Appraisal and Investment Analysis, is a
Certified General Property Appraiser in the State of Minnesota and is a Member
of the Appraisal Institute (MAI) with over ten years of real estate valuation
17
<PAGE>
experience. In connection with the April 10, 1996 letter, Dominium requested
that Mardell Amundson provide it with its professional opinion concerning
appropriate capitalization rates for the types of properties securing the
non-performing Mortgage Revenue Bonds, both on a free and clear basis assuming
an all cash sale or financing with taxable market rate debt, and also
capitalization rates assuming availability of tax-exempt financing, but did not
otherwise impose limitations on the scope of the investigation. In connection
with the September 20, 1996 letter, Dominium requested research concerning the
recent history of the Minneapolis/St. Paul apartment market, for the purpose of
analyzing the trends over the past three to four years in various apartment
sectors in the Minneapolis/St. Paul market, including Class A apartments, but
did not otherwise impose limitations on the scope of the investigation. In
connection with the September 26, 1996 letter, Dominium requested that Mardell
Amundson review the Oppenheimer fairness opinions for the purpose of commenting
on the strengths and weaknesses of Oppenheimer's analysis, but did not otherwise
impose limitations on the scope of the investigation.
The August 10, 1996, September 20, 1996 and September 26, 1996 letters are
available for inspection and copying at the principal executive offices of
Dominium during its regular business hours by any interested BAC Holder or his
representative who has been so designated in writing.
ALTERNATIVE 2: HOLDING THE MORTGAGE REVENUE BONDS UNTIL THE MORTGAGE LOANS
MATURE AND THEN LIQUIDATING THE PROPERTIES SECURING THE MORTGAGE
LOANS PURSUANT TO FORECLOSURES UNDER THE MORTGAGE REVENUE BOND
DOCUMENTS
Your General Partners indicate in the CRITEF Proxy Statement that based on
Oppenheimer's valuation of the Funds on a continuing basis, they believe the
Redemption Price payable to the BAC Holders is within the range of the net
present value that the BAC Holders would receive if the Funds were to conduct an
orderly liquidation of the non-performing Properties upon maturity of the
underlying mortgage loans plus the value of the three performing Mortgage
Revenue Bonds and the other assets of the Funds. In addition, your General
Partners believe that a sale of the Properties would most likely involve high
transaction costs and on-going overhead costs to the Funds, costs which are
likely to be disproportionately high for a diminishing portfolio of properties.
(Since estimates of transaction costs are included in Oppenheimer's analyses, we
do not understand what the relevance of this was to your General Partners'
analysis). Your General Partners also expressed concerns about risks inherent in
a real estate disposition program and the possibility that general or local
economic conditions could worsen. They concluded that "[g]iven that this
alternative would not NECESSARILY provide the BAC Holders with greater returns
than the Redemption Prices payable in the [Proposed] Mergers and that such
current payment of the Redemption Prices eliminates the uncertainties associated
with holding the Mortgage Revenue Bonds for several more years, the General
Partners rejected this alternative" (emphasis added). Your General Partners are
also careful to again point out that, although they are relying on the
Oppenheimer analyses, Oppenheimer has not opined that the Redemption Price
payable to you would be within the range of net present value of the amounts
that you would receive if the Properties were held to maturity and then
liquidated.
In its analysis, Oppenheimer applied capitalization rates ranging from 9.0%
to 10.25%. For the reasons discussed in Alternative 1, if we were valuing the
Properties we would use a capitalization rate ranging from 8.0% to 9.0%. Using
Oppenheimer's methodology, but a lower capitalization rate, the implied equity
values of Fund I-II, Series I, including Oppenheimer's estimated value of the
Fund's remaining Mortgage Revenue Bond and Oppenheimer's estimated value of the
Fund's other assets ("Other Assets") would be $16.031 to $17.831 per BAC as
compared to the estimated Redemption Price for Fund I-II, Series I of $14.82.
The implied equity value of Fund I-II, Series II, including Oppenheimer's
estimated value of the Fund's Other Assets would be $15.796 to $17.624 per BAC
as compared to the estimated Redemption Price for Fund I-II, Series II of
$14.50, and the implied equity value of Fund III, including Oppenheimer's
estimated value of the Fund's remaining performing Mortgage Revenue Bonds and
Oppenheimer's estimated value of the Fund's Other Assets, would be $16.191 to
$17.764 per BAC as compared to the estimated Redemption Price of $15.13. In its
analyses, Oppenheimer also assumed that
18
<PAGE>
Available Cash would not exceed the Maximum Adjustment Amount and made certain
assumptions about expenses. To the extent there is more Available Cash or these
expenses are less than assumed by Oppenheimer, the implied equity value would be
higher. To be conservative, we have used the same transaction costs as
Oppenheimer, but based on our experience in buying and selling apartment
projects we believe these estimates of transaction costs are high. For example,
Oppenheimer has used a 3% commission rate. We commonly are able to negotiate
commission rates in the range of 1 1/2%.
Moreover, while we agree that there are risks inherent in continuing to hold
the Mortgage Revenue Bonds, we believe there is nothing about those risks today
that warrants proceeding with the Proposed Mergers now. According to the Mardell
Amundson study referred to above, in the Minneapolis/St. Paul market, the
current vacancy rate is between 2% and 3% and apartment properties similar to
the Minneapolis/St. Paul Properties securing the Mortgage Revenue Bonds have
appreciated on average by 15-20% over the past 3-4 years. Of course, if the
Proposed Mergers are effected, you eliminate the risks associated with
continuing to own the BACs, which are tied in part to the value of the
Properties securing the Mortgage Revenue Bonds, but you are also eliminating any
upside potential.
ALTERNATIVE 3. ACTIVELY MARKET THE FUNDS OR THE PROPERTIES
Regardless of whose analyses as to value are correct, the record establishes
that your General Partners have never attempted actively to solicit other merger
partners or market the Funds or the Properties where all bidders have a level
playing field. Apparently, they have never even discussed with a broker either
marketing the Properties or conducting a competitive bidding process for the
Funds. In late 1994 and in January 1995, the General Partners received
indications of interest concerning possible acquisitions of the Funds from
Oxford Tax Exempt Fund and Tiger Real Estate Partners, engaged in preliminary
discussions, but did not receive formal offers or have further discussions with
either party. Based on the disclosure in the CRITEF Proxy Statement, it would
also appear that an "informal review of the market was undertaken by plaintiffs'
counsel in an effort to identify higher and better offers for the interests of
the BAC Holders." The termination fees and expense reimbursement provisions of
the Merger Agreements would have applied to any other bidder in this "informal
review" of the market and, based on our experience, we believe that the
structure of the transaction by your General Partners has had a virtual
freezeout effect on competing proposals.
However, it is not too late to level that playing field. Pursuant to the
Merger Agreements, if the BAC Holders do not approve the Proposed Mergers, the
Funds may terminate the Merger Agreements without liability for termination fees
and expenses of CAPREIT, provided that there is no "Triggering Event", as
defined in the Merger Agreements, which results in the BAC Holders receiving
consideration in excess of the proposed Redemption Prices within 270 days from
the date of termination. One alternative would be to vote against the Proposed
Mergers and market the Properties or the Funds in a commercially reasonable
manner after CAPREIT's rights to termination fees and expense reimbursement
expires. While there can be no assurance that this will necessarily result in a
higher price for the BAC Holders, based on our experience we believe that if a
transaction of the nature contemplated by the Proposed Mergers makes sense the
best way to maximize BAC Holder value would be to level the playing field and
solicit other merger partners on a commercially reasonable basis.
If the playing field is leveled, we believe that there may be some
opportunity to effect a transaction with the Funds or to assist the Funds in
maximizing BAC Holder value if the Proposed Mergers are not approved. Dominium
is not presently pursuing financing for an alternative proposal and does not
presently have the financing to pursue an alternative proposal. Moreover, we are
not committed to pursuing such a proposal nor can there be any guarantee that we
or anyone else would be able to finance such a proposal.
We believe you should vote NO on the Transaction Proposals and instruct your
General Partners to pursue alternative transactions which will maximize BAC
Holder value and which do not have the conflicts of interest we believe are
inherent in the Transaction Proposals. Your General Partners have stated in the
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<PAGE>
CRITEF Proxy Statement that they will continue the Funds' operations in the
present form if the Proposed Mergers are not approved.
In addition to the alternatives discussed above, which we believe may be
superior to the Proposed Mergers based upon our experience in the multifamily
housing industry and our views as to the values of the Properties underlying the
non-performing Mortgage Revenue Bonds, we do not understand your General
Partners' explanation for why they rejected as an alternative to the Proposed
Mergers an attempted refinancing of the Mortgage Revenue Bonds.
Your General Partners have acknowledged in the CRITEF Proxy Statement that
extending the maturity dates of the Mortgage Revenue Bonds would allow you to
continue to receive tax-exempt interest beyond current loan maturity dates and
to participate in increases in the values of the underlying Properties and thus
the value of the BACs. Interestingly, unlike the liquidation based alternatives,
they have not attempted to quantify what this might mean to you economically.
They have simply said that they would need issuer consents and BAC Holder
approval and that the costs of obtaining these consents would exceed the costs
the Funds are bearing in the Proposed Mergers. They have also suggested that
these modifications would require that the Funds write off all accrued and
unpaid interest. Yet, you are not getting any accrued or unpaid interest if the
Proposed Mergers are effected. We believe their suggestion that they aren't
proceeding because the costs associated with these approvals are greater than
the costs being borne by the Funds for the Proposed Mergers is disingenuous.
Most of the DIRECT transaction costs of the Proposed Mergers are being borne by
CAPREIT. And CAPREIT through a refunding of the Bonds is doing exactly what your
General Partners say they have rejected because of the costs, uncertainties and
limitations of this alternative: they are restructuring the Mortgage Revenue
Bonds, obtaining issuer consents and through your approval of the Transaction
Proposals, obtaining BAC Holder approval. We feel that your General Partners
have not adequately explained why this alternative makes sense for CAPREIT but
does not make sense for the Funds.
YOU SHOULD NOT RELY ON THE FAIRNESS OPINIONS AS A SUBSTITUTE
FOR YOUR OWN ANALYSIS OF WHETHER THE TRANSACTIONS
ARE IN YOUR INTEREST
Your General Partners and CAPREIT have primarily used the premium offered
over market price and the quantitative and qualitative analyses prepared by
Oppenheimer in connection with their fairness opinions as justifying their
conclusion that the Proposed Mergers are fair. You should be aware, however,
that Oppenheimer in rendering its fairness opinions relied, without assuming
responsibility for independent verification, on the accuracy and completeness of
all financial and operating data, financial analyses, reports and other
information that were publicly available, compiled or approved by or otherwise
furnished or communicated to Oppenheimer by or on behalf of the General
Partners. Moreover, Oppenheimer did not make an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the Funds,
nor was Oppenheimer furnished with any such evaluation or appraisal. Nor did
Oppenheimer undertake the types of analyses that, based on our experience, would
commonly be undertaken by a qualified real estate appraiser, including a
comparable sales analysis, replacement cost analysis or determining an
appropriate capitalization rate for the market places in which the Properties
are located.
You should also focus on the limitations on Oppenheimer's engagement.
Specifically:
- Oppenheimer was not requested to serve as financial advisor to the General
Partners or the Funds or to assist the General Partners in the merger
negotiations or in the negotiations of the related transactions involving
the General Partners and their affiliates and CAPREIT.
- Oppenheimer was not requested to and did not make any evaluation regarding
any other expressions of interest to the General Partners by third parties
with regard to any alternative transactions.
- Oppenheimer was not requested to and did not analyze or give any effect to
the impact of any federal, state or local income taxes to the BAC Holders
arising out of the proposed transactions.
20
<PAGE>
- In determining the fairness of the Redemption Price, the General Partners
did not request that Oppenheimer take into account the consideration to be
paid to or other benefits to be received by the General Partners and their
affiliates, including CRI or CRIIMI, in connection with the transactions
contemplated, and it expressed no opinion thereon.
- Oppenheimer was not requested to and does not make any recommendation to
the BAC Holders of any of the Funds regarding the Proposed Mergers.
Given what we perceive are conflicts of interests and inducements for your
General Partners to proceed with these transactions, the fact that Oppenheimer
did not have appraisals, the fact that Oppenheimer was relying, without
independent verification, on information provided by your General Partners and
their agents (including CAPREIT Residential, the buyer's affiliate), and the
fact that there were significant limitations on Oppenheimer's engagement
(although apparently not on the scope of their investigation or review), we
believe that you should take limited comfort from Oppenheimer's fairness
opinions. Moreover, we believe you should be affirmatively uncomfortable that
your General Partners and CAPREIT appear to be largely relying on these opinions
as justifications for their recommendations -- even though they have
consistently negotiated price and terms without the benefit of the fairness
opinions.
One of the problems with relying on fairness opinions is that if you change
the assumptions, you may change the opinion. For example:
- Oppenheimer in rendering its fairness opinions assumes that the Adjustment
Amounts at the closing of the Proposed Mergers would not exceed the
Maximum Adjustment Amounts with respect to each series of BACs. If there
is Available Cash in excess of the Maximum Adjustment Amounts at the
Effective Date, the impact of this excess Available Cash is not reflected
in the Oppenheimer opinions.
- If you use a 8.0 to 9.0% capitalization rate, which is the range we
believe appropriate for Properties securing the non-performing Mortgage
Revenue Bonds for the reasons previously discussed, rather than the
capitalization rate used by Oppenheimer of 9.0 to 10.25%, the Redemption
Price is no longer within the range of net present values that you might
receive under either a "liquidate now" approach or a "liquidate at
maturity" approach. We believe that the capitalization rates used by
Oppenheimer are too high and consequently that their conclusions as to the
range of values are too low.
YOU SHOULD NOT RELY ON PLAINTIFFS' CLASS ACTION LAWSUITS AS
A SUBSTITUTE FOR YOUR OWN ANALYSIS OF WHETHER THE TRANSACTIONS
ARE IN YOUR INTEREST
While the plaintiffs' class action lawsuits resulted in an initial increase
in the Redemption Price being offered to the BAC Holders of $8.5 million and an
additional $2 million increase after our attempts to make a superior proposal,
we believe that you should not rely on the plaintiffs' class action lawsuits or
the Delaware Chancery Court's approval of the settlement of these lawsuits as a
substitute for your own analysis of whether the transactions are in your
interest. Moreover, in approving the settlements, the Delaware Chancery Court
expressly relied on the fact that these transactions require your approval. If
you do not believe the transactions are fair or that your General Partners have
acted in a manner that assures you that you are receiving the best price for
your BACs, you should vote against the Proposed Mergers.
Again, consider what has happened here. Your General Partners initially
entered into a transaction which we believe is rife with conflicts of interest
at a price that would not support a fairness opinion and which by its terms
included substantial impediments to any competing proposals. They were then
promptly sued by two separate parties and negotiated a settlement which
increased the Redemption Price (although almost a fourth of the initial increase
in the Redemption Price went to the plaintiffs' class action lawyers and not to
the BAC Holders). One effect of this settlement is to insulate your General
Partners and CAPREIT as a practical matter from future claims by BAC Holders.
Admittedly, the Redemption Price that is now being offered to you is $10.3
million higher than the Redemption Price initially agreed to by your General
Partners (after netting out attorneys' fees). But that does not necessarily mean
it is a fair
21
<PAGE>
price. We do not believe you are receiving the price that you would have
received if your General Partners had sought competitive bids. We do not believe
the General Partners are receiving what they would have received if they had
sought competitive bids. We believe you should vote NO on the Transaction
Proposals.
INFORMATION ABOUT DOMINIUM
Dominium is an affiliate of Dominium Management Services, Inc., which is
owned by David L. Brierton and Jack W. Safar ("Dominium Management Services").
Dominium Management Services is an accredited management organization, which
includes as affiliates a real estate development company and several general
partnerships, limited partnerships, limited liability companies and limited
liability partnerships formed for the purpose of owning, developing or managing
real properties. Dominium was formed in 1996 for the specific purpose of
engaging in activities relating to the Funds. Dominium Management Services and
its affiliates provide a wide variety of real estate related services, including
but not limited to, turnkey development consulting, financial feasibility
analysis, construction consulting, value engineering and project marketing and
management.
Dominium is the beneficial owner of 100 Series I BACs of Fund I-II, 100
Series II BACs of Fund I-II and 100 BACs of Fund III, which were purchased on or
about August 26, 1996. Dominium is opposing the Proposed Mergers because it does
not believe the Proposed Mergers are in the best interest of the BAC Holders. As
previously discussed, Dominium previously attempted to acquire the Funds through
a transaction comparable to the Proposed Mergers. It did not obtain financing,
it is not presently pursuing financing, nor does it have any present plans to
make a superior proposal. Although it is not presently pursuing financing or a
superior proposal, Dominium believes that there may be some opportunity to
effect a transaction with the Funds if there is a "level playing field" or to
assist the Funds in maximizing BAC Holder value if the Proposed Mergers are not
approved.
Messrs. Brierton and Safar, the principals of Dominium Management Services,
have been personally involved in the real estate business since 1970. Since its
inception, Dominium Management Services and its affiliates have developed in
excess of 6,000 rental housing units around the country. Since 1993, Dominium
Management Services has had approximately $95 million in project acquisitions.
Since 1986, it has developed over $70 million in new developments. The financing
for these properties has come from multiple sources such as the Department of
Housing and Urban Development ("HUD"), state agencies, tax-exempt bonds,
municipalities, the Farmers Home Administration, and other conventional and
unconventional loans. Dominium Management Services currently manages
approximately 14,000 units that have a gross annual revenue of approximately
$100,000,000. It has offices in Minnesota, Wisconsin, Florida, Georgia and
Illinois. During the past several years Dominium Management Services' efforts
have focused on acquiring under-performing properties.
David L. Brierton, Jack W. Safar, Paul R. Sween and Armand E. Brachman are
the sole partners of Dominium and participants in this proxy solicitation. None
of the participants individually own any BACs.
Mr. Brierton received a Master's of Science Degree from the University of
Wisconsin, Graduate School of Business in 1970, specializing in Real Estate and
Urban Land Economics. He was awarded a graduate study fellowship in Washington
D.C. by HUD. Mr. Brierton received his Bachelor of Business Administration
Degree from Wisconsin State University with majors in Accounting and Finance,
and a minor in Economics. He is the recipient of the Wall Street Journal's
annual DOW JONES award for "Outstanding Student Achievement in the School of
Business" at Wisconsin State University. He is currently a member of the Board
of Directors of the National Leased Housing Association of Washington D.C. and
is a past director of the Minnesota Multi Housing Association.
Mr. Safar received a Master's of Business Administration (MBA) Degree from
the University of Hawaii in 1969, along with a Bachelor's Degree in 1968 with
majors in Marketing and Finance. Additionally, Mr. Safar received a MBA Degree
from the University of Wisconsin, Graduate School of Business in 1970,
specializing in Real Estate Appraisal and Investment Analysis. Mr. Safar was
employed from 1970-72
22
<PAGE>
by Arthur Rubloff and Company of Chicago, Illinois, a fully diversified real
estate organization. While employed by Arthur Rubloff, Mr. Safar functioned as a
broker and counselor to various clients. He specialized in residential
consultation primarily in reference to properties which could utilize the then
numerous governmental housing programs.
As Chief Financial Officer of Dominium Management Services, Mr. Sween is
responsible for acquisition, financing and development. Mr. Sween is also
responsible for tax and financial planning, and commercial banking
relationships. Mr. Sween is a graduate of Pennsylvania State University and is a
Certified Public Accountant. Prior to joining Dominium Management Services in
1989, he was a principal in a development and property management firm that
syndicated existing apartment projects and completed low income tax credit and
historic rehabilitation projects. He was previously employed by the
international accounting firm of Ernst & Young in their tax department. Mr.
Sween has been active in the multi housing industry since 1981.
Mr. Brachman is Vice President of Operations of Dominium Management
Services. Mr. Brachman joined Dominium Management Services in 1979 after
receiving his Bachelor of Business Administration degree from the University of
Wisconsin with majors in Finance and Real Estate and Urban Land Economics. He
has had extensive experience in working with various federal, state and local
housing programs and in every aspect of the development process.
BACKGROUND TO THE PROPOSED MERGERS
The following chronology is based largely on the description provided in the
CRITEF Proxy Statement, specific citations to which are in parentheses. Dominium
has no independent knowledge of many of the assertions made therein and assumes
no responsibility for the accuracy or completeness of any such information
contained therein. The description of our attempts to acquire the Funds is, of
course, based on our own knowledge of the sequence of events.
In late 1994 and in January 1995, the General Partners received indications
of interest concerning possible acquisition of the Funds from Oxford Tax Exempt
Fund and from Tiger Real Estate Partners (p. 32).
According to the CRITEF Proxy Statement (p. 17), CAPREIT first proposed the
idea of acquiring the Funds on January 12, 1995 and the initial dialogue
involved Mr. Kadish on behalf of CAPREIT, and Messrs. Dockser and Willoughby on
behalf of the General Partners representing the Funds. CAPREIT and the Funds
entered into Confidentiality and Non-Circumvention Agreements on March 1, 1995,
and immediately thereafter representatives of CAPREIT began studying documents
and data regarding the Funds and considering potential acquisition structures
(p. 17). On March 22, 1995, representatives of CAPREIT, including Mr. Kadish,
and representatives of the General Partners, including Messrs. Dockser and
Willoughby, met to discuss a transaction structure (p.18).
In early April 1995, the parties continued with discussions described more
completely in the CRITEF Proxy Statement (p. 18) but, according to the CRITEF
Proxy Statement, the parties broke off negotiations for three months while the
parties negotiated the redemption of CRI's 22% residual limited partnership
interest in AP CAPREIT (p.19). On June 30, 1995, the parties reached agreement
on the redemption of CRI's interest in AP CAPREIT and CAPREIT delivered initial
drafts of the Merger Agreements (p. 19). The parties continued discussions in
July and August, with CAPREIT delivering a financing term sheet in late July
prepared by a financial institution which several months later declined to
proceed with the financing (p. 19).
According to the CRITEF Proxy Statement, CAPREIT offered the General
Partners an aggregate of $145 million for all the BACs on August 22, 1995 (p.
20). After additional negotiations, CAPREIT raised the price to $150 million and
the General Partners accepted (subject to the receipt of favorable fairness
opinions and approval by the BAC Holders) (p. 20). The parties entered into the
Merger Agreements on September 11, 1995 and made a public announcement of the
Proposed Mergers (p. 20). On that same date,
23
<PAGE>
the General Partners engaged Oppenheimer & Co., Inc. to render fairness opinions
in connection with the Proposed Mergers (p. 20).
The CRITEF Proxy Statement admits that in late October, Oppenheimer informed
the General Partners that, based on a preliminary analysis, they believed that
$150 million would not be likely to support a fairness opinion (p. 20).
Throughout the second half of 1995, CAPREIT negotiated with the financial
institution which had provided the term sheet delivered to the General Partners,
but reached an impasse in December 1995 (p. 21). On September 22, 1995 and
October 5, 1995, two putative class action lawsuits (collectively, the "BAC
Holder Litigation") were brought in Delaware state court on behalf of the BAC
Holders against Messrs. Dockser and Willoughby, CRI, the General Partners, the
assignor limited partner of each Fund and CAPREIT, alleging, among other things,
that the price offered to BAC Holders was too low and that the defendants
breached their fiduciary duty to the BAC Holders, or aided and abetted such a
breach, and engaged in self-dealing and misled BAC Holders in connection with
the Proposed Mergers (p. 20).
During January of 1996, representatives of the General Partners and CAPREIT
and their counsel tentatively agreed with counsel for the plaintiffs to settle
the BAC Holder Litigation (p. 20). The proposed settlement terms included (a) an
increase in the aggregate consideration for the Proposed Mergers from $150
million to $158.5 million (less plaintiffs' counsel fees), subject to an upward
adjustment in the event that Available Cash at closing exceeded $12.4 million
and a downward adjustment in the event that Available Cash was less than $12.4
million, with an aggregate adjustment amount in either case set at $1.5 million;
(b) Accrued Fees payable to CRI would be reduced from $4.023 million to no more
than $1.95 million (with no reduction in Accrued Fees payable to CRIIMI); and
(c) plaintiff's counsel could apply to the court for payment of their fees in an
amount not to exceed 20% of the improvements negotiated by them over the initial
Proposed Merger terms (p. 21). The aggregate consideration for the Proposed
Mergers was increased for the first time.
On January 31, 1996, the parties executed amendments to the Merger
Agreements to reflect these new terms (p. 21). Also at that time, the plaintiffs
and defendants in the BAC Holder Litigation executed a Memorandum of
Understanding regarding the proposed settlement (p. 21). The CRITEF Proxy
Statement says that shortly thereafter, the General Partners instructed
Oppenheimer to review the fairness of the Proposed Mergers based on the new
terms (p. 21).
According to the CRITEF Proxy Statement, in early March of 1996, CAPREIT and
the General Partners determined that because of a re-evaluation of certain
deferred maintenance costs and contingent liabilities with respect to certain of
the Properties, the aggregate consideration for the Proposed Mergers needed to
be increased by approximately $260,000 (p. 21). On March 14, 1996, the General
Partners and CAPREIT executed the First Amended and Restated Merger Agreements
to incorporate and restate the January 31, 1996 amendments, to provide for the
$260,000 increase and to provide for another increase of approximately $35,000
as a result of a new methodology in rounding the Redemption Price (p. 21). The
aggregate consideration for the Proposed Mergers was increased for the second
time.
During the next few months several events occurred according to the CRITEF
Proxy Statement (p. 21-23). On March 14, 1996, Oppenheimer delivered its initial
fairness opinions to the Funds opining that the transactions contemplated by the
Merger Agreements as revised were now fair to the BAC Holders in Oppenheimer's
view. CAPREIT, having pursued alternative financing sources, received a
commitment letter from CentRe Mortgage Capital, L.L.C. on March 29, 1996, six
months after entering into the Merger Agreement. On April 26, 1996, CAPREIT
forwarded a copy of this letter to the Funds. The parties to the BAC Holder
Litigation executed a Stipulation of Settlement dated May 16, 1996 and a court
hearing regarding this stipulation was set for June 19, 1996. Also, the Merger
Agreements were amended two more times to reflect modifications to the
adjustments for Available Cash and other miscellaneous changes.
24
<PAGE>
During February 1996, a group of investors led by David Brierton and Jack
Safar, of Dominium Management Services and Terry McNellis and Gary Petrucci, of
Piper Jaffray Inc., approached the General Partners concerning the possible
acquisition of the Funds. These investors eventually formed Dominium Tax Exempt
Fund L.L.P., the sponsor of this Proxy Statement. Prior to providing information
regarding the Funds, the General Partners advised the Dominium representatives
that they would be required to sign Confidentiality and Non-Circumvention
Agreements substantially in the form signed by CAPREIT. On March 20, 1996,
following receipt of signed confidentiality agreements from certain of the
Dominium representatives, the Funds provided Dominium with due diligence
materials. The Funds received executed confidentiality agreements from all four
of the Dominium representatives by April 15, 1996.
In April, May and June of 1996, Dominium reviewed the information which had
been provided by your General Partners and was in discussions with GMAC
Commercial Mortgage Corporation ("GMAC") and Piper Jaffray Inc. ("Piper")
concerning the possibility of providing financing for its acquisition of the
Funds. In mid June 1996, Mr. McNellis advised his partners that he had received
a proposal from GMAC to provide financing, through an affiliate, Commercial
Capital Initiatives, Inc. ("CCII"), for a possible acquisition of the Funds.
After further negotiations with CCII and Piper, on June 28, 1996, Dominium
received letters from CCII and Piper confirming their interest in providing such
financing, subject to certain conditions. As a result of these letters, Dominium
believed that it was likely that it would be able to obtain at least $184
million in financing (including the $12.4 million of Available Cash in the
Funds) and Dominium sent a letter to counsel for the Funds and counsel to the
plaintiffs in the BAC Holder Litigation on June 28, 1996 indicating an interest
in entering into merger agreements with the Funds having similar terms as the
Merger Agreements and offering the BAC Holders an aggregate merger consideration
of approximately $168,230,000. This consideration was subject to increases if
Available Cash exceeded $12.4 million (without any cap on the maximum
adjustments) or if it was ultimately determined that CAPREIT was not entitled to
all or part of the termination fees or expense reimbursement provided in the
Merger Agreements. The $168 million figure was based on information then
available to Dominium, including its estimate of likely expenses associated with
the transaction (which included payment of $8.5 million in expenses and
termination fees to CAPREIT). At the time of its June 28 letter, Dominium was
not aware that your General Partners had agreed to reimburse CAPREIT for an
additional $1 million of expenses.
During July 1996, representatives of Dominium visited the principal offices
of the Funds to conduct due diligence. Representatives of Dominium, its
potential lenders, and its engineering and environmental consultants also
visited the Properties. By letter dated July 12, 1996, Dominium informed the
Funds and counsel for the plaintiffs in the BAC Holder Litigation, that Dominium
had received revised financing commitments, subject to its potential lenders'
satisfactory completion of their due diligence during the 21 business days from
July 15, 1996 and the payment by Dominium of an expense deposit of $75,000, a
processing fee of $100,000 on July 23, 1996, and certain commitment fees of
which $500,000 were due at the end of the 21 business day due diligence period
unless CCII declined to provide the financing at any time during the due
diligence period. Under Dominium's proposal, the net amount payable to BAC
Holders would be at least $165,305,000, after taking into account additional
fees and expenses which were not included in its initial proposal (including $1
million of additional expense reimbursement to CAPREIT).
By letter dated July 18, 1996, the General Partners requested that Dominium
supply them with evidence that it had the financial capability to cover the
costs of the transaction it proposed and to provide the equity that its
potential lenders would require. The July 18 letters also requested that
Dominium's counsel submit their suggested revisions to the existing Merger
Agreements with CAPREIT to reflect the terms desired by Dominium. Comments were
sent to the General Partners for Saturday delivery on July 26, 1996. On July 22,
1996, Dominium advised plaintiffs' counsel that it had paid the $75,000 fee
required by the CCII commitment letter and responded to certain questions of
plaintiffs' counsel in the BAC Holder Litigation including clarification that
any net savings resulting from a reduction of the break-up fees and reimbursable
expenses would be paid to the BAC Holders.
25
<PAGE>
On Monday, July 29, 1996, representatives of Dominium advised plaintiffs'
counsel in the BAC Holder Litigation that, based on discussions with CCII and
Piper, they believed that Dominium would have firm committed financing by August
5, 1996. On Thursday, August 1, 1996, CCII indicated that while it was satisfied
with the real property due diligence it would need additional time to complete
its legal due diligence notwithstanding the 21 business day review period
contemplated by its July 12 letter.
In late July, an acquaintance of Jack Safar's, Michael Fried, contacted Mr.
Safar on behalf of the parties to the Proposed Mergers. Mr. Fried suggested a
meeting in New York between Dominium and CAPREIT. On August 2, 1996,
representatives of CAPREIT and representatives of Dominium met in New York City.
CAPREIT's representatives stated that Dominium would not succeed in its
proposal, that CAPREIT would outbid any proposal Dominium might make and offered
Dominium $3 million to terminate its efforts to acquire the Funds. In view of
this, as well as recent developments with respect to its financing which made it
impossible for Dominium to deliver firm commitments on August 5, 1996, over the
next week Dominium considered its alternatives. Subsequent telephone
conversations occurred. Dominium indicated to Mr. Fried that it was willing to
accept $3.5 million and CAPREIT suggested that the payments be structured as
management agreements. As a result of these discussions, as well as its
conclusion that it would not be able to complete its financing within the
timeframe it had originally thought possible, Dominium determined that it would
not attempt to delay further settlement of the BAC Holder Litigation. Later that
week, CAPREIT suggested that direct payments would be preferable to management
agreements. Still later that week, CAPREIT advised Dominium that it had
determined not to proceed with its proposed payments.
On Monday, August 12, 1996, Dominium sent a letter to CRI advising that, in
its view, the existing CAPREIT proposals substantially undervalued the
Properties. Dominium also stated in this letter that it had not received firm
financing and that it believed there were significant structural impediments to
proceeding further with an alternative to the Proposed Mergers because of the
General Partners' conflicts of interest.
According to the CRITEF Proxy Statements, on August 13, 1996, plaintiffs'
counsel and CAPREIT agreed to an aggregate increase of $2 million in the
consideration payable to BAC Holders (a portion of which is payable directly to
plaintiffs' counsel in the BAC Holder Litigation) in exchange for the agreement
of plaintiffs' counsel to go forward with the settlement hearing (p. 25). This
was the third increase in the Redemption Price. In addition, according to the
CRITEF Proxy Statement, based on the Properties' performance since May 18, 1996
the General Partners negotiated for and CAPREIT agreed to a fourth increase in
the aggregate consideration of an additional $1.5 million, approximately, in
consideration of the extension of the termination date for the Proposed Mergers
until December 31, 1996 and an increase in the maximum amount of possible
reimbursement to the Merger Partnerships for expenses in the event of
termination (p. 26). Your General Partners have not disclosed what the effect of
this extension will be on the Available Cash.
Notwithstanding these most recent increases in the Redemption Price, as
discussed previously, we continue to believe that the Redemption Price is
inadequate and that there are other alternatives to the Proposed Mergers which
should be considered by your General Partners.
ADDITIONAL INFORMATION
CONCERNING THE TRANSACTION PROPOSALS
Reference is hereby made to the CRITEF Proxy Statement which you should have
received recently. The CRITEF Proxy Statement contains additional information
concerning the BACs, the beneficial ownership of BACs by the principal holders
thereof, the Funds' management, the absence of rights of appraisal or similar
rights of dissenting BAC Holders, recent trading prices for the BACs, conditions
to consummation of the Proposed Mergers, termination provisions for the Proposed
Mergers, and certain other matters regarding the BACs, the Transaction Proposals
and the Meetings. Much of the factual
26
<PAGE>
information contained in this Proxy Statement has been obtained from the
disclosures set forth in the CRITEF Proxy Statement.
BAC Holders are urged to read carefully the CRITEF Proxy Statement.
Dominium assumes no responsibility for the accuracy or completeness of any
information included in the CRITEF Proxy Statement or which has been included
herein based on the CRITEF Proxy Statement.
LITIGATION
On September 27, 1996, Dominium filed a complaint in the United States
District Court for the District of Minnesota against Messrs. Dockser,
Willoughby, CRI, the General Partners and the Funds alleging that the defendants
had violated federal securities laws by (a) falsely characterizing the Proposed
Mergers as arm's length transactions and failing to make material disclosures
regarding significant conflicts of interest and inducements to proceed with the
Proposed Mergers, (b) falsely understating or omitting the true value of the
BACs and their underlying properties, thus understating the fair value the BAC
Holders should receive for their interests, (c) misrepresenting that they relied
on the fairness opinions, since the fairness opinions were obtained
after-the-fact and disregarded important aspects of the Proposed Mergers, (d)
failing to disclose the obstacles which prevent competing bids to the Proposed
Mergers, and (e) falsely stating that the Proposed Mergers are fair to and in
the best interests of the BAC Holders. In connection with its complaint,
Dominium has brought a motion for expedited discovery and is seeking corrective
disclosure and rescheduling of the meeting, if necessary. CRI has in response
brought a motion to disqualify Dominium's special counsel, Faegre & Benson LLP,
for alleged conflicts of interest and alleged use of confidential information
and brought an action in Delaware Chancery Court to enjoin Dominium from
allegedly violating the final order in the BAC Holder Litigation.
On October 3, 1996, the Funds, the General Partners and CRI filed a
complaint in the United States District Court, Southern District of New York,
against Dominium, and Messrs. Safar, Brierton, Sween and Brachman alleging that
Dominium's letter to BAC Holders dated September 27, 1996 and its press release
dated October 1, 1996 violated federal securities laws and that the defendants
tortiously interfered with economic advantage. Motions in these cases are
pending.
VOTE REQUIRED AND VOTING PROCEDURES
Pursuant to the Delaware Revised Uniform Limited Partnership Act (the
"Partnership Act") and the Agreement of Limited Partnership for Fund I-II,
approval of the Transaction Proposals relating to Fund I-II requires the
affirmative vote of a majority in interest of holders of the outstanding Fund
I-II, Series I and II BACs voting as a single class. Pursuant to the Partnership
Act and the Agreement of Limited Partnership for Fund III, approval of the
Transaction Proposals relating to Fund III requires the affirmative vote of a
majority in interest of holders of the outstanding Fund III, Series III BACs.
The approval and adoption, by the BAC Holders of each Fund, of each
Transaction Proposal to be voted upon by them is conditioned upon the approval
and adoption by such BAC Holders of the other Transaction Proposal to be voted
upon by them. If BAC Holders of one Fund approve each of the Transaction
Proposals to be voted upon by them, but the BAC Holders of the other Fund do not
approve each of the Transaction Proposals to be voted upon by them, then CAPREIT
and its affiliates may elect, in their sole discretion, whether to consummate
the Proposed Merger and related transaction with the Fund whose BAC Holders have
approved the Transaction Proposals and not with the other Fund.
Each BAC Holder is entitled to one vote for each BAC held of record by such
BAC Holder at the close of business on September 19, 1996 (the "Record Date"),
with respect to each of the proposals described in this Proxy Statement to be
voted upon by such BAC Holder.
Enclosed with this proxy statement is a blue proxy card. Each BAC Holder,
whether voting in person or by proxy, may either vote "for," "against" or
"abstain" as to each of the proposals set forth therein. The
27
<PAGE>
failure to return a signed proxy card or returning one with an "abstain" vote
has the effect of, and is equivalent to, a vote against each proposal. In
addition, broker non-votes (i.e., BACs not voted on a specific proposal by
record holders due to the absence of specific voting instructions from the
beneficial owner of the BACs) have the effect of, and are equivalent to, votes
against the proposals.
The Funds have three series of BACs outstanding. Fund I-II issued BACs in
Series I and Series II. Fund III issued one series of BACs, Series III. If a BAC
Holder has BACs in more than one Fund, separate proxy cards should be completed
for each Fund.
You may revoke any proxy you submit (whether a proxy solicited by the
General Partners or the blue proxy card which we are soliciting) at any time
prior to its exercise by (i) attending the appropriate Meeting and voting your
BACs in person, (ii) submitting a duly executed later dated proxy, or (iii)
submitting a written notice of revocation. Unless revoked in the manner set
forth above, duly executed proxies in the form enclosed will be voted in
accordance with your instructions as indicated on the blue proxy card. In the
absence of such instructions, such proxies will be voted AGAINST the Transaction
Proposals.
Except as provided above, we are not aware of any other matters to be
considered at the Meetings. However, if any other matters are properly brought
before either of the Meetings, such proxies will be voted on such matters as
Dominium, in its sole discretion, may determine, including, without limitation,
with respect to any adjournments or postponements of the appropriate Meeting
from time to time.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETINGS AND NO MATTER HOW FEW BACS
YOU MAY OWN, WE URGE YOU TO SUPPORT US IN OUR ATTEMPT TO DEFEAT THE PROPOSED
MERGERS. PLEASE SIGN, DATE AND MAIL THE FULLY COMPLETED BLUE PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. PLEASE VOTE AGAINST EACH PROPOSAL.
You may do this even if you have already sent in a different proxy solicited
by the General Partners. It is the latest dated proxy that counts. Execution and
delivery of a proxy by a record holder of BACs of either of the Funds will be
presumed to be a proxy with respect to all BACs of that Fund held by such record
holder unless the proxy specifies otherwise.
SOLICITATION EXPENSES
The expense of preparing, printing and mailing these proxy materials and the
costs of the solicitation will be paid by Dominium. Proxies are being solicited
principally by mail, but proxies may also be solicited personally, by telephone,
telegraph and similar means by Dominium and its affiliates. In addition,
Dominium has retained Georgeson & Company Inc. to assist in the solicitation of
the proxies for an estimated fee of $25,000 plus out-of-pocket expenses.
Dominium will also reimburse brokerage firms and others for their expenses in
forwarding proxy solicitation material to the beneficial owners of the BACs.
28
<PAGE>
[LETTERHEAD]
April 10, 1996
Mr. Paul Sween
Dominium, Inc.
3140 Harbor Lane
Suite 102
Minneapolis, MN 55447-5120
RE: CAPITALIZATION RATE AND FINANCING ANALYSIS FOR CRITEF APARTMENT PROPERTY
IN MINNEAPOLIS/ST. PAUL, WEST DES MOINES, KANSAS CITY, KEY WEST, SAN
FRANCISO, AND SEATTLE/TACOMA
OUR FILE NO.: 960109
Dear Mr. Sween:
At your request, we have analyzed income and expense summaries, real estate
tax summaries, and property information concerning apartment properties
located in the above-referenced cities. As part of your analysis, you have
asked us to provide you with research and professional opinion concerning
appropriate capitalization rates for these types of properties, both on a
free and clear basis assuming an all cash sale or financing with
taxable market rate debt, and also capitalization rates assuming availability
of tax exempt financing.
We are familiar with the projects in the Twin Cities area and have selected
appropriate capitalization rates for those properties. In addition, we have
contacted appraisers and brokers familiar with each of the other markets to
ascertain the free and clear capitalization rates for each of those projects
in their respective locales. Attached to this letter is a table indicating
the name of each project, the "market rate" capitalization rate, and the "tax
exempt rate" capitalization rate. Depending on the specific interest rates
available at a given time, we believe that the differential in capitalization
rates between taxable and or all cash transactions and transactions based on
the availability of tax exempt rates ranges from 35 basis points to as high as
140 basis points. We believe that a market supported, conservative
differential to utilize for adjusting market rate capitalization rates to tax
exempt capitalization rates is 50 basis points. Therefore, the attached table
indicates that overall rates for each project would be estimated at 50 basis
points lower than the rate indicated by our office and the experts in each
respective market.
It had been a pleasure working with you on this assignment. If you have any
questions concerning this analysis, please feel free to call at your
convenience.
Sincerely,
MARDELL AMUNDSON JOHNSON & LEIRNESS, INC.
/s/ Michael F. Amundson
Michael F. Amundson, MAI
Principal
/pjp
<PAGE>
FREE & CLEAR TAX-EXEMPT
PROJECT O.A.R. O.A.R.
- ------- ------------ ----------
Royal Oaks 8.60% 8.10%
Trailway Pond I 8.75% 8.25%
Trailway Pond II 8.75% 8.25%
Valley Creek I 8.75% 8.25%
Valley Creek II 8.75% 8.25%
White Bear Woods 8.75% 8.25%
Fountain Place 8.50% 8.00%
Woodlane Place 8.75% 8.25%
Geary Courtyard 8.00% 7.50%
Ocean Walk 9.00% 8.50%
Regency Woods 8.00% 7.50%
Ethans I 8.50% 8.00%
Ethans II 8.50% 8.00%
James Street Crossing 9.00% 8.50%
<PAGE>
Appendix B
[LETTERHEAD]
Valuation & Consultation
September 20, 1996
Mr. Paul Marzynski
Dominium Group
2915 Niagara Lane
Minneapolis, MN 55447
RE: STATE OF THE TWIN CITIES APARTMENT MARKET AND APARTMENT VALUES
Dear Mr. Marzynski:
At your request, we have researched the recent history of the Twin Cities
apartment market, for the purpose of analyzing the trends over the past three
to four years in various apartment sectors in the Twin Cities, including
Class A apartments. Generally, the apartment market has improved steadily
since 1989, and has shown dramatic increase in rents since 1992.
Capitalization rates have also shown a downward trend during that time due to
a general improvement in the real estate market overall during that time
frame and an improvement in the fundamentals of the apartment market in the
Twin Cities area.
As indicated in the graph below, apartment vacancy in the Twin Cities peaked
in 1989 following a surge in building between 1985 and 1988. At that time,
apartment vacancy in the Twin Cities was just over 7%, and rent levels had
been flat to slowly increasing. The growth of the Twin Cities area, coupled
with a slowdown in new construction, lead to declining vacancy rates
beginning in 1990. In 1992, overall vacancy was approximately 4.5%. Suburban
vacancy was much lower, since most of the chronic vacancy is in the central
cities of Minneapolis and St. Paul.
APT. VACANCY TRENDS IN TWIN CITIES
13-YEAR HISTORY OF VACANCY FOR 1 AND 2 BR UNITS
[GRAPH]
Graph illustrating vacancy rates for one bedroom and two bedroom
apartments in the Twin Cities from 1984 through 1996.
The graph shows that vacancies for one and two bedroom apartments were
below 2.0% in 1984 and 1985, rose sharply in 1986 to just below 6.0%, with
more gradual increases in 1987, 1988 and 1989 to just over 7.0%, declining in
1990 to approximately 6.0% and more gradual decreases thereafter to vacancy
rates in the 2-3% range in 1996.
Source: The Apartment Guide.
<PAGE>
Mr. Paul Marzynski
September 20, 1996
Page Two
The low levels of vacancy gave owners the confidence to substantially raise
rental rates beginning in 1992. As shown on the graph below, rental rates
have steadily increased since 1992, with a surge in 1995. At the same time,
vacancy has continued to decline, which supports further rental increases in
the future. The combination of low vacancy and steadily increasing rents has
lead to improvement in apartment building values, especially in the Class A
sector. Class A apartments are generally characterized as post-1985
construction apartments with underground or attached parking and a full
amenities package at the project.
Given the recent trends in the apartment market, we expect additional rental
increases to be implemented until vacancy again reaches 4% to 5%. Given the
very modest amount of proposed construction, however, we expect vacancy rates
to remain modest even as rents increase.
APARTMENT RENT TRENDS IN TWIN CITIES
13-Year History of Average Rents by Unit Type
[GRAPH]
Graph illustrating 13-year history of average rents from 1984 through
1996 for studios, one bedroom, two bedroom and three bedroom apartments in
the Twin Cities. The graph for studios shows an average rent of approximately
$300 in 1984 increasing gradually to just under $400 in 1996. The graph for
one bedroom apartments shows an average rent of below $400 in 1984 increasing
gradually to approximately $500 in 1996. The graph for two bedroom apartments
shows an average rent in the low $400's in 1984, increasing at a steady but
somewhat sharper rate to approximately $600 in 1996. The graph for three
bedroom apartments shows an average rent of approximately $550 in 1984,
increasing gradually throught 1989 to just above $600, a spike in rents in
1990 to approximately $700 and steady increases from 1990 to 1996, with
average rents in the low $800's in 1996.
Source: Apartment Guide.
Finally, we have also analyzed the local apartment investment market for the
purpose of observing changes in capitalization rates paid for apartment
properties, and the corresponding values. Capitalization rates have generally
been declining in the Twin Cities for all apartment types, including Class A
apartments. Capitalization rates for apartments in the early 1990's were over
9%, even for Class A properties, due to the lack of available capital for
real estate investment and a general reluctance on the part of investors to
invest in any type of real estate during the national recession. The
emergence of new sources of capital such as REITs and the availability of
debt capital for apartment investment has restored liquidity to the
marketplace, which has resulted in declining capitalization rates in the
mid-1990's. Recent Class A transactions indicate capitalization rates of
between 8% and 9% in the Twin Cities area, on a "free and clear" basis. The
availability of tax-exempt bond financing would tend to decrease
capitalization rates further, by at least 50 basis points.
<PAGE>
Mr. Paul Marzynski
September 20, 1996
Page Three
The combination of declining vacancy, increasing rents and declining
capitalization rates has resulted in value increases of 15% - 20% for Class A
apartment properties over the past 3-4 years. Apartment complexes that would
have sold in the low- to mid-$40,000 per unit range in 1992-93, would now
command $50,000 per unit, or more.
In general, the Twin Cities apartment market is very healthy, with steadily
increasing rents and very low vacancies, especially in the suburban sector.
The difficulty of developing competitive new projects, coupled with the lack
of available land, indicates that apartment conditions will continue to
improve and apartment values will steadily increase.
If you have any questions concerning this analysis, please feel free to
contact me.
Sincerely,
MARDELL AMUNDSON JOHNSON & LEIRNESS, INC.
/s/ Michael F. Amundson
Michael F. Amundson, MAI
Principal
/pjp
<PAGE>
Appendix C
[LETTERHEAD]
September 26, 1996
Mr. Paul Marzinski
Dominium Group
2915 Niagara Lane
Minneapolis, MN 55447
RE: PRELIMINARY DESK REVIEW OF OPPENHEIMER FAIRNESS OPINION
ON THE CRITEF FUNDS
Dear Mr. Marzinski:
At your request we have reviewed the Oppenheimer Fairness Opinion for the
purpose of commenting on the strengths and weaknesses of the analysis. The
Fairness Opinion purports to derive values for apartments in the three CRITEF
Funds, including seven properties in the Twin Cities Metropolitan Area.
The standard format of the Fairness Opinion is to document trailing four-year
income and expense history and a year-to-date summary of operations through
June 30, 1996. Income and expenses are then projected for a five year period
for the purpose of performing discounted cash flow analysis. The authors of
the Fairness Opinion derived value by capitalizing both 1995 cash flow and
adjusted 1996 cash flow at overall capitalization rates ranging from 9.25% to
10.25%. In addition, values are derived via a discounted cash flow
methodology using a matrix combining terminal capitalization rates of 10.25%
to 11.25% and discount rates of 11% to 12%.
The primary flaw with this analysis is that the values reported can not be
reported as market values and in fact do not bear any resemblance to current
market values for the properties. Our research has revealed capitalization
rates for properties in the Twin Cities area of 8.4% to 9.1%, with most of
the Twin Cities properties warranting an 8.75% direct capitalization rate on
a "free and clear" basis, without tax-exempt bond financing. Terminal
capitalization rates would be expected to be just 25 basis points higher than
going-in rates. However, we concur with the discount rates utilized in the
matrix, and believe that 11.5% is an appropriate rate for most Twin Cities
properties.
<PAGE>
Mr. Paul Marzinski
September 26, 1996
Page 2
In addition, the value of the properties can be readily derived from
comparable sales analysis in the Twin Cities market. Recent comparable sales
indicate a range of value on a per unit basis of between $48,000 and $61,000
per dwelling unit, with most activity for average Class A apartment
properties at approximately $50,000 per dwelling unit. A brief review of the
per unit value conclusions in the Fairness Opinion reveals significant
shortfalls in comparison to current market activity in the Twin Cities area.
Therefore, the values reported in the Fairness Opinion bear no resemblance to
actual current market values for the properties in the Twin Cities area.
In conclusion, we believe that the Fairness Opinion, while a very
comprehensive and detailed analysis, does not represent Market Value
Analysis, and derives value conclusions on most properties that are
significantly below the actual current market values for the properties.
Please feel free to call if you have any questions concerning this analysis.
MARDELL AMUNDSON JOHNSON & LEIRNESS, INC.
Sincerely,
/s/ Michael F. Amundson
Michael F. Amundson, MAI
/esw-b
<PAGE>
CAPITAL REALTY INVESTORS TAX EXEMPT FUND
LIMITED PARTNERSHIP, SERIES I
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF DOMINIUM TAX EXEMPT FUND L.L.P.
The undersigned hereby appoints Jack W. Safar and David L. Brierton,
each with the power to act alone and with full power of substitution and
revocation, to represent and vote, as specified on the other side of this
Proxy, all Beneficial Assignee Certificates ("BACs") of Capital Realty
Investors Tax Exempt Fund Limited Partnership, Series I, which the
undersigned is entitled to vote at the Meeting of BAC Holders to be held at
9:00 A.M., local time, on October 29, 1996, at the Doubletree Hotel, 1750
Rockville Pike, Rockville, Maryland 20852 and all adjournments and
postponements thereof. The undersigned revokes any previous proxies with
respect to the matters covered by this Proxy.
THE BACS REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON THE
OTHER SIDE. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED AGAINST
PROPOSALS 1, 2 AND 3. THE PROXIES ARE AUTHORIZED, IN THEIR DISCRETION, TO
VOTE SUCH BACS UPON ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE PROXY STATEMENT OF
DOMINIUM TAX EXEMPT FUND L.L.P.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE.)
SERIES I
<PAGE>
DOMINIUM RECOMMENDS A VOTE AGAINST PROPOSALS 1, 2 & 3
The approval of Proposal 1 is conditioned upon the approval of Proposal 2
and the approval of Proposal 2 is conditioned upon the approval of Proposal 1.
PLEASE MARK
/X/ YOUR VOTE AS
THIS
AGAINST ABSTAIN FOR
Proposal 1. Approval of the Merger Proposal. Approve
and adopt the Fourth Amended and Restated Agreement
and Plan of Merger, dated as of August 21, 1996 (the
"Merger Agreement"), among Capital Realty Investors / / / / / /
Tax Exempt Fund Limited Partnership, CRITEF
Associates Limited Partnership, Watermark Partners,
L.P. and others, and any amendments to the Agreement
of Limited Partnership of the Fund necessary to
expressly authorize the foregoing.
Proposal 2. Approval of the New Partner Proposal.
Approve (a) the sale by the current general partner
of Fund I-II of the general partner interest in Fund
I-II to a newly-formed, wholly-owned subsidiary of
Capital Apartment Properties, Inc. ("CAPREIT"), and / / / / / /
(b) the issuance as a limited partner interest in
Fund I-II to CAPREIT or its designee in exchange for
a contribution to the Fund of real property or other
assets, and in each case, any amendments to the
Agreement of Limited Partnership of the Fund
necessary to expressly authorize the foregoing.
Proposal 3. Approval of the Adjournment of the
Meeting to solicit additional votes. Approve the / / / / / /
adjournment of the Meeting to solicit additional
votes.
DOMINIUM RECOMMENDS THAT YOU SIGN, DATE AND MAIL THIS PROXY TODAY.
PLEASE SIGN HERE (EXACTLY AS NAME(S)
APPEAR(S) AT LEFT)
Date:
---------------------------------------
---------------------------------------
---------------------------------------
/ / Change of address? Check this box
and insert new address below.
Note: Please sign as name appears herein. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardians, please
give full title as such. If a corporation, please sign in full corporate name
by authorized officer. If a partnership, please sign in partnership name by
authorized person. If the BAC Holders in a Fund approve both the Proposed
Merger and the New Partner Proposal to be voted upon by them, but the BAC
Holders in the other Fund do not approve the similar proposals to be voted
upon by them, CAPREIT, in its sole discretion, may elect to consummate the
Merger with the Fund whose BAC Holders have approved the proposals.
SERIES I
<PAGE>
CAPITAL REALTY INVESTORS TAX EXEMPT FUND
LIMITED PARTNERSHIP, SERIES II
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF DOMINIUM TAX EXEMPT FUND L.L.P.
The undersigned hereby appoints Jack W. Safar and David L. Brierton,
each with the power to act alone and with full power of substitution and
revocation, to represent and vote, as specified on the other side of this
Proxy, all Beneficial Assignee Certificates ("BACs") of Capital Realty
Investors Tax Exempt Fund Limited Partnership, Series II, which the
undersigned is entitled to vote at the Meeting of BAC Holders to be held at
9:00 A.M., local time, on October 29, 1996, at the Doubletree Hotel, 1750
Rockville Pike, Rockville, Maryland 20852 and all adjournments and
postponements thereof. The undersigned revokes any previous proxies with
respect to the matters covered by this Proxy.
THE BACS REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON THE
OTHER SIDE. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED AGAINST
PROPOSALS 1, 2 AND 3. THE PROXIES ARE AUTHORIZED, IN THEIR DISCRETION, TO
VOTE SUCH BACS UPON ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE PROXY STATEMENT OF
DOMINIUM TAX EXEMPT FUND L.L.P.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE.)
SERIES II
<PAGE>
DOMINIUM RECOMMENDS A VOTE AGAINST PROPOSALS 1, 2 & 3
The approval of Proposal 1 is conditioned upon the approval of Proposal 2
and the approval of Proposal 2 is conditioned upon the approval of Proposal 1.
PLEASE MARK
/X/ YOUR VOTE AS
THIS
AGAINST ABSTAIN FOR
Proposal 1. Approval of the Merger Proposal. Approve
and adopt the Fourth Amended and Restated Agreement
and Plan of Merger, dated as of August 21, 1996 (the
"Merger Agreement"), among Capital Realty Investors / / / / / /
Tax Exempt Fund Limited Partnership, CRITEF
Associates Limited Partnership, Watermark Partners,
L.P. and others, and any amendments to the Agreement
of Limited Partnership of the Fund necessary to
expressly authorize the foregoing.
Proposal 2. Approval of the New Partner Proposal.
Approve (a) the sale by the current general partner
of Fund I-II of the general partner interest in Fund
I-II to a newly-formed, wholly-owned subsidiary of
Capital Apartment Properties, Inc. ("CAPREIT"), and / / / / / /
(b) the issuance as a limited partner interest in
Fund I-II to CAPREIT or its designee in exchange for
a contribution to the Fund of real property or other
assets, and in each case, any amendments to the
Agreement of Limited Partnership of the Fund
necessary to expressly authorize the foregoing.
Proposal 3. Approval of the Adjournment of the
Meeting to solicit additional votes. Approve the / / / / / /
adjournment of the Meeting to solicit additional
votes.
DOMINIUM RECOMMENDS THAT YOU SIGN, DATE AND MAIL THIS PROXY TODAY.
PLEASE SIGN HERE (EXACTLY AS NAME(S)
APPEAR(S) AT LEFT)
Date:
---------------------------------------
---------------------------------------
---------------------------------------
/ / Change of address? Check this box
and insert new address below.
Note: Please sign as name appears herein. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardians, please
give full title as such. If a corporation, please sign in full corporate name
by authorized officer. If a partnership, please sign in partnership name by
authorized person. If the BAC Holders in a Fund approve both the Proposed
Merger and the New Partner Proposal to be voted upon by them, but the BAC
Holders in the other Fund do not approve the similar proposals to be voted
upon by them, CAPREIT, in its sole discretion, may elect to consummate the
Merger with the Fund whose BAC Holders have approved the proposals.
SERIES II
<PAGE>
CAPITAL REALTY INVESTORS TAX EXEMPT FUND III
LIMITED PARTNERSHIP
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF DOMINIUM TAX EXEMPT FUND L.L.P.
The undersigned hereby appoints Jack W. Safar and David L. Brierton,
each with the power to act alone and with full power of substitution and
revocation, to represent and vote, as specified on the other side of this
Proxy, all Beneficial Assignee Certificates ("BACs") of Capital Realty
Investors Tax Exempt Fund III Limited Partnership, which the undersigned is
entitled to vote at the Meeting of BAC Holders to be held at 10:00 A.M., local
time, on October 29, 1996, at the Doubletree Hotel, 1750 Rockville Pike,
Rockville, Maryland 20852 and all adjournments and postponements thereof. The
undersigned revokes any previous proxies with respect to the matters covered
by this Proxy.
THE BACS REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON THE
OTHER SIDE. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED AGAINST
PROPOSALS 1, 2 AND 3. THE PROXIES ARE AUTHORIZED, IN THEIR DISCRETION, TO
VOTE SUCH BACS UPON ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE PROXY STATEMENT OF
DOMINIUM TAX EXEMPT FUND L.L.P.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE.)
SERIES III
<PAGE>
DOMINIUM RECOMMENDS A VOTE AGAINST PROPOSALS 1, 2 & 3
The approval of Proposal 1 is conditioned upon the approval of Proposal 2
and the approval of Proposal 2 is conditioned upon the approval of Proposal 1.
PLEASE MARK
/X/ YOUR VOTE AS
THIS
AGAINST ABSTAIN FOR
Proposal 1. Approval of the Merger Proposal. Approve
and adopt the Fourth Amended and Restated Agreement
and Plan of Merger, dated as of August 21, 1996 (the
"Merger Agreement"), among Capital Realty Investors / / / / / /
Tax Exempt Fund III Limited Partnership, CRITEF
Associates III Limited Partnership, Watermark III
Partners, L.P. and others, and any amendments to the
Agreement of Limited Partnership of the Fund
necessary to expressly authorize the foregoing.
Proposal 2. Approval of the New Partner Proposal.
Approve (a) the sale by the current general partner
of Fund III of the general partner interest in Fund
III to a newly-formed, wholly-owned subsidiary of
Capital Apartment Properties, Inc. ("CAPREIT"), and / / / / / /
(b) the issuance as a limited partner interest in
Fund III to CAPREIT or its designee in exchange for
a contribution to the Fund of real property or other
assets, and in each case, any amendments to the
Agreement of Limited Partnership of the Fund
necessary to expressly authorize the foregoing.
Proposal 3. Approval of the Adjournment of the
Meeting to solicit additional votes. Approve the / / / / / /
adjournment of the Meeting to solicit additional
votes.
DOMINIUM RECOMMENDS THAT YOU SIGN, DATE AND MAIL THIS PROXY TODAY.
PLEASE SIGN HERE (EXACTLY AS NAME(S)
APPEAR(S) AT LEFT)
Date:
--------------------------------------
--------------------------------------
--------------------------------------
/ / Change of address? Check this box
and insert new address below.
Note: Please sign as name appears herein. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardians, please
give full title as such. If a corporation, please sign in full corporate name
by authorized officer. If a partnership, please sign in partnership name by
authorized person. If the BAC Holders in a Fund approve both the Proposed
Merger and the New Partner Proposal to be voted upon by them, but the BAC
Holders in the other Fund do not approve the similar proposals to be voted
upon by them, CAPREIT, in its sole discretion, may elect to consummate the
Merger with the Fund whose BAC Holders have approved the proposals.
SERIES III
