<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:
/x/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / 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
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(Name of Registrant as Specified in its Charter)
Dominium Tax Exempt Fund L.L.P.
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(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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<PAGE>
DOMINIUM TAX EXEMPT FUND L.L.P.
2915 Niagara Lane
Plymouth, Minnesota 55447
____________, 1996
Dear BAC Holder:
You have recently received certain materials (collectively, the "CRITEF
Proxy Statement") from 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")
regarding meetings (the "Meetings") of the holders ("BAC Holders") of Beneficial
Assignee Certificates ("BACs") issued by the Funds to be held at the Doubletree
Hotel, 1750 Rockville Pike, Rockville, Maryland 20852 on October 29, 1996 at 9
a.m. local time for Fund I-II and 10:00 a.m local time for Fund III. The
purpose of the Meetings is to allow BAC Holders to vote on a series of proposals
relating to the mergers (the "Proposed Mergers") of affiliates of Capital
Apartment Properties, Inc. into the Funds and certain related transactions.
The Proposed Mergers and related transactions, which are described more
fully in the enclosed materials and in the CRITEF Proxy Statement, are supported
by the general partners of the Funds (the "General Partners").
The enclosed materials (collectively, the "Dominium Proxy Statement") have
been prepared by Dominium Tax Exempt Fund L.L.P. ("Dominium"). Dominium is a
BAC Holder and has been involved for the past several months in attempting to
enter into alternative transactions to the Proposed Mergers with the General
Partners.
We oppose the Proposed Mergers and we hereby ask for your vote to oppose
them as well. We believe that the Proposed Mergers and the related proposals
are unfair to and not in the best interests of the BAC Holders. We believe that
the Funds are worth substantially more than the BAC Holders would receive if the
Proposed Mergers are approved.
We request your vote in opposition to the Proposed Mergers and the
related transactions for five primary reasons which are detailed in the
Dominium Proxy Materials: (1) the General Partners have significant
conflicts of interest and inducements to proceed with the Proposed Mergers;
(2) 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 take advantage of any upside potential for the
Funds or to continue to receive tax-exempt income; (4) the General Partners
have not provided you with the information necessary for you to determine
whether the Proposed Mergers are a good deal for you; and (5) we believe that
there are alternatives which are superior to the Proposed Mergers.
<PAGE>
We urge you to consider carefully the Dominium Proxy Materials and the
arguments contained therein. Decide for yourself whether the Proposed Mergers
seem like good deals to you.
All BAC Holders have been invited to attend the Meetings. Whether or not
you plan to attend the Meetings in person and regardless of the number of BACs
you own, please complete, sign and date the enclosed blue proxy card and mail it
as soon as possible in the enclosed stamped, addressed return envelope to ensure
that your BACs are voted at the Meetings. You may vote in person if you wish to
do so even though you have previously sent in your proxy.
Every vote is important. All votes, including non-votes, not cast in favor
of the Proposed Mergers constitute votes against the Proposed Mergers. We urge
you to exercise your right to vote, to vote against the Proposed Mergers and to
send a clear message to the General Partners.
Very truly yours,
DOMINIUM TAX EXEMPT FUND L.L.P.
By:___________________________
Its:___________________________
2
<PAGE>
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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 OF CONTENTS
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
REASONS TO VOTE AGAINST THE PROPOSED MERGERS . . . . . . . . . . . . . . . . . 4
1. THE GENERAL PARTNERS HAVE SIGNIFICANT CONFLICTS OF INTEREST AND
INDUCEMENTS TO PROCEED WITH THE PROPOSED MERGERS. . . . . . . . . . . . . 5
2. THE GENERAL PARTNERS HAVE NOT ACTED IN A MANNER CONSISTENT WITH
MAXIMIZING BAC HOLDER VALUE . . . . . . . . . . . . . . . . . . . . . . .10
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 AND ANY APPRECIATION IN THE
VALUE OF THE PROPERTIES RUNS SOLELY TO THE BENEFIT OF CAPREIT OR, IN
CERTAIN INSTANCES, AFFILIATES OF THE GENERAL PARTNERS . . . . . . . . . .13
4. THE GENERAL PARTNERS HAVE NOT PROVIDED YOU WITH THE INFORMATION
NECESSARY FOR YOU TO DETERMINE WHETHER THIS IS A GOOD DEAL FOR YOU. . . .15
5. WE BELIEVE THERE ARE ALTERNATIVES WHICH ARE SUPERIOR TO THE
PROPOSED MERGERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
YOU SHOULD NOT RELY ON THE FAIRNESS OPINIONS AS A SUBSTITUTE FOR YOUR OWN
ANALYSIS OF WHETHER THE TRANSACTIONS ARE IN YOUR INTEREST. . . . . . . . . . .22
YOU SHOULD NOT RELY ON PLAINTIFFS' CLASS ACTION LAWSUITS AS A SUBSTITUTE FOR
YOUR OWN ANALYSIS OF WHETHER THE TRANSACTIONS ARE IN YOUR INTEREST . . . . . .24
INFORMATION ABOUT DOMINIUM . . . . . . . . . . . . . . . . . . . . . . . . . .25
BACKGROUND TO THE PROPOSED MERGER. . . . . . . . . . . . . . . . . . . . . . .27
ADDITIONAL INFORMATION CONCERNING THE TRANSACTION PROPOSALS. . . . . . . . . .31
VOTE REQUIRED AND VOTING PROCEDURES. . . . . . . . . . . . . . . . . . . . . .31
SOLICITATION EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
-i-
<PAGE>
INTRODUCTION
This Proxy Statement, dated as of [__________], 1996, which is first being
mailed to holders ("BAC Holders") of Beneficial Assignee Certificates ("BACs")
on or about [mailing date], 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").
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WE BELIEVE YOU SHOULD VOTE AGAINST THE PROPOSED MERGERS FOR THE FOLLOWING
REASONS:
- - CONFLICTS OF INTEREST
-- YOUR GENERAL PARTNERS WILL RECEIVE OVER $5,000,000 IN DIRECT
PAYMENTS AND BENEFITS TO WHICH THEY ARE NOT ENTITLED
-- YOUR GENERAL PARTNERS AND CAPREIT DO NOT HAVE AN ARMS LENGTH
RELATIONSHIP
- - YOUR GENERAL PARTNERS HAVE NOT MAXIMIZED PAYMENTS TO THE BAC HOLDERS
-- NEVER EXPOSED PROPERTIES TO THE MARKET
-- 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
-- AGREED TO TERMINATION FEES AND EXPENSE REIMBURSEMENT PROVISIONS
OF $9.7 MILLION, WHICH COMBINED WITH THE OVER $5 MILLION OF
UNWARRANTED PAYMENTS AND BENEFITS REPRESENTS A $15 MILLION
HANDICAP TO ANOTHER BIDDER
<PAGE>
-- THEY ARE SELLING THE PROPERTIES TO AN AFFILIATE OF THE PROPERTY
MANAGER
- YOU WILL HAVE NO ABILITY TO PARTICIPATE IN UPSIDE POTENTIAL AND YOU
WILL LOSE TAX-EXEMPT INCOME
- THE GENERAL PARTNERS HAVE NOT PROVIDED YOU WITH THE INFORMATION YOU
NEED
- WE BELIEVE THE PROPERTIES ARE WORTH SUBSTANTIALLY MORE THAN THE BAC
HOLDERS ARE RECEIVING AND THERE ARE SUPERIOR ALTERNATIVES TO THE
PROPOSED MERGERS
-- WE BELIEVE THAT YOU WILL NOT BE ABLE TO REPLACE YOUR TAX-EXEMPT
RETURN
-- THERE IS NO COMPELLING REASON TO UNDERTAKE THIS TRANSACTION AS
OPPOSED TO DOING NOTHING OR PURSUING OTHER ALTERNATIVE
TRANSACTIONS
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.
WHILE STRUCTURED AS MERGERS, THE TRANSACTIONS ARE, IN EFFECT, A SALE OF ALL
OF THE FUNDS' ASSETS FOR CASH WHICH IS DISTRIBUTED TO THE BAC HOLDERS. IN THE
AGGREGATE, THE PROCEEDS TO BE DISTRIBUTED TO THE BAC HOLDERS ARE APPROXIMATELY
$160 MILLION, SUBJECT TO CERTAIN CAPPED UPWARD ADJUSTMENTS. ACCORDINGLY, IF THE
THREE PERFORMING MORTGAGE LOANS HAVE A VALUE EQUAL TO THEIR AGGREGATE FACE
AMOUNT (APPROXIMATELY $22 MILLION) AND TAKING INTO ACCOUNT THE CASH ON HAND OF
THE FUNDS (AT LEAST $12.4 MILLION), THE PRICE BEING PAID BY CAPREIT FOR ITS
ACQUISITION OF ALL OF THE NONPERFORMING REAL ESTATE OWNED BY THE FUNDS IS
APPROXIMATELY $126 MILLION ($160 MILLION - $22 MILLION - $12.4 MILLION). THIS
IS A TOTALLY INADEQUATE PRICE AND YOU SHOULD VOTE AGAINST THESE TRANSACTIONS.
AS DISCUSSED HEREIN, OUR APPRAISALS OF THE MINNESOTA PROPERTIES, WHICH REPRESENT
1,646 OF THE 3,222 NONPERFORMING APARTMENT UNITS, RANGE FROM $90 MILLION TO
$98.885 MILLION. THIS WOULD SUGGEST THAT THE BALANCE OF THE 1,566 OTHER
NONPERFORMING APARTMENT UNITS ARE WORTH ONLY $28-36 MILLION OR BETWEEN $17,879
TO $22,989 PER UNIT AS COMPARED TO $54,678 TO $60,076 PER UNIT OF THE APPRAISED
MINNESOTA PROPERTIES. THIS SIMPLY DOES NOT MAKE SENSE.
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-2-
<PAGE>
This Proxy Statement and the enclosed blue proxy card are being furnished
to the 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 together with the Fund I-II GP, the
"General Partners") 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
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
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<PAGE>
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.
Based on our experience in multi-family housing and our familiarity with
the properties relating to the Funds and tax-exempt financing, we believe that
there is an opportunity to greatly enhance BAC Holder returns if the Transaction
Proposals are defeated. In connection with pursuing an alternative proposal, we
have reviewed the Transaction Proposals carefully and we believe they are not in
your interests. Given our experience, we believe that there may be
opportunities for us to pursue other superior alternatives if the Transaction
Proposals are defeated. 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. Dominium believes you should vote
against the Proposed Mergers and the related transactions for five primary
reasons:
(1) The General Partners have significant conflicts of interest and
inducements to proceed with the Proposed Mergers;
(2) 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 and any upside potential runs solely to
the benefit of CAPREIT or, in certain instances, affiliates of the
General Partners;
(4) The General Partners have not provided you with the information
necessary for you to determine whether the Proposed Mergers are a good
deal; and
-4-
<PAGE>
(5) We believe that there are alternatives which are superior to the
Proposed Mergers.
1. 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 significant conflicts of interest and inducements to proceed
with the Proposed Mergers. In fact, these conflicts rise to such a level that
under federal securities laws the Proposed Mergers are deemed to be transactions
between the Funds and related parties as opposed to arms-length transactions
between unaffiliated parties. These 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.
- 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 ("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, THE DEAL THAT THEY ULTIMATELY STRUCK WITH CAPREIT INVOLVES A
DIRECT CONFLICT OF INTEREST BY YOUR GENERAL PARTNERS
-5-
<PAGE>
BECAUSE COMPLETING THE TRANSACTION PROPOSALS COULD POTENTIALLY SAVE
CRI AFFILIATES OVER $1 MILLION IN CERTAIN TERMINATION REFUNDS
DESCRIBED BELOW.
- AFFILIATES OF THE GENERAL PARTNERS CONTROL THE PARTNERSHIPS (THE
"OWNER PARTNERSHIPS") WHICH OWN PROPERTIES (THE "PROPERTIES") SECURING
FIFTEEN OF THE MORTGAGE REVENUE BONDS OWNED BY THE FUNDS (THE
"MORTGAGE REVENUE BONDS"). AS STRUCTURED, IT IS POSSIBLE THAT MESSRS.
DOCKSER AND WILLOUGHBY, AS THE OWNERS OF THE OWNER PARTNERSHIPS, WILL
BENEFIT FROM RETAINING APPROXIMATELY $60 MILLION OF TAX LOSSES
ALLOCATED TO THE OWNER PARTNERSHIPS, BENEFIT FROM RECEIVING FUTURE TAX
LOSSES ALLOCATED TO THE OWNER PARTNERSHIPS AND BENEFIT FROM ANY FUTURE
APPRECIATION OF THE PROPERTIES.
The following table summarizes the monetary benefits acknowledged by your
General Partners in the CRITEF Proxy Statement. In addition, as discussed in
the CRITEF Proxy Statement, effecting the Proposed Mergers may under Delaware
law effectively insulate your General Partners from any future claims by the BAC
Holders. Also, we believe there is the possibility that significant benefits
will flow to Messrs. Dockser and Willoughby or their affiliates if as a result
of the Transaction Proposals they are able to retain past tax losses allocated
to the Owner Partnerships, receive future tax losses or share in potential
future appreciation of the Properties securing the Mortgage Revenue Bonds which
are owned by the Owner Partnerships.
- --------------------------------------------------------------------------------
SUMMARY OF PAYMENTS AND SAVINGS
TO CRI AND AFFILIATES
- --------------------------------------------------------------------------------
Purchase of General Partner Interests $1,000,000
Payment of Accrued Fees $3,479,925
Termination Refunds $1,149,631
----------
Total $5,629,556
- --------------------------------------------------------------------------------
$1,000,000 PAYMENT
Absent the Merger Proposals, the general partnership interests of the
General Partners have at best nominal value. There is no legal obligation for
CAPREIT to make the $1,000,000 in payments to the General Partners provided for
in the Merger Agreements. These payments were negotiated by the General
Partners for their benefit in the context of striking the Merger Agreement
terms. Because CAPREIT is obviously willing to spend these additional sums to
consummate the Proposed Mergers, these funds could have been paid to
-6-
<PAGE>
the BAC Holders and not to the General Partners. Of the $1,000,000 that will be
paid to the General Partners, 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 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.
Why is this payment going to your General Partners? Why did your General
Partners negotiate these payments at the same time they were negotiating the
Redemption Price and why shouldn't these payments have been made to the BAC
Holders? 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
-7-
<PAGE>
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.
TERMINATION REFUNDS
As a consequence of the Proposed Mergers, CRI and certain of its affiliates
are receiving a benefit in excess of $1,000,0000 that they almost certainly
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 proposed transaction between the Funds and anyone other than
CAPREIT would trigger Termination Refunds with respect to the Properties because
the new owner would 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, CRI and certain affiliates of CRI are receiving a benefit
in excess of $1,000,000 that they almost certainly would not receive in a
transaction with any party other than CAPREIT.
Moreover, the General Partners have not provided the BAC Holders with any
information as to whether the redemption of CRI's interests in AP CAPREIT for
$4,750,000 was at a fair price or represented a premium to CRI. It is clear
from the CRITEF Proxy Statement that at the time the Redemption Price was set,
the parties contemplated a transaction between the Funds and CAPREIT (according
to the CRITEF Proxy Statement, initial drafts of the Merger Agreements were
delivered on the same date the redemption agreement was signed). In September
1995, your General Partners agreed to a transaction with a value to the BAC
Holders of approximately $150 million, a price which would not even support a
fairness opinion by the General Partners' chosen investment banker but which
your General Partners in their press release claimed represented "full value."
By redeeming CRI's interests in AP CAPREIT, were the General Partners seeking to
avoid even an appearance of a conflict of interest as they suggest in the CRITEF
Proxy Statement or were they using the prospects of a favorable deal for the
Proposed Mergers as an inducement for a favorable price on their interests in AP
CAPREIT? We do not know, but it seems to us that the deal that they cut did not
eliminate the conflict of interest.
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In addition, while your General Partners state that they have never
received any benefits, direct or indirect, from the transfer of properties to
the Owner Partnerships, the structure of the redemption of CRI's interests in AP
CAPREIT would suggest the contrary. Clearly CRI would never have received
$4,750,000 for its residual interest in AP CAPREIT but for the fact that the
Owner Partnerships entered into management agreements with CAPREIT Residential
(since CRI has an obligation to refund a substantial portion of this $4,750,000
if certain management agreements, including those of the Owner Partnerships are
terminated). In essence, it appears that your General Partners have sold the
right to manage these properties (an asset of each Fund) to a CAPREIT affiliate
and personally received the proceeds. If this is so, your General Partners may
have breached their fiduciary duties and, as disclosed in the CRITEF Proxy
Statement, under Delaware law, you may be giving up any claims that you have
against your General Partners if the Proposed Mergers are effected.
THE OWNER PARTNERSHIPS
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. Based on the Fund's public
disclosures, approximately $60 million of tax losses have, however, been
allocated to the Owner Partnerships. The General Partners also 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
manner, whether any of the alternatives would result in material benefits to
these affiliates or which alternative CAPREIT presently intends to follow. As
structured, it is possible that Messrs. Dockser and Willoughby, as the owners of
the Owner Partnerships, will benefit from retaining approximately $60 million of
tax losses allocated to the Owner Partnership, benefit from receiving future tax
losses allocated to the Owner Partnerships and benefit from any future
appreciation of the Properties.
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As you consider your General Partners' claim that the transactions are fair
to the BAC Holders, ask yourself, what is the justification for these payments
to and special deals for the General Partners and/or their affiliates? If they
are not entitled to these payments in the absence of these transactions, aren't
the amounts represented by these payments amounts which could otherwise have
been available for the BAC Holders? At the very least, don't 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. 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, 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 market the Properties or BACS in any way.
They did this in spite of their conflicts of interest and the
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, 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. One of the then
general partners 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
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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 unable to obtain a
fairness opinion, that they were sued in two plaintiffs' class action
suits, that CAPREIT's initial financing fell through and that 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, your General Partners have also raised the hurdles
for other potential purchasers of the BACs or the Properties by
increasing the amount of expenses reimbursable to CAPREIT to $5.2
million. If the termination fees and expense reimbursement provisions
agreed to by your General Partners are legal, 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 $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 efforts to make a superior proposal.
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If your General Partners were interested in maximizing BAC Holder value,
why did they agree to a transaction that caps the compensation paid to BAC
Holders for excess cash owned by the Funds even though such cash was earned
during your ownership of the Funds? If your General Partners were interested
in maximizing BAC Holder value, why did they agree to an initial transaction
which could not even support a fairness opinion? Why did they agree to a
transaction that immediately triggered two class action lawsuits which, while
admittedly increasing the consideration to the BAC Holders, are costing the
BAC Holders $2 million to settle? Why didn't they attempt to solicit other
merger partners on terms which would not have included the conflicts of
interests and inducements for the General Partners offered by CAPREIT? Why
didn't they conduct a competitive bidding process, actively search for other
purchasers, retain a broker, or even, apparently, appraise the Properties or
obtain any indications from an independent third party of the fairness of the
transaction before they entered into the Merger Agreements? If this
transaction is the result of arms length negotiations as suggested by your
General Partners, why did they need their failure to obtain a fairness
opinion, two class action lawsuits, a lawsuit and threatened proxy contest by
Mr. Schwartzberg, an attempt by us to make a superior proposal, and almost
two years to increase the Redemption Price to the level currently being
offered?
We wouldn't even sell a house in the manner your General Partners have
handled the negotiations of the Proposed Mergers and 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. In fact, we
believe that the General Partners have pursued a transaction which is
in their interest, is in CAPREIT's interest, but is not in your
interest.
Moreover, we believe that the cumulative effects of the termination fees
and expenses which your General Partners have agreed to, the inherent
conflicts of interest of the General Partners, 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. If the termination fees and expense
reimbursement provisions in the Merger Agreements are legal, any prospective
acquiror of the Funds must automatically offer as much as $9.7 million
dollars 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 have been provided to the General Partners and their
affiliates to proceed with the CAPREIT transaction. In assessing our ability
to make a superior alternative 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 over $5 million in
inducements for the General Partners to proceed
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with a transaction (we believe effectively eliminating any chance that you
would ever receive the full value for your interests). In essence, a $15
million handicap.
Furthermore, given the potential for a bidding contest that a competing
offer would raise, this $9.7 million dollar 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. By way of example
if the fair value of the Funds were $200 million CAPREIT could pay the BAC
Holders $195 million ($200 million less the $5 million diverted to the General
Partners) while a competing bidder could only make a bid of $190.3 million ($200
million less the $9.7 million of the termination fees and expenses payable to
CAPREIT) without paying more than the Funds were worth. Based on our
experience, we believe that regardless of the value of the Properties or of your
BAC Holder interests, the reality is that the transaction as structured by your
General Partners, who have a fiduciary obligation to you under Delaware law, 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, 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
Prices 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 exercise their
fiduciary duties and 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 AND ANY APPRECIATION IN THE VALUE OF THE
PROPERTIES RUNS SOLELY TO THE BENEFIT OF CAPREIT OR, IN CERTAIN
INSTANCES, AFFILIATES OF THE GENERAL PARTNERS.
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
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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. If the Proposed Mergers are effected you will lose not only any
opportunity to recover this lost capital, but defeat the second objective of
receiving tax-exempt interest income over. We do not believe that the "premium"
over market price that you are being offered justifies giving up the potential
for appreciation and the tax-exempt income generated by the Funds, particularly
after you take into account the fact that, although the Funds' income over the
past few years has been increasing, your General Partners have accumulated at
least $12.4 million in cash, some or all of which could have been distributed to
the BAC Holders.
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 by a simple majority vote of the BAC Holders and if you
object to the Proposed Mergers you will not have the right to dissent and seek a
judicial declaration of the fair value of your interest (a right which you would
generally have if the Proposed Mergers were mergers between corporations).
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, CAPREIT is willing to take over
the Funds in part because it will be able to refinance the Mortgage Revenue
Bonds with lower interest rates and still maintain tax-exempt status using the
Properties as collateral. 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
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intends to do and the General Partners know it. 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 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 appreciation in the value of the Properties. CAPREIT, on
the other hand, will be acquiring the right to benefit from the tax-exempt
status of income generated by the Funds and any appreciation in the value of the
Properties. 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. THE GENERAL PARTNERS HAVE NOT PROVIDED YOU WITH 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 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, the value of
your BAC Holder interest turns on the value of the Properties securing the
Mortgage Revenue Bonds and the tax-free cash flow generated by the Funds. They
have not told you their views as to the value of these Properties. Although
they have indicated that CAPREIT's refinancing plans may favorably impact the
value of these Properties, they have not disclosed to you any projections or
quantifications of what this impact is likely to be. They have not disclosed to
you how much cash will be available to the Funds at the Effective Date
("Available Cash"). Moreover, they 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. Based
on the CRITEF Proxy Statement you have no way to assess how much of the Funds'
excess cash is likely to be available to CAPREIT at the Effective Date. Nor
have they disclosed why the General Partners believe it was in your best
interest
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to cap the Maximum Adjustment Amount or for the Funds to accumulate substantial
cash reserves rather than make additional distributions to BAC Holders. While
they maintain that one of the reasons they support the Proposed Mergers is that
CAPREIT agreed to bear most of the transaction costs associated with the
Proposed Mergers, they have not emphasized that at least $12.4 million of these
transaction costs are being paid for out of these accumulated cash reserves.
Moreover, CAPREIT has reserved the right not to proceed with the transaction if
the Funds have less than the minimum Available Cash.
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, as a result, directly impact the value of the BACs. They
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.
Based on over 25 years of experience in owning and managing multi-family
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.
(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.
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(5) A satisfactory explanation of why the Owner Partnership options 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 determined
that it was appropriate to exclude from Oppenheimer's 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. Why?
5. WE BELIEVE THERE ARE ALTERNATIVES WHICH ARE 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) 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; (ii) seeking to
extend the loan maturities and continuing to hold the Mortgage Revenue Bonds for
extended periods; and (iii) liquidating the Properties securing the mortgage
loans pursuant to foreclosures under the Mortgage Revenue Bond documents prior
to the mortgage loan maturities. Apparently, your General Partners did not
believe that it was in your interests to actively market the Properties or to
seek other potential merger partners.
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As discussed below, we believe, based on over 25 years of experience with
multi-family housing projects and tax-exempt financing, that any of these
alternatives, if pursued by a general partner acting to maximize BAC Holder
value, is likely to be a superior alternative to the Proposed Mergers. While
there can, of course, be no certainty that such alternatives would be superior,
we believe that it is virtually certain 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:
- Although your General Partners largely justify their rejection of
these alternatives on the basis of the Oppenheimer fairness opinions,
they determined to do the Proposed Mergers with CAPREIT before they
had any fairness opinions. When they agreed to a $150 million
Redemption Price, what was your General Partners' analysis of whether
the Proposed Mergers would be superior alternatives?
- 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 appreciation in the
Properties (as well as risks of depreciation in the Properties).
- If your General Partners had pursued any of these alternatives, it is
virtually certain that they would not have received the benefits they
are receiving from the Proposed Mergers.
ALTERNATIVE 1: 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 transactions costs are included in Oppenheimer's analyses,
we do not understand what the
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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 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%. Based on the quality of the Properties and the availability of tax-
exempt financing, 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 its remaining Mortgage Revenue
Bond and Oppenheimer's estimated value of the Owner Partnership's other assets
("Other Assets") would be $16.049 to $17.829 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
its Other Assets would be $16.317 to $18.145 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 its
remaining performing Mortgage Revenue Bonds and Oppenheimer's estimated value of
its 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 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, obviously 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, is there anything about those risks today that
warrants proceeding with the Proposed Mergers now? In the Minneapolis/St. Paul
market, the current vacancy rate is between 2% and 3%. 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, but you are also eliminating any upside potential.
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ALTERNATIVE 2. RESTRUCTURING THE UNDERLYING MORTGAGE LOANS
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.
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. So what! You are not getting any accrued or unpaid interest if the
Proposed Mergers are effected. To suggest that they aren't proceeding because
of the costs associated with these approvals are greater than the costs being
borne by the Funds is disingenuous. Most of the DIRECT transaction costs of the
Proposed Mergers are being borne by CAPREIT. (Although you are obviously paying
$12.4 million of these costs through Available Cash in the Funds and indirectly
bearing the balance of these transaction costs through a reduction in the amount
that would otherwise be payable to you.) 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
have never understood why if this alternative makes sense for CAPREIT it does
not make sense for the Funds.
CAPREIT has indicated that its reasons for effecting these transactions are
because it is "seeking to guarantee its continued management of the properties,
strengthen its competitive position by integrating these properties with its
current leasing portfolio ... and replace existing indebtedness on certain
properties owned by it with lower cost financing." Interestingly, CAPREIT has
omitted from its reasons that it is also winding up with benefits of tax-exempt
financing and any future increases in the value of the Properties (although
neither CAPREIT nor the General Partners have told you their views as to the
future values of the Properties). Based on our experience in the real estate
business, we do not believe that this is incidental to CAPREIT's purposes.
Again, we do not understand why if this alternative makes sense for CAPREIT it
does not make sense for the BAC Holders.
ALTERNATIVE 3. 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 on Oppenheimer's analyses to justify
why they did not pursue other alternatives even though
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they had concluded not to pursue these alternatives before they ever received
Oppenheimer's analyses. Again, 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. Based on appraisals prepared at the request of our prospective
lenders for eight of the Properties, we believe that an immediate orderly
liquidation of the Funds would result in substantially greater net present value
to you, the BAC Holders. The following table illustrates, on an aggregate
basis, the differences between the appraisals we commissioned and Oppenheimer's
capitalization rate valuation analysis and discounted cash flow analysis:
<TABLE>
<CAPTION>
Comparison of Dominium Appraisals to Oppenheimer Valuations
Minnesota Properties Only
- -----------------------------------------------------------------------------------------------------------
REAL ESTATE MARDELL AMUNDSON OPPENHEIMER OPPENHEIMER
----------- ---------------- ----------- -----------
OWNED DIRECT CAPITALIZATION DISCOUNTED CASH FLOW
----- --------------------- --------------------
FEE SIMPLE W/
MINNESOTA PROPERTIES FEE SIMPLE TAX EXEMPT LOW HIGH LOW HIGH
BONDS ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total Minnesota 90,000,000 98,885,000 62,741,197 69,524,027 63,580,326 69,693,759
Properties ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
As you can see, our appraisals, assuming tax-exempt financing, resulted in
an aggregate valuation of almost $30 million more than Oppenheimer on just these
eight Properties. We have also learned that since 1994, a condominium project
that we believe is directly comparable to one of the Properties located in Key
West, Florida has realized per-unit sale rates ranging from $72,000 to $139,500
as compared to an average $54,000 per-unit sale rate assumed by Oppenheimer in
its analysis of this Property.
Dominium's prospective lenders engaged Mardell Amundson Johnson & Leirness,
Inc. ("Mardell Amundson") to conduct appraisals on the eight Properties.
Dominium has used Mardell Amundson from time to time in the past and it is one
of a number of independent appraisal firms chosen by Dominium on a periodic, as-
needed basis. Dominium paid Mardell Amundson $27,000 to appraise the above-
referenced Properties.
The appraiser who conducted the appraisals, Michael F. Amundson, has a
Master of Science degree in Real Estate Appraisal and Investment Analysis, is a
Certified General Real Property Appraiser in the State of Minnesota and is a
Member of the Appraisal Institute (MAI) with over ten years of real estate
appraisal experience. Mr. Amundson used standard appraisal methodologies
including sales comparisons, cost to build analysis and capitalization rate
valuation analysis. Dominium gave no instructions to nor placed any limitations
on Mr. Amundson in conducting his appraisals. The appraisals are subject to
conditions and qualifications customary in the industry.
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<PAGE>
ALTERNATIVE 4. 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 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. 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.
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 inherent in the
Transaction Proposals. Your General Partners have stated in the CRITEF Proxy
Statement that they will continue the Funds' operations in the present form if
the Proposed Mergers are not approved. We do not know if that is a threat or if
they believe that this is the best way to maximize BAC Holder value if the
Proposed Mergers are not effected. We believe, however, that there are numerous
alternatives your General Partners could pursue to maximize BAC Holder value and
if they continue to refuse to maximize BAC Holder value, we would suggest you
get yourselves new General Partners.
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
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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 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.
- 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 the 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 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 and should be affirmatively uncomfortable that
your
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<PAGE>
General Partners and CAPREIT appear to be largely relying on these opinions as
justifications for their actions -- even though they have consistently
negotiated price and terms without the benefit of the fairness opinions.
Moreover, 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 excess Available Cash which would result in
Adjustment Amounts in excess of the Maximum Adjustment Amounts would
Oppenheimer still render its fairness opinions? We don't know.
- If you use a 8.0 to 9.0% capitalization rate, which is the range we
believe appropriate for Properties such as these, 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.
- Oppenheimer does not purport to have appraised the Properties.
Despite the complexities of the Proposed Mergers essentially you are
selling the Properties to CAPREIT. Our appraisals of the Minnesota
properties would suggest that Oppenheimer's capitalization rate
analysis and discounted cash flow analysis is not a substitute for a
qualified real estate appraisal and that if your General Partners had
obtained qualified real estate appraisals the conclusions as to value
would be substantially higher.
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 thesettlement 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
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<PAGE>
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 rife with conflicts of interest at a price that would
not even 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). The
effect of this settlement is to effectively insulate your General Partners and
CAPREIT from future claims by BAC Holders. Admittedly, the Redemption Price
that is now being offered to you is higher than the Redemption Price initially
agreed to by your General Partners. But that does not necessarily mean it is a
fair price. Ask yourself, are you receiving the price that you would have
received if your General Partners had sought competitive bids? Are the General
Partners receiving what they would have received if they had sought competitive
bids? We don't think so and 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.
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.
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<PAGE>
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.
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 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.
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<PAGE>
BACKGROUND TO THE PROPOSED MERGER
The following chronology is based largely on the description provided in
the CRITEF Proxy Statement. 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.
According to the CRITEF Proxy Statement, 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. 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.
In early April 1995, the parties continued with discussions described more
completely in the CRITEF Proxy Statement 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. 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 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.
According to the CRITEF Proxy Statement, CAPREIT offered the General
Partners an aggregate of $145 million for all the BACs on August 22, 1995.
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). The parties entered into the Merger
Agreements on September 11, 1995 and made a public announcement of the Proposed
Mergers. On that same date, the General Partners engaged Oppenheimer & Co.,
Inc. to render fairness opinions in connection with the Proposed Mergers.
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.
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. 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
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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.
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. 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. 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. Also at that time, the plaintiffs and
defendants in the BAC Holder Litigation executed a Memorandum of Understanding
regarding the proposed settlement. 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.
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. 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 Prices. 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. 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
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<PAGE>
amended two more times to reflect modifications to the adjustments for Available
Cash and other miscellaneous changes.
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 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 of 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
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<PAGE>
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, which 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.
On Monday, July 29, 1996, representatives of Dominium advised plaintiff's
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.
On August 2, 1996, representatives of CAPREIT and representatives of
Dominium met in New York City to discuss Dominium's proposal. Subsequent
telephone discussions also occurred. At the meeting on August 2, 1996, Dominium
concluded that CAPREIT had no intention of permitting Dominium to effect a
superior transaction with the Funds and that it would block this at any cost.
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. As a result of
this review, Dominium determined that it would not attempt to delay further
settlement of the BAC Holder Litigation. 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 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.
-30-
<PAGE>
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. 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. 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 information
discussed 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.
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
-31-
<PAGE>
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 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.
-32-
<PAGE>
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.
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.
-33-
<PAGE>
- --------------------------------------------------------------------------------
[BLUE] 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.)
- --------------------------------------------------------------------------------
<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.
[x] Please mark your
vote as this
- --------------------------------------------------------------------------------
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 authorize expressly the foregoing.
AGAINST ABSTAIN FOR
/ / / / / /
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 authorize expressly
the foregoing.
AGAINST ABSTAIN FOR
/ / / / / /
Proposal 3. Approval of the Adjournment of the Meeting to solicit additional
votes. Approve the adjournment of the Meeting to solicit additional votes.
AGAINST ABSTAIN FOR
/ / / / / /
DOWNIUM RECOMMENDS THAT YOU SIGN, DATE AND MAIL THIS PROXY TODAY.
/ / Change of address?
Check this box and insert new address below.
- --------------------------------------------------------------------------------
---------- ----------------------
----------------------
Signature(s): -------------------------------------- Dated: -----------
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.
- --------------------------------------------------------------------------------
<PAGE>
[BLUE] 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.)
- --------------------------------------------------------------------------------
<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 of Proposal 2 is conditioned upon the approval of Proposal 1.
[x] Please mark your
vote as this
- --------------------------------------------------------------------------------
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
authorize expressly the foregoing.
AGAINST ABSTAIN FOR
/ / / / / /
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 authorize expresslythe foregoing.
AGAINST ABSTAIN FOR
/ / / / / /
Proposal 3. Approval of the Adjournment of the Meeting to solicit additional
votes. Approve the adjournment of the Meeting to solicit additional votes.
AGAINST ABSTAIN FOR
/ / / / / /
DOMINIUM RECOMMENDS THAT YOU SIGN, DATE AND MAIL THIS PROXY TODAY.
/ / Change of address?
Check this box and insert new address below.
- --------------------------------------------------------------------------------
---------- ----------------------
----------------------
Signature(s): -------------------------------------- Dated: -----------
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.
- --------------------------------------------------------------------------------
<PAGE>
[BLUE] 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.)
- --------------------------------------------------------------------------------
<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.
[x] Please mark your
vote as this
- -------------------------------------------------------------------------------
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 authorize expressly the foregoing.
AGAINST ABSTAIN FOR
/ / / / / /
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 authorize expressly the foregoing.
AGAINST ABSTAIN FOR
/ / / / / /
Proposal 3. Approval of the Adjournment of the Meeting to solicit additional
votes. Approve the adjournment of the Meeting to solicit additional votes.
AGAINST ABSTAIN FOR
/ / / / / /
DOMINIUM RECOMMENDS THAT YOU SIGN, DATE AND MAIL THIS PROXY TODAY.
/ / Change of address?
Check this box and insert new address below.
- --------------------------------------------------------------------------------
---------- ----------------------
----------------------
Signature(s): -------------------------------------- Dated: -----------
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.
- --- ----------------------------------------------------------------------------
