<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
Amendment No. 4
Capital Realty Investors Tax Exempt Fund Limited Partnership ("CRITEF")
Capital Realty Investors Tax Exempt Fund III Limited Partnership ("CRITEF III")
- -------------------------------------------------------------------------------
(Names of Issuers)
Capital Realty Investors Tax Exempt Fund Limited Partnership
CRITEF Associates Limited Partnership
Capital Realty Investors Tax Exempt Fund III Limited Partnership
CRITEF III Associates Limited Partnership
-----------------------------------------
(Names of Persons Filing Statement)
Beneficial Assignee Certificates, CRITEF, Series I and II
Beneficial Assignee Certificates, CRITEF III
--------------------------------------------
(Titles of Classes of Securities)
140 437 10 4, CRITEF, Series I
140 437 20 3, CRITEF, Series II
140 438 10 2, CRITEF III
------------------------------------------
(CUSIP Numbers of Classes of Securities)
CRI, Inc.
William B. Dockser
Chairman of the Board
The CRI Building
11200 Rockville Pike
Rockville, Maryland 20852
(301) 468-9200
- -------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of Persons Filing Statement)
Copies to:
________
Robert B. Hirsch, Esq.
ARENT FOX KINTNER PLOTKIN & KAHN
1050 Connecticut Avenue
Washington, D.C. 20036
<PAGE>
This statement is filed in connection with (check the appropriate
box):
a. [X] The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [_] The filing of a registration statement under the
Securities Act of 1933.
c. [_] A tender offer.
d. [_] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. [_]
Calculation of Filing Fee
Transaction valuation* Amount of filing fee
$162,301,663 $32,461
* Pursuant to the proposed merger, the public holders of beneficial assignee
certificates ("BACs") in CRITEF and CRITEF III, who hold in the aggregate
2,280,000 BACs in CRITEF, Series I, 3,238,760 BACs in CRITEF, Series II,
and 5,258,268 BACs in CRITEF III, will be entitled to receive $15.00 per
BAC in CRITEF, Series I, $14.68 per BAC in CRITEF, Series II, and $15.32
per BAC in CRITEF III, in each case, subject to adjustment.
[X] Check box if any part of the fee is offset as provided by Rule 0-
11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
Amount previously Paid: $32,461
Form or Registration No: Schedule 14A
Filing Party: CRITEF and CRITEF III
Dates Filed: March 18, 1996, August 26, 1996
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
Amendment No. 4
Capital Realty Investors Tax Exempt Fund Limited Partnership ("CRITEF")
Capital Realty Investors Tax Exempt Fund III Limited Partnership ("CRITEF III")
- -------------------------------------------------------------------------------
(Names of Issuers)
Watermark Partners, L.P.
Watermark III Partners, L.P.
Capital Apartment Properties, Inc.
Apollo Real Estate Advisors, L.P.
----------------------------------
(Names of Persons Filing Statement)
Beneficial Assignee Certificates, CRITEF, Series I and II
Beneficial Assignee Certificates, CRITEF III
--------------------------------------------
(Title of Classes of Securities)
140 437 10 4, CRITEF, Series I
140 437 20 3, CRITEF, Series II
140 438 10 2, CRITEF III
------------------------------------------
(CUSIP Numbers of Classes of Securities)
Capital Apartment Properties, Inc.
Richard L. Kadish
The CRI Building
11200 Rockville Pike
Rockville, Maryland 20852
(301) 268-8700
and
Apollo Real Estate Advisors, L.P.
Michael D. Weiner
1999 Avenue of the Stars
Los Angeles, California 90057
(310) 201-4100
- -------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of Persons Filing Statement)
Copies to:
________
Janet C. Walden, Esq.
SCHULTE ROTH & ZABEL
900 Third Avenue
New York, New York 10021
<PAGE>
This statement is filed in connection with (check the appropriate
box):
a. [X] The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [_] The filing of a registration statement under the
Securities Act of 1933.
c. [_] A tender offer.
d. [_] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. [_]
Calculation of Filing Fee
Transaction valuation* Amount of filing fee
$162,301,663 $32,461
* Pursuant to the proposed merger, the public holders of beneficial assignee
certificates ("BACs") in CRITEF and CRITEF III, who hold in the aggregate
2,280,000 BACs in CRITEF, Series I, 3,238,760 BACs in CRITEF, Series II,
and 5,258,268 BACs in CRITEF III, will be entitled to receive $15.00 per
BAC in CRITEF, Series I, $14.68 per BAC in CRITEF, Series II, and $15.32
per BAC in CRITEF III, in each case, subject to adjustment.
[X] Check box if any part of the fee is offset as provided by Rule 0-
11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
Amount previously Paid: $32,461
Form or Registration No: Schedule 14A
Filing Party: CRITEF and CRITEF III
Dates Filed: March 18, 1996, August 26, 1996
<PAGE>
INTRODUCTION
This Amendment No. 4 to the Rule 13e-3 Transaction Statement is being filed
by Capital Realty Investors Tax Exempt Fund Limited Partnership ("Fund I-II"),
Capital Realty Investors Tax Exempt Fund III Limited Partnership ("Fund III"
and, together with Fund I-II, the "Funds"), CRITEF Associates Limited
Partnership, the general partner of Fund I-II ("Fund I-II GP"), CRITEF III
Associates Limited Partnership, (the general partner of Fund III and, together
with Fund I-II GP, the "General Partners"), Watermark Partners, L.P.
("Watermark"), Watermark III Partners, L.P. ("Watermark III"), Capital Apartment
Properties, Inc., the general partner of Watermark and Watermark III
("CAPREIT"), and Apollo Real Estate Advisors, L.P., the beneficial owner of
99.83% of the outstanding capital stock of CAPREIT ("Apollo"), in connection
with the proposed mergers of Watermark and Watermark III with and into Fund I-II
and Fund III, respectively, and related transactions. Fund I-II and Fund III are
the issuers of the classes of securities which are the subject of the Rule 13e-3
transaction.
On September 23, 1995, Fund I-II and Fund III filed with the Securities and
Exchange Commission their definitive Proxy Statement relating to the
solicitation of proxies by Fund I-II and Fund III to vote upon: (1) a proposal
to approve and adopt (a) with respect to Fund I-II, the Fourth Amended and
Restated Agreement and Plan of Merger, dated as of August 21, 1996, among Fund
I-II, CRITEF Associates Limited Partnership and Watermark, and others, and (b)
with respect to Fund III, the Fourth Amended and Restated Agreement and Plan of
Merger, dated as of August 21, 1996, among Fund III, CRITEF III Associates
Limited Partnership and Watermark III, and others, and in each case, to approve
certain amendments to the Agreements of Limited Partnership of each of the Funds
to authorize expressly the foregoing, (2) a proposal to approve, with respect to
each Fund, (i) the sale of the 1.01% general partner interest by such Fund's
general partner to CAPREIT GP, Inc., a newly-formed, wholly-owned subsidiary of
CAPREIT ("CAPREIT GP"), in exchange for $500,000, and the substitution of
CAPREIT GP as the general partner of such Fund in its stead, and (ii) the
issuance of limited partner interests in each of the Funds to CAPREIT or its
designees in exchange for the contribution of real property or other assets, and
the admission of CAPREIT or its designees as limited partners of each of the
Funds, and, in each case, certain amendments to the Agreements of Limited
Partnership of each of the Funds to authorize expressly the foregoing, (3) any
adjournments of the Special Meetings to allow for the additional solicitation of
BAC Holder votes in order to obtain more votes in favor of the foregoing
proposals, and (4) any other business as may properly come before the Special
Meetings or any adjournments or postponements thereof.
A copy of the definitive Proxy Statement was attached as Exhibit 17(d)
to Amendment No. 3 to the Rule 13e-3 Transaction Statement. The sole purpose of
this Amendment No. 4 to the Rule 13e-3 Transaction Statement is to amend Item 17
"Material to be Filed as Exhibits" by filing certain additional exhibits.
<PAGE>
Item 17 MATERIAL TO BE
FILED AS EXHIBITS
-----------------
Item 17 is hereby amended and restated as follows:
(a)............... Commitment Letter, dated as of March 29, 1996,
between CAPREIT and CentRe Mortgage Capital L.L.C.
(b)(1)............ Fairness Opinion of Oppenheimer & Co., Inc.
delivered to Fund I- II, Series I, dated March 14,
1996, appears as Appendix B-1 to the preliminary
Proxy Statement filed as Exhibit 17(d) to Amendment
No.3 to the Rule 13e-3 Transaction Statement.
(b)(2)............ Fairness Opinion of Oppenheimer & Co., Inc.
delivered to Fund I-II, Series II, dated March 14,
1996, appears as Appendix B-2 to the preliminary
Proxy Statement filed as Exhibit 17(d) to
Amendment No.3 to to the Rule 13e-3 Transaction
Statement.
(b)(3)............ Fairness Opinion of the Oppenheimer & Co., Inc.
delivered to Fund III, dated March 14, 1996,
appears as Appendix B-3 to the preliminary Proxy
Statement filed as Exhibit 17(d) to Amendment No.3
to the Rule 13e-3 Transaction Statement.
(b)(4)............ Report of Oppenheimer & Co., Inc. in connection
with its Fairness Opinions of March 14, 1996.
(b)(5)............ Fairness Opinion of Oppenheimer & Co., Inc.
delivered to Fund I-II, Series I, dated September
20, 1996, appears as Appendix B-1 to the definitive
Proxy Statement filed as Exhibit 17(d) to Amendment
No. 3 to the Rule 13e-3 Transaction Statement.
(b)(6)............ Fairness Opinion of Oppenheimer & Co., Inc.
delivered to Fund I-II, Series II, dated September
20, 1996, appears as Appendix B-2 to the definitive
Proxy Statement filed as Exhibit 17(d) to Amendment
No. 3 to the Rule 13e-3 Transaction Statement.
(b)(7)............ Fairness Opinion of Oppenheimer & Co., Inc.
delivered to Fund III, dated September 20, 1996,
appears as Appendix B-3 to the definitive Proxy
Statement filed as Exhibit 17(d) to Amendment No. 3
to the Rule 13e-3 Transaction Statement.
(b)(8)............ Report of Oppenheimer & Co., Inc. in connection
with its Fairness Opinions of September 20, 1996.
(c)(1)............ Fourth Amended and Restated Agreement and Plan of
Merger, dated as of August 21, 1996, among Fund
I-II, CRITEF Associates Limited Partnership,
Watermark and others, appears as Appendix A-1 to
the definitive Proxy Statement filed as Exhibit
17(d) to Amendment No. 3 to the Rule 13e-3
Transaction Statement.
(c)(2)............ Fourth Amended and Restated Agreement and Plan of
Merger, dated as of August 21, 1996, among Fund
III,
<PAGE>
CRITEF III Associates Limited Partnership and
Watermark III, and others, appears as Appendix A-2
to the definitive Proxy Statement filed as Exhibit
17(d) to Amendment No. 3 to the Rule 13e-3
Transaction Statement.
(c)(3)............ Complaint for Breach of Fiduciary Duty in the case
styled Zakin v. Dockser, et al. (C.A. No. 14558)
(c)(4)............ Complaint for Breach of Fiduciary Duty in the case
styled Wingard v. Dockser, et al. (C.A. No. 14604)
(c)(5)............ Stipulation of Settlement, dated as of May 13,
1996, relating to the cases styled Zakin v.
Dockser, et al. and Wingard v. Dockser, et al.
(c)(6)............ Amendment to Stipulation of Settlement, dated
August 13, 1996, relating to the cases styled
Zakin v. Dockser, et al. and Wingard v. Dockser,
et al.
(c)(7)............ Final Order and Judgment of the Court of Chancery
of the State of Delaware in and for New Castle
County, dated August 14, 1996, approving the
Stipulation of Settlement as amended in the cases
styled Zakin v. Dockser, et al. and Wingard v.
Dockser, et al.
(c)(8)............ Complaint for False or Misleading Statements in the
case styled Dominium Tax Exempt Fund, L.L.P. v.
Dockser, et al.
(c)(9)............ Complaint for Preliminary and Permanent Injuncture
Relief against unlawful Proxy solicitation in the
case styled Capital Realty Investors Tax Exempt
Fund Limited Partnership, et al. v. Dominium Tax
Exempt Fund L.L.P.
(c)(10)........... Defendants' Emergency Motion to Enforce Court's
Final Order In Re Capital Realty Investors Tax
Exempt Fund Limited Partnership's Litigation.
(d)(1)............ Letters to BAC Holders, Notice of Special
Meetings, definitive Proxy Statement and forms of
Proxy.
(d)(2)............ October 3, 1996 Letter to BAC Holders from the
Funds
(d)(3)............ October 4, 1996 Press Release issued by the Funds
(d)(4)............ October 3, 1996 Press Release issued by CARPREIT
(e)............... Not applicable.
(f)............... At this time no written instruction, form or other
material currently exists with respect to any oral
solicitation or recommendation that may be made
(on behalf of the persons filing this statement)
to security holders in connection with the Rule
13e-3 transaction. Should any such written
instruction, form or material be generated, it
will be supplied to the Commission as a
supplemental filing.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: October 9, 1996
CAPITAL REALTY INVESTORS TAX EXEMPT FUND LIMITED PARTNERSHIP
By: CRITEF Associates Limited Partnership,
its General Partner
By: C.R.I., Inc.,
its Managing General Partner
By:/s/ William B. Dockser
-----------------------------
William B. Dockser
Chairman of the Board
CAPITAL REALTY INVESTORS TAX EXEMPT FUND III LIMITED PARTNERSHIP
By: CRITEF III Associates Limited Partnership,
its General Partner
By: C.R.I., Inc.,
its General Partner
By:/s/ William B. Dockser
-----------------------------
William B. Dockser
Chairman of the Board
CRITEF ASSOCIATES LIMITED PARTNERSHIP
By: C.R.I., Inc.,
its Managing General Partner
By:/s/ William B. Dockser
-----------------------------
William B. Dockser
Chairman of the Board
<PAGE>
CRITEF III ASSOCIATES LIMITED PARTNERSHIP
By: C.R.I., Inc.,
its General Partner
By:/s/ William B. Dockser
-----------------------------
William B. Dockser
Chairman of the Board
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Date: October 9, 1996
WATERMARK PARTNERS, L.P.
By: Capital Apartment Properties, Inc.,
its General Partner
By:/s/ Richard L. Kadish
-----------------------------
Richard L. Kadish
President and Chief Executive Officer
WATERMARK III PARTNERS, L.P.
By: Capital Apartment Properties, Inc.,
its General Partner
By:/s/ Richard L. Kadish
-----------------------------
Richard L. Kadish
President and Chief Executive Officer
CAPITAL APARTMENT PROPERTIES, INC.
By:/s/ Richard L. Kadish
-----------------------------
Richard L. Kadish
President and Chief Executive Officer
APOLLO REAL ESTATE ADVISORS, L.P.
By: Apollo Real Estate Management, Inc.,
its General Partner
By:/s/ Michael D. Weiner
-----------------------------
Michael D. Weiner
Vice President
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Title
- ----------- -----
17(a) Commitment Letter, dated as of March 29, 1996, between CAPREIT
and CentRe Mortgage Capital L.L.C.*
17(b)(4) Report of Oppenheimer & Co., Inc. in connection with its
Fairness Opinions of March 14, 1996.*
17(b)(8) Report of Oppenheimer & Co., Inc. in connection with its
Fairness Opinions of September 20, 1996.
17(c)(3) Complaint for Breach of Fidudiary Duty in the case styled
Zakin v. Dockser, et al. (C.A. No. 14558)*
------------------------
17(c)(4) Complaint for Breach of Fiduciary Duty in the case styled
Wingard v. Dockser, et al. (C.A. No. 14604)*
--------------------------
17(c)(5) Stipulation of Settlement, dated as of May 13, 1996, relating
to the cases styled Zakin v. Dockser, et al. and Wingard v.
----------------------- ----------
Dockser, et al. *
--------------
17(c)(6) Amendment to Stipulation of Settlement, dated August 13, 1996,
relating to the cases styled Zakin v. Dockser, et al. and
----------------------------
Wingard v. Dockser, et al.*
--------------------------
17(c)(7) Final Order and Judgement of the Court and Chancery of the
State of Delaware in and for Newcastle County, dated August
14, 1996, approving the Stipulation of Settlement, as amended,
in the cases styled Zakin v. Dockser, et al. and Wingard v.
---------------------------------------
Dockser, et al.*
---------------
17(c)(8) Complaint for False or Misleading Statements in the case
styled Dominium Tax Exempt Fund, L.L.P. v. Dockser, et al.
17(c)(9) Complaint for Preliminary and Permanent Injuncture Relief
against unlawful Proxy solicitation in the case styled Capital
Realty Investors Tax Exempt Fund Limited Partnership et al. v.
Dominium Tax Exempt Fund L.L.P.
17(c)(10) Defendants' Emergency Motion to Enforce Court's Final Order In
Re Capital Realty Investors Tax Exempt Fund Limited
Partnership's Litigation.
17(d)(1) Letters to BAC Holders, Notice of Special Meetings, definitive
Proxy Statement and forms of Proxy.*
(d)(2) October 3, 1996 Letter to BAC Holders from the Funds
(d)(3) October 4, 1996 Press Release issued by the Funds
(d)(4) October 3, 1996 Press Release issued by CARPREIT
* Previously filed.
<PAGE>
EXHIBIT 99.17C8
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
____________ DIVISION
- ------------------------------------------------------
Dominium Tax Exempt Fund, LLP,
Plaintiff, COMPLAINT
---------
Court File No. ___________
v.
William B. Dockser, H. William
Willoughby, C.R.I., Inc., CRITEF
Associates Limited Partnership, CRITEF III
Associates Limited Partnership, Capital
Realty Investors Tax Exempt Fund Limited
Partnership, and Capital Realty Investors
Tax Exempt Fund III Limited Partnership,
Defendants.
- ------------------------------------------
For its complaint against defendants, Plaintiff Dominium Tax Exempt
Fund, LLP ("Dominium") alleges the following:
INTRODUCTION
------------
1. This action arises out of a false and misleading proxy statement
filed by defendants on September 20, 1996, and declared effective on September
23, 1996, to solicit approval of the proposed mergers of publicly traded funds
(i.e., defendant Capital Realty Investors Tax Exempt Fund Limited Partnership
- -----
(Series I and II) ("CRITEF") and defendant Capital Realty Investors Tax Exempt
Fund III Limited Partnership ("CRITEF III")),/1/ with CAPREIT,/2/ a parent of
their principal property manager (the "Proposed Mergers").
- -----------------------
/1/ CRITEF and CRITEF III will be collectively referred to as the "Funds."
/2/ CRITEF and CRITEF III will actually merge with Watermark Partners, L.P.
and Watermark III Partners, L.P., respectively. Those two entities, both
affiliates of CAPREIT, were formed specifically to consummate the
<PAGE>
2. The false and misleading proxy statement was issued by defendants
William Dockser ("Dockser"), H. William Willoughby ("Willoughby"), C.R.I., Inc.
("CRI"), CRITEF Associate Limited Partnership, and the Funds (collectively, the
"Defendants"). Dockser, Willoughby, CRI, and CRITEF Associates Limited
Partnership are all managers or partners of the Funds in some capacity.
Although Defendants wish to create the impression that the Funds and CAPREIT
have no connection, the two are very interrelated. For example: 1) CAPREIT was
formed by CRI; 2) Dockser and Willoughby began the merger discussions on behalf
of the Funds when they still had an ownership interest in CAPREIT's owner, AP
CAPREIT, and were two of seven directors of CAPREIT; 3) a subsidiary of CAPREIT
manages 14 or the 18 multi-family properties owned by the Funds; 4) the parties
have structured the merger terms to include payments and credits by CAPREIT to
the general partners of the Funds which serve as improper inducements for the
general partners to consummate the merger with CAPREIT; 5) CAPREIT and CRI share
office space; 6) Richard Kadish, a former key employee of CRI, is now president
of CAPREIT; and 7) the Securities and Exchange Commission has deemed the
Proposed Mergers to be transactions between the Funds and related parties as
opposed to an arm's length transaction, requiring a higher level of disclosure
which the parties should have, but did not, undertake on their own, and still
have not satisfied.
3. The recipients of the false and misleading proxy statement are
holders of Beneficial Assignee Certificates in the Funds ("BACs"), including
Dominium. Dominium and other BAC holders have been assigned a portion of the
limited partnership interests of the Funds. The BACs were first publicly
offered at $25 per BAC in 1988, and thereafter commenced trading
- --------------------------------------------------------------------------------
Proposed Mergers. For convenience, CAPREIT will be referred to as the acquiring
entity, with the understanding that these two CAPREIT affiliates will
technically act as the merging entities.
-2-
<PAGE>
on the American Stock Exchange. Before that time, the Funds were privately held.
As owners of the Funds, more than 50% of the BAC holders must approve the
Proposed Mergers between the Funds and CAPREIT if they are to go forward.
4. In order to secure approval of the Proposed Mergers by the BAC
holders, and garner substantial financial benefits for themselves at the expense
of the BAC holders, Defendants misrepresent, omit or obscure various material
facts about the Proposed Mergers including, among other things: 1) the
relatedness between the two entities to be merged; 2) the unjustified kick-backs
to the general partners of the Funds at the expense of the BAC holders which
serve as a special inducement to the Funds' general partners to consummate the
merger with CAPREIT and their reason for recommending the Proposed Mergers; 3)
the true value of the BACs and the underlying properties to which the BAC
holders are entitled; 4) that the general partners signed the merger agreements
without any attempt to determine, let alone maximize, the fair value of the BAC
holders' interests, and instead relied on an after-the-fact "fairness"
determination, and agreed upon a $150 purchase price for which they could not
obtain a fairness opinion; and 5) the obstacles the self-interested general
partners have created to prevent competing bids from being made. The
misrepresentations or omissions are all intended to make the Proposed Mergers
appear more favorable to the BAC holders than they truly are, blindsiding the
BAC holders to the financial gains they will lose if the Proposed Mergers go
forward.
5. The false and misleading statements made by Defendants in their
proxy statement dated September 20, 1996 (the "Proxy Statement"), constitute a
violation of Section 14(a) of the Securities Exchange Act of 1934 ("Exchange
Act") 15 U.S.C. (S) 78n, and Rule 14a-9 promulgated thereunder.
-3-
<PAGE>
6. By this action, Plaintiff seeks an Order which, among other
things: 1) bars Defendants from using any proxies obtained through their false
and misleading solicitation; 2) requires Defendants immediately to amend their
proxy solicitation to reflect the matters set forth in this Complaint; and 3) if
necessary, requires Defendants to notify the BAC holders of a rescheduled
Special Meeting which will occur only after BAC holders have had sufficient time
to review the amended Proxy Statement.
PARTIES AND RELATED ENTITIES
----------------------------
7. Dominium Tax Exempt Fund, LLP: Dominium is a holder of 100 BACs
-----------------------------
of each of the three Funds: CRITEF (Series I), CRITEF (Series II) and CRITEF
III.
8. CRITEF and CRITEF III: CRITEF and CRITEF III (collectively, the
---------------------
"Funds") are Delaware Limited Partnerships with their principal place of
business at 11200 Rockville Pike, Rockville, MD 20852. The Funds were
originally formed to acquire a portfolio of tax-exempt mortgage revenue bonds
issued by various state or local governments or their agencies or
instrumentalities, which were collateralized by non-recourse participating first
mortgage loans on multi-family residential developments.
9. Dockser: Defendant William B. Dockser is a general, limited and
-------
managing partner of CRITEF Associates Limited Partnership ("CRITEF Associates")
and CRITEF III Associates Limited Partnership ("CRITEF III Associates"), the
general partners of the Funds. Dockser is Chairman of the Board and an owner of
shares of C.R.I., Inc. ("CRI"). Until recently he was one of CAPREIT's seven
directors, the acquiring entity in the Proposed Mergers. A wholly-owned
subsidiary of CAPREIT manages 14 of 18 multi-family apartment properties
securing the Funds' portfolio of loans. Dockser is also a direct or indirect
owner of the Owner Partnerships, which are described below.
-4-
<PAGE>
10. Willoughby: Defendant H. William Willoughby ("Willoughby") is a
----------
general, limited and managing partner of CRITEF Associates and CRITEF III
Associates, and the President, Secretary, director and owner of shares of CRI.
Until recently he was one of CAPREIT's seven directors. Willoughby is also a
direct or indirect owner of the Owner Partnerships, which are described below.
11. CRITEF Associates and CRITEF III Associates: CRITEF Associates
-------------------------------------------
and CRITEF III Associates are Delaware limited partnerships, and the general
partners of CRITEF and CRITEF III, respectively (the "General Partners").
Dockser, Willoughby, Martin A. Schwartzberg, CRI and current and former
employees of CRI own all of the general and limited partnership interests in the
General Partners.
12. C.R.I., Inc.: CRI is a Delaware corporation owned and controlled
------------
solely by Dockser and Willoughby. It was founded in 1974 as a real estate asset
management and financial services company. CAPREIT subleases office space
leased by CRI in Rockville, Maryland. Until recently, CRI had a significant
equity position in AP CAPREIT, a parent of CAPREIT. CRI is a general and
limited partner of CRITEF Associates, and a managing general partner of CRITEF
III Associates.
13. CRITEF, Inc. and CRITEF III, Inc.: CRITEF, Inc. and CRITEF III,
---------------------------------
Inc. are the assignor limited partners of CRITEF and CRITEF III. They are
Delaware corporations owned by, among others, Dockser and Willoughby, and hold
the limited partnership interests in the Funds. They are the entities in which
Dominium holds BACs. The BACs provide Dominium with all the rights and economic
benefits of a limited partner.
14. CAPREIT: CAPREIT is a private self-managed equity real estate
-------
investment trust which was formed in or about 1993 by CRI to own and manage a
portfolio of
-5-
<PAGE>
multi-family real estate properties. Dockser, Willoughby, and CRI, among other
persons, until recently had significant shareholdings in and/or control over
CAPREIT and/or its subsidiary, CAPREIT Residential, which manages 14 of the 18
multifamily properties securing the Funds' portfolio of loans. CAPREIT has two
affiliates, Watermark Partners, L.P., and Watermark III Partners, L.P., which
were formed specifically to consummate the Proposed Mergers. Richard L. Kadish
is president of CAPREIT.
15. AP CAPREIT: AP CAPREIT is wholly-owned by Apollo Advisers Real
----------
Estate Investment Fund, L.P., and in turn owns approximately 99% of the
outstanding capital stock in CAPREIT. In January 1995, when negotiations
regarding the Proposed Mergers began, CRI and certain of CRI's affiliates owned
approximately 22% of residual profits limited partner interests in AP CAPREIT.
On June 30, 1995, CRI purportedly divested itself of this interest.
16. The Owner Partnerships: The Owner Partnerships, comprised of
----------------------
entities owned and controlled by Dockser and Willoughby, were created to acquire
the properties secured by the BACs when they defaulted on the mortgage loans
held by the Funds, purportedly to preserve the tax-exempt status of the mortgage
revenue bonds.
JURISDICTION AND VENUE
----------------------
17. The claims alleged in this Complaint arise under Section 14(a) of
the Exchange Act, 15 U.S.C. (S) 78n, and Rule 14a-9 promulgated thereunder.
Accordingly, this Court has subject matter jurisdiction under 28 U.S.C. Section
1331 and Section 27 of the Exchange Act, 15 U.S.C. (S) 78aa.
18. Venue is proper in this district pursuant to 15 U.S.C. (S) 78aa
because the false and misleading information for which Plaintiffs seek relief
was transmitted into this district, was intended to be read and relied upon by
securities holders within this district, and was
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designed to interfere with valuable economic expectations of parties found in
this district, and under 28 U.S.C. (S) 1391(b)(2) in that a substantial part of
the events or omissions giving rise to Plaintiff's claims occurred in this
district.
FACTS
-----
A. THE FUNDS.
---------
19. CRITEF AND CRITEF III were formed in 1986 and 1987 for the
purpose of acquiring a portfolio of non-recourse tax-exempt mortgage revenue
bonds issued by various state and local governments, which were then used to
make participating first mortgage loans on multifamily residential rental
developments and/or retirement complexes.
20. CRITEF holds nine federally and state tax-exempt municipal
mortgage revenue bonds used to finance multifamily housing located in Minnesota
and elsewhere. CRITEF III similarly holds tax-exempt mortgage bonds which
financed properties located in California, Florida, Iowa, Minnesota, Missouri,
South Dakota, Tennessee and Washington.
21. The Funds were initially privately held. On October 29, 1988,
however, BACs reflecting units of beneficial interest in the Funds were publicly
offered for $25 per BAC and in 1993, commenced trading on the American Stock
Exchange.
22. The BACs entitle their holders to a share of the limited
partnership interests in the Funds, including the right to a percentage of the
income, gains, losses, deductions, and distributions of the Funds, on the basis
of one unit of limited partnership interest for one BAC.
23. The distributions to which the BAC holders are entitled have two
aspects: a non-contingent element, which consists of tax-exempt distributions
from interest payments from the revenue bonds, and a contingent element, which
consists of tax-exempt distributions
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from payments of contingent interest on the revenue bonds determined by: 1) the
cash flow from the underlying properties or (if cash flows are insufficient to
pay contingent interest); 2) proceeds from the repayment of the mortgage loans
or the sale of the revenue bonds. As a result, the BAC holders were entitled to
share in any appreciation in the value of the properties in excess of the
mortgages for the underlying properties under certain circumstances.
24. Under this scenario, the BAC holders receive 99% of the cash
generated by the mortgages during the operating phase of the Funds until they
have received a 10% non-compounded return, after which they receive 90% of cash
flow (with the General Partners receiving the residual 10%). Given the Funds'
performance, the likelihood of a residual return to the General Partners is
small.
25. The initial economics of the Funds were predicated on the
projected ability to increase rental rates on the properties at an annual rate
consistent with the mid-1980's experience. If rents increased and the
properties appreciated, the BAC holders were supposed to receive and share in
any cash flow and appreciation on the underlying value of the properties upon
their sale.
26. The stated objectives of the Funds in the original offering
prospectuses were: a) to preserve and protect the Funds' capital; b) to provide
semiannual federal tax-exempt cash distributions from the base mortgage loan
interest and from the Funds' interest reserve account; and c) to provide
additional tax-free distributions from payments of contingent interest on the
mortgage revenue bonds resulting from cash flow or bond sale and mortgage
repayment proceeds.
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<PAGE>
B. THE PROPERTIES HELD BY THE FUNDS.
--------------------------------
27. Until recently, the properties underlying the BACs have performed
poorly, with sixteen of the property owners having defaulted on their mortgages.
28. Consequently, the market price of the BACs, which is closely
related to the distributions and earnings from the underlying properties, has
fallen substantially below its original $25 offering price.
29. During the period from 1990 through 1995, sixteen of the original
eighteen borrowers under the mortgage loans on the underlying properties
defaulted when they were unable to pay base interest owing under the mortgage
loans.
30. Rather than foreclosing on the mortgages, the Funds formed the
Owner Partnerships, comprised of entities owned and controlled by Dockser and
Willoughby, to acquire the defaulted properties subject to all of the
obligations of the defaulted original owners. The Owner Partnerships have been
applying cash flows towards the payment of base interest and accrued base
interest under their mortgage loans.
31. CRI and its affiliates perform or have performed a mortgage
servicing and administrative function on behalf of the Owner Partnerships and
other owners of the properties. The Owner Partnerships purportedly owe accrued
mortgage servicing and administrative fees to CRI and one of its affiliates.
32. Beginning in 1993, with the upturn in the real estate market and
a concomitant improvement in the performance of the properties, cash flows from
the properties improved significantly.
33. Rather than turning the increased cash flows into distributions
for the BAC holders, CAPREIT and the General Partners began to build up the cash
reserves ("Available
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Cash") of the Funds. As a result, the price of the BACs remained depressed, not
bolstered by the improved cash flows of the underlying properties, as it
typically would be.
34. The build-up of the Funds' Available Cash by CAPREIT and the
General Partners began just as the parties began discussions about the Proposed
Mergers. For example, on December 31, 1994, the Funds had $17,200,747 in cash,
cash equivalents or securities. By December 31, 1995, that amount had risen to
$19,060,360. In addition, since at least June 1995, the pendency of the
Proposed Mergers has resulted in a restriction on distributions to BAC holders
regardless of improved cash flows from the underlying properties.
C. THE PROPOSED MERGERS.
--------------------
1. THE INITIAL TERMS.
-----------------
35. At least as early as January 1995, in order to take advantage of
this improvement in the properties and the concomitant increase in cash flow,
without having to share the increase with the BAC holders, the General Partners
and CAPREIT began discussions regarding acquisition of the Funds by CAPREIT. At
any time, CRI owned 22% of residual profits limited partner interests in AP
CAPREIT, the owner of CAPREIT, and Dockser and Willoughby were two of CAPREIT's
seven directors.
36. During February and March, 1995, there were several meetings
between the General Partners and CAPREIT, during which plans for the Proposed
Mergers became more concrete.
37. During April 1995, the General Partners and CAPREIT met to
establish, at least in general, the terms of the Proposed Mergers.
38. Only after substantial discussions regarding the Proposed Mergers
-----
and the terms thereof did CRI divest its interest in AP CAPREIT, in exchange for
$4.75 million on June
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30, 1995, subject to repayment by CRI of up to $3.9 million if certain property
management contracts are terminated ("Termination Refunds"). Although merger
discussions had purportedly been on hold for three months, remarkably, on the
same day that CRI divested its interest in AP CAPREIT -- June 30, 1995 --
CAPREIT representatives delivered the drafts of the agreements for the Proposed
Mergers to the General Partners.
39. During July and August 1995, the merger agreements for the
Proposed Mergers were revised.
40. From January 1995 through September 11, 1995 the General Partners
conducted negotiations with CAPREIT on an exclusive basis without ever having
actively solicited other purchasers for the BACs or the underlying properties.
41. On September 11, 1995, the General Partners announced that they
had accepted an offer by CAPREIT to purchase the Funds for a total of $150
million.
42. Although the General Partners have a duty to the BAC holders to
obtain the optimal price possible for them, the General Partners have agreed to
the terms of the merger without the benefit of any independent investigation or
evaluation of their fairness to the BAC holders.
43. In the initial announcement, and in subsequent descriptions of
the Proposed Mergers, the General Partners incorrectly characterized the
Proposed Mergers as a standard arm's length transaction, failing to disclose, or
obfuscating, the significance of the close connections between the merging
entities, CAPREIT and the Funds.
44. Under the initial terms of the Proposed Mergers, the following
consideration was offered to the BAC holders:
a) $13.761 per BAC for CRITEF (Series I) BACs;
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<PAGE>
b) $13.313 per BAC for CRITEF (Series II) BACs; and
c) $14.360 per BAC for CRITEF III BACs.
45. After the General Partners had entered into the merger agreements
-----
and announced the terms of the Proposed Mergers, they announced on September 11,
1995 that they would engage Oppenheimer & Co. ("Oppenheimer") to provide an
independent Fairness Opinion of the already agreed-upon merger terms.
46. In October 1995, after analyzing the terms of the Proposed
Mergers, Oppenheimer apparently concluded that the $150 million payment to the
BAC holders was insufficient, and thus refused to render a Fairness Opinion for
the transaction. Oppenheimer was instructed not to reduce the negative
evaluation to writing, and Oppenheimer's refusal to render a Fairness Opinion
was never publicized.
47. In September and October, 1995, two class actions were commenced
on behalf of the BAC holders against the General Partners and CAPREIT, alleging
that the price being offered to the BAC holders as announced by the Funds was
inadequate.
2. THE CLASS ACTION SETTLEMENT.
---------------------------
48. In January 1996, a tentative settlement was reached in the two
consolidated class actions, and in connection therewith, on January 31, 1996,
the cash consideration to be paid to the BAC holders under the Proposed Mergers
was increased to $158.5 million, less the amount payable to plaintiffs' counsel.
49. During February 1996, Oppenheimer reviewed the fairness of the
Proposed Mergers based on the improved merger terms.
50. On March 14, 1996, the terms of the Proposed Mergers were amended
again to increase the payment to BAC holders by $295,000. On the same day,
Oppenheimer
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delivered Fairness Opinions to the Funds. Incredibly, Oppenheimer delivered its
opinions without having received or performed any appraisals for the underlying
properties.
3. DOMINIUM'S OFFER.
----------------
51. During February 1996, Dominium's affiliate, Dominium Management
Services, contacted the General Partners concerning a possible acquisition of
the Funds.
52. On June 28, 1996, Dominium contacted counsel for the class action
plaintiffs and informed them that they were interested in entering into a merger
with the Funds Dominium offered payment to the BAC holders of $176.72 million,
$8.5 million of which was to reimburse the Funds for the break-up and expense
reimbursement fees, if necessary. During July, Dominium conducted its due
diligence. The General Partners did not even issue a press release regarding
Dominium's offer.
53. By August 12, 1996, Dominium had not yet delivered firm committed
financing acceptable to the General Partners for acquisition of the Funds. In
order to induce plaintiffs' counsel to proceed with an August 14, 1996 hearing
date, and to bring finality to the process, the General Partners informed
plaintiffs' counsel that they were increasing the amount to be paid to the BAC
holders under the Proposed Mergers by $2 million.
54. On August 21, 1996, CAPREIT agreed to increase the purchase price
by $1.5 million, for a total gross amount of $162.3 million to go to BAC holders
(or a net amount of $160.7 million after payment of plaintiff's counsel fees).
55. Again, after the fact, Oppenheimer was asked to review the
improved terms of the Proposed Mergers for the purposes of rendering a Fairness
Opinion. On September 20, 1996, it delivered that opinion.
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<PAGE>
56. The fourth amended version of the Proposed Mergers, including the
net price of $160.3 million to be paid to BAC holders, is set forth in the
Fourth Amended and Restated Agreement and Plan of Merger dated August 21, 1996,
and was disclosed in a preliminary proxy statement issued by Defendants on
August 26, 1996.
57. The final Proxy Statement was filed on September 20, 1996, and
became effective on September 23, 1996. Under the terms of Proposed Mergers
disclosed in the final Proxy Statement, the BAC holders would purportedly
receive a premium over the market price of the BACs, and receive the following
net consideration:
a. $14.82 per BAC for CRITEF's Series I BACs;
b. $14.50 per BAC for CRITEF's Series II BACs; and
c. $15.13 per BAC for CRITEF III's BACs.
58. The terms of the Proposed Mergers also include approximately $5.5
million in payments or credits to the General Partners which serve as an
improper inducement to consummate the merger with CAPREIT.
59. First, the Proposed Mergers will provide each General Partner
with a payment of $500,000 for their 1.01% interest in CRITEF and 1.01% interest
in CRITEF III, respectively -- interests which have no real economic value.
60. Of that $1 million to be paid to the General Partners, Dockser,
Willoughby and Schwartzberg will receive approximately 25%, CRI will receive a
small amount, and the remainder goes to current and former employees of CRI,
including CAPREIT's president, Mr. Kadish.
61. Second, CAPREIT has agreed to pay approximately $3.48 million for
the right to receive accrued fees owed to the General Partners' affiliates, CRI
and CRIIMI, which
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<PAGE>
those affiliates would not receive if the Proposed Merger with CAPREIT does not
go through. Indeed, under the initial merger terms, $5.4 million was to be
received, but to make it appear that CAPREIT was paying more as part of the
class action settlements, the General Partners agreed to reduce the amount of
fees they would receive, even though they were really entitled to no fees.
62. Specifically, CAPREIT has agreed to purchase the accrued fees
from those affiliates, even though they are payable to the affiliates only on a
subordinated basis, and thus will almost certainly never become due. The
accrued fees are subordinated on a current basis, loan by loan, to payment of
full base interest, plus any unpaid interest and interest thereon, on the
mortgage revenue bonds owned by the Funds. In order for these accrued fees to
be paid, the owner of the property must be current in the payment of principal,
and all past interest under the mortgage loan. Because sixteen of the eighteen
mortgage revenue bonds are currently in default, the possibility of payment of
the accrued fees is highly unlikely, because there is substantial past interest
owing. Payment for the right to these accrued fees by CAPREIT is thus a
windfall to the General Partners. Indeed if these fees were due, the value of
----
the BAC's would be much greater than the "fair" price suggested by Defendants in
----
the Proxy Statement.
63. Finally, under the terms of the Proposed Mergers, approximately
$1.15 million of Termination Refunds owed by CRI to AP CAPREIT will not be due
if the Proposed Mergers are consummated with CAPREIT. If anyone else were to
acquire the Funds, it is likely that the new owner would wish to designate its
own property management company, and thus trigger CRI's obligation to pay AP
CAPREIT the $1.15 million in Termination Records owed under the June 30, 1996
agreement between the parties. CRI and its affiliates are thus receiving a
benefit of about $1.15 million that they almost certainly would not receive in a
transaction with any party other than CAPREIT.
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<PAGE>
64. Such inducements create serious conflicts of interest, such that
the Securities and Exchange Commission has deemed the Proposed Mergers to be
transactions between the Funds and related parties as opposed to an arm's length
transaction, requiring a higher level of disclosure which the parties should
have, but did not, undertake on their own.
65. There has been no explanation by Defendants as to why the above-
described $5.5 million should go to the General Partners rather than to the BAC
holders.
66. The Proposed Mergers also include terms which serve as
substantial barriers to competing bidders. If the Proposed Mergers do no
proceed, the Funds must pay CAPREIT a $2.25 million termination fee per Fund,
and $2.6 million in expense reimbursement per Fund. This means that any
prospective acquired of the Funds must automatically offer as much as $9.7
million more than CAPREIT just to compete on even terms for an immediate
alternative transaction.
67. When combined with the $5.5 million in payments to which the
general partners are not entitled, any competing buyer is faced with a $15
million handicap.
68. Consummation of the Proposed Mergers is dependent upon, among
other things, obtaining the approval of more than 50% of the Funds' BAC holders
through a proxy solicitation.
69. The Proxy Statement purports to disclose material information
about the Proposed Mergers, solicits the proxies of the BAC holders in favor of
the Proposed Mergers, and sets a Special Meeting on October 29, 1996 at which
the BAC holders are to consider and vote upon the Proposed Mergers.
70. The manner in which Defendants have set forth in the Proxy
Statement the facts material to the Proposed Mergers (those they actually do
--
disclose) makes an immensely
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complex transaction even more indecipherable. Defendants scatter certain pieces
of information throughout the Proxy Statement in no logical sequence, and bury
others. Nowhere does the Proxy Statement provide a coherent, straightforward
explanation of the relationship between the merging parties or the financial
pros and cons to the Proposed Mergers and their alternatives.
71. The Proxy Statement is false and misleading, in violation of
Section 14(a) and Rule 14a-9 because it misrepresents or omits several material
facts relating to, among other things: 1) the relationship between the Funds
and CAPREIT and the payments and credits by CAPREIT to the General Partners
which serve as inducements to consummate the merger with CAPREIT; 2) the true
value of the BACs and the underlying properties to which the BAC holders are
entitled; 3) the absence of any independent investigation and evaluation before
agreeing on the initial terms of the Proposed Mergers, including the $150
million purchase price for which they could not obtain a fairness opinion; and
---
4) the barriers which prevent competing proposals to the Proposed Mergers. Such
misrepresentations and omissions prevent BAC holders from realizing the
substantial financial gain they will sacrifice if they approve the Proposed
Mergers. These misrepresentations and omissions are set forth below.
COUNT I
VIOLATION OF SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14A-9 PROMULGATED THEREUNDER
72. Plaintiff restates and realleges the allegations contained in
paragraphs 1-71 above as if fully set forth herein.
73. Section 14(a) of the Exchange Act and Rule 14a-9 promulgated
thereunder provide, in pertinent part, that no solicitation shall be made by
means of any proxy statement or other communication, whether written or oral,
"containing any statement which, at the time and
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in light of the circumstances under which it is made, is false and misleading
with respect to any material fact, or which omits to state any material fact
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in an earlier communication with respect to
the solicitation of a proxy for the same meeting or subject matter which has
become false or misleading."
74. Defendants' Proxy Statement constitutes a solicitation within the
meaning of Section 14(a) of the Exchange Act and Rule 14a-9.
75. Defendants disseminated the Proxy Statement throughout the United
States by use of the mails and/or means of instrumentalities of interstate
commerce.
76. Defendants' Proxy Statement is materially false and misleading in
the following respects:
A. DEFENDANTS' PROXY STATEMENT FALSELY CHARACTERIZES THE PROPOSED MERGERS AS
AN ARM'S LENGTH TRANSACTION, AND FAILS TO MAKE MATERIAL DISCLOSURES
REGARDING THE SIGNIFICANT CONFLICTS OF INTEREST AND INDUCEMENTS TO PROCEED
WITH THE PROPOSED MERGERS.
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(a) Throughout the Proxy Statement, Defendants create the misleading
impression that the Funds and CAPREIT are unrelated parties and have negotiated
the merger only at "arm's length." For example, on page 30 of the Proxy
Statement, Defendants state that "the terms of the Merger Agreement were reached
through protracted arm's-length negotiations over several months between
representatives of CAPREIT, on the one hand, and representatives of the Funds,
on the other." Given the close and ongoing affiliation between CRI and CAPREIT
- -- their shared office space, their coordinated efforts for the merger
negotiation -- it is a gross misrepresentation to characterize the negotiations
as "arm's-length."
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(b) Similarly, on page 4 of the Proxy Statement, Defendants represent
that "[e]xcept for CAPREIT Residential's management of 14 of the properties
securing the Mortgage Revenue Bonds and 16 other properties held by other CRI-
related entities and CAPREIT's sublease of certain office space from CRI,
neither CAPREIT nor any of its affiliates have any affiliation or other
relationship with CRI or any of ifs partners or affiliates." CAPREIT's
relationship with CRI involves much more. Defendants fail to disclose that CRI
and CAPREIT have numerous cross investments and interrelationships, and have
been working together to achieve the Proposed Mergers. Their relationship is
far from arm's length, as the Proxy Statement falsely suggests. In fact,
telephone calls to CAPREIT were answered by CRI during the period of the merger
negotiations.
(c) The Proxy Statement fails to disclose that the Securities and
Exchange Commission has deemed the Proposed Mergers to be a transaction between
related parties.
(d) On page 30 of the Proxy Statement, Defendants falsely state that
as a result of the "arm's-length" negotiations, "the consideration offered by
CAPREIT to the BAC holders was increased on four occasions." This statement is
false. Rather than resulting from arms' length negotiations, the increases in
price to the BAC holders occurred as a result of: 1) the inability to obtain a
Fairness Opinion for the initial $150 million purchase price; 2) the plaintiffs'
class action claims; 3) a suit by Martin A. Schwartzberg, one of CRI's own
general partners; and 4) Dominium's attempt to make a superior proposal.
Without these independent forces, Defendants would have conspired to keep the
purchase price at its initial $150 million level.
(e) In the Proxy Statement, Defendants fail to disclose any value or
operating projections by CAPREIT, the actual manger of 14 of the underlying
properties. In the failing to
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disclose CAPREIT's operating and financial projections for the properties, or
the possible impact of CAPREIT's financing plan, Defendants have deprived BAC
holders of a true estimate of the market value of the BACs. The omission of this
important financial information is even more misleading given the close
relationship between CAPREIT and the Funds, and the concomitant incentive to
skew the financials so as to maximize the benefit to CAPREIT and the Funds --
the merger insiders -- at the expense of the BAC holders.
(f) Defendants fail to disclose that CAPREIT, through its affiliate's
management of 14 of the 18 underlying properties, can influence the cash flows
from the properties by setting rent rates, determining the level of repairs,
maintenance and other capital expenditures and when those expenses will be
incurred, and thus can directly influence the value of the BACs.
(g) Far from arm's length, the two entities have actually conspired to
arrange interlocking terms for the Proposed Mergers which create unwarranted
inducements to the General Partners to proceed with the Proposed Mergers. For
example, defendants fail to make clear, and indeed, attempt to bury the
important facts that: 1) the Proposed Mergers will provide each General Partner
with an unjustified kick-back of $500,000 for their 1.01% interest in CRITEF and
1.01% interest in CRITEF III, respectively, in which the General Partners,
Dockser, Willoughby, Schwartzberg and Kadish (CAPREIT's president) will share;
2) CAPREIT has agreed to pay approximately $3.48 million for the right to
receive accrued fees owed to the General Partners' affiliates, CRI and CRIIMI,
which those affiliates would not receive if the Proposed Merger with CAPREIT
does not go through; and 3) under the terms of the Proposed Merger,
approximately $1.15 million in Termination Refunds owed by CRI to AP CAPREIT
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which would almost certainly not be due if the Proposed Mergers are consummated
with CAPREIT.
(h) In a piecemeal fashion, Defendants allude to the facts that the
Proposed Merger terms include: 1) an unjustified $1 million payment to the
General Partners; 2) a $3.48 million by CAPREIT to the General Partners
affiliates for purported accrued fees; and 3) a $1.15 million credit to CRI to
AP CAPREIT. However, Defendants do not disclose, let alone explain: 1) that
the General Partners are not entitled to such payments or credits in the first
place; or 2) why such payments should go to the General Partners or their
affiliates rather than the BAC holders.
(i) Defendants also fail to disclose that such unjustified kick-backs
to the General Partners and their affiliates at the expense of the BAC holders
constitute a breach of the General Partners' fiduciary duty to the BAC holders,
and that if the Proposed Merger is consummated, the BAC holders will lose their
rights to bring claims based on those kick-backs.
(j) Defendants fail to disclose in the Proxy Statement the financial
benefit CAPREIT will receive from the merger, in exchange for the $22.5 million
in transaction costs it anticipates incurring to effect the Proposed Mergers, or
what the sources of those transaction costs are.
(k) Defendants fail to disclose why they have structured these
transactions in this particular way, whether any of the alternatives to the
Proposed Merger would result in similar kick-backs to the General Partners and
their affiliates, or that as structured, it is possible that 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
(which
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<PAGE>
benefit should go to the BAC holders), benefit from receiving future tax losses
allocated to the Owner Partnerships, and benefit from any future
appreciation of the underlying properties.
B. THE DEFENDANTS' PROXY STATEMENT FALSELY UNDERSTATES OR OMITS THE TRUE VALUE
OF THE BACS AND THEIR UNDERLYING PROPERTIES AND THUS UNDERSTATES THE FAIR
VALUE THE BAC HOLDERS SHOULD RECEIVE FOR THEIR INTERESTS.
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(l) Perhaps the most surprising omission of the Proxy Statement is its
failure to disclose anything about the value for the properties underlying the
BACs, whether through appraisals or otherwise. In essence, the value of the BAC
holder interests turns on the value of the properties securing the mortgage
revenue bonds and the tax-free cash flow generated by the properties for the
Funds. Defendants are national and sophisticated property investors. They must
have done initial analyses and appraisals before entering into a transaction
worth over $150 million. Based on the Proxy Statement, BAC holders have no way
of assessing how much their interests are worth. The value of the properties is
the most fundamental piece of information necessary to evaluate the fairness of
the Proposed Mergers, and yet appears nowhere in the more than 100 pages of the
Proxy Statement.
(m) Defendants fail to disclose in the Proxy Statement that at some
point during the negotiations for the Proposed Mergers, Cushman and Wakefield, a
major national appraisal firm, was retained to conduct appraisals for at least
certain of the underlying properties, nor does the Proxy Statement reveal the
conclusions, if any, at which Cushman and Wakefield arrived.
(n) The Proxy Statement also fails to disclose any value projections
by CAPREIT, the actual manager of the properties. CAPREIT is the entity with
nearly all of the financial information about the Properties: it keeps the
books, makes decisions about rent and repairs, and runs occupancy and financial
projections for the properties, all on behalf of, and for
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for the benefit of, the BAC holders. In failing to disclose CAPREIT's occupancy
and rental projections for the properties, or the possible impact of CAPREIT's
financing plan, Defendants have deprived BAC holders of a true estimate of the
market value of the BACs. Without the benefit of that information, the BAC
holders have no idea what financial gains they are sacrificing by approving the
Proposed Mergers.
(o) Throughout the Proxy Statement, Defendants falsely underestimate
the current value of the BACs, and of the properties underlying them. For
example, on page 11 of the Proxy Statement, Defendants set forth the applicable
market values of the BACs as of various dates. Defendants fail to disclose that
the trading prices of the BAC's: 1) have been depressed by CAPREIT's own
refusal to distribute dividends to the BAC holders from Available Cash reserves;
2) have been depressed because of the poor performance of the real estate market
in general, which is now improving; 3) do not reflect the recent improved cash
flow and operations of the properties and the future profits which can thus be
anticipated from the properties; and 4) have been depressed because potential
investors assume that the terms of the Proposed Merger will go through, thus
capping the market price for the BACs, since the BAC holders have no right to
dissent and seek a judicial determination of fair value under the terms of the
Proposed Mergers. Because of these facts, it is materially false and misleading
to suggest that BAC holders should consider the prices set forth in the Proxy
Statement to be a fair reflection of value of the BACs in evaluating the
Proposed Mergers.
(p) On page 2 of the Proxy Statement, Defendants state that they have
limited the amount of upward adjustments to the redemption price that will be
based on Available Cash at closing. Defendants have failed to disclose any
estimate of how much Available Cash there will be, preventing BAC holders form
learning how much of their cash will go to CAPREIT
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rather than to the BAC holders. They have also failed to disclose that CAPREIT
can control the timing of the Proposed Mergers so as to ensure that the
Available Cash is at is highest, and thus maximizing the payment to the General
Partners at the expense of the BAC holders, since there is a cap on the amount
of Available Cash the BAC holders can receive under the terms of the Proposed
Merger.
(q) ON page 16 of the Proxy Statement, Defendants state that "[o]ther
than as set forth in this Proxy Statement, the General Partners have no reason
for proposing and recommending the Transactions now (as opposed to any other
time) and are unaware of any material development affecting the future value of
the BACs which is not discussed in this Proxy Statement." This statement is
misleading because if fails to disclose that the real estate market is on the
upswing, the value of multifamily housing is beginning to rise, the values of
similar REIT investments are increasing, and the properties can anticipate
increased profits. These factors are likely to affect positively the future
value of the BACs.
(r) On page 27 of the Proxy Statement, Defendants state that "each of
the General Partners gave considerable weight to the fact that the Redemption
Prices payable to the BAC holders in the Mergers represent a substantial
premium...over the market prices of the BACs...higher than the highest trading
prices of the BACs since the BACs were listed on the American Stock Exchange in
1993." Again, such a statement is misleading because it fails to disclose that
the real estate market is on the upswing, the value of multifamily housing and
comparable REIT investments is beginning to rise, and the properties can
anticipate increased profits. The 1994 and 1995 market prices for the BACs are
thus outdated. In addition, over the past year, BAC prices have been depressed
by the General Partner's self-interested failure to
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<PAGE>
make distributions to BAC holders from Available Cash, making the most recent
market prices disclosed by Defendants also misleading.
(s) On page 8 of the proxy materials, Defendants state that as a
result of the Proposed Merger, the BAC holders "will no longer receive tax-
exempt distributions from the Funds or share in any future appreciation (or
depreciation) in the values of the Mortgage Revenue Bonds or the underlying
properties." Defendants fail to disclose any projections, estimates or analysis
that CRI or CAPREIT have prepared with respect to such future appreciation.
Without understanding precisely what they will forego as a result of the
Proposed Mergers, the BAC holders cannot make an informed decision as to whether
they should approve or reject that merger.
(t) On page 9 of the Proxy Statement, Defendants discuss fees and
expenses associated with the Proposed Mergers without clearly and plainly
advising the BAC holders as to what the responsibility of the Partnerships will
be for expenses if the BAC holders reject the Proposed Mergers.
(u) In their discussion of fees and expenses on page 9 of the Proxy
Statement, Defendants fail to disclose information from CAPREIT regarding the
payments for maintenance, replacements, improvements or other expenses that may
have effectively reduced the properties' operating income and thus skewed
Oppenheimer's after-the-fact Fairness Opinion and reduced the Available Cash for
distribution to the BAC holders. Without such information, the BAC holders
cannot evaluate whether CAPREIT's withdrawals from reserves have been consistent
with past practice or industry practice.
-25-
<PAGE>
C. THE DEFENDANT'S PROXY STATEMENT MISREPRESENTS THAT THEY RELIED ON A
FAIRNESS OPINION, SINCE THE FAIRNESS OPINION WAS OBTAINED AFTER-THE-FACT
AND DISREGARDED IMPORTANT ASPECT OF THE MERGER.
---------------------------------------------------------------------------
(v) Throughout the Proxy Statement, Defendants create the false
impression that the terms of the Proposed Mergers resulted from an independent
investigation and fairness evaluation by an independent party, rather than from
the inside, self-interested dealings from which they truly resulted. For
example, on page 19 of the Proxy Statement, Defendants state that "approval of
the Mergers would be conditioned on the receipt of a favorable Fairness Opinion
of an investment bank," and on page 30 of the Proxy Statement, state that as a
result of arm's length negotiations, "the Merger Agreements were made contingent
upon the receipt of favorable Fairness Opinions from an investment bank." It is
materially misleading to state or imply that General Partners relied on the
Oppenheimer Fairness Opinion since before receiving that Fairness Opinion, they
------
had agreed to and announced the Proposed Merger terms, and declared in a press
release on September 11, 1995 that under those terms, the BAC holders would
receive "full value" for their interests. In fact, Oppenheimer was not even
engaged by CRI under after it had entered into the Merger Agreements, and the
-----
Fairness Opinion from Oppenheimer came only after the fourth amended merger
-----
agreement had been negotiated. Even then, Oppenheimer delivered the opinion
without ever having received or performed an appraisal of the underlying
properties. It is thus materially misleading to suggest the merger terms were
deemed fair by an independent source. In addition, Defendants fail to disclose
why Oppenheimer refused to render a Fairness Opinion based on the $150 million
consideration and on what basis the General Partners agreed to an initial
purchase price of $150 million, given that they did NOT have the benefit of a
Fairness Opinion, or how the General Partners came to the conclusion that the
initial merger terms offered the BAC holders "full value" for their interests.
-26-
<PAGE>
(w) On page 27 of the Proxy Statement, Defendants state that the
General Partners, in arriving at their fairness determination, also "gave
considerable weight to and relied to a significant extent on the estimates of
the range of values of the BACs developed by Oppenheimer in connection with its
Fairness Opinion." Such a statement is misleading, since: 1) Oppenheimer
relied only on financial information provided by the General Partners without
independently verifying that information; 2) that information was outdated and
did not take into account the upswing in the real estate market; 3) Oppenheimer
used capitalization rates that were too high; and 4) Oppenheimer rendered its
opinion without conducting an appraisal or evaluating the assets of the funds.
A more accurate evaluation of the value of the BACs would have resulted in a
range of acceptable values more than $50 million greater than the range computed
by Oppenheimer.
(x) The Proxy Statement also fails to disclose why Oppenheimer's
Fairness Opinion did not take into account consideration to be paid or other
benefits to be received by the General Partners and their affiliates, including
the $5.5 million in kick-backs described above.
D. DEFENDANTS' PROXY STATEMENT FAILS TO DISCLOSE THE OBSTACLES WHICH PREVENT
COMPETING BIDS TO THE PROPOSED MERGERS.
---------------------------------------------------------------------------
(y) Throughout the Proxy Statement, Defendants create a misleading
impression regarding the absence of competing offers to the Proposed Mergers, by
failing to disclose the interlocking nature of the merger terms and other hidden
barriers which greatly discourage competing bids. On page 27 of the Proxy
Statement, Defendants state that "none of the alternatives they considered are
superior to the Mergers," and on page 28, state that "no potential bidder has
come forward with a superior proposal." Defendants fail to disclose
-27-
<PAGE>
however, that the deal between CAPREIT and CRI is structured to create
significant barriers to obtaining any other offers.
(z) On page 31 of the Proxy Statement, Defendants disclose that if the
Proposed Mergers do not proceed, the Funds must pay CAPREIT a $2.25 million
break-up fee per Fund, and $2.6 million in expense reimbursement per Fund.
Defendants fail to explain that the prospect of not having to pay these fees to
CAPREIT if the Proposed Merger is consummated creates a $9.7 million hidden cost
which a competing buyer would have to pay in addition to the purchase price in
order to compete on even terms for an alternative transaction. When such
payments are arranged by related parties, rather than parties dealing at arm's
length, they are per se improper, because they permit a related party to obtain
substantial value which should go the BAC holders instead. The Proxy Statements
fails to disclose the impropriety of such an arrangement.
(aa) On page 19 of the Proxy Statement, Defendants suggest that the
lack of any representations and warranties by the Funds about tax exempt status
or liability for breaches of representations and warranties by the Funds is of
benefit to the BAC holders. Defendants fail to disclose that in a merger
transaction of this sort, representations and warranties would never survive the
closing, and that therefore, the absence of such representations and warranties
is of greater benefit to CAPREIT than to the BAC holders and is a barrier to
competitive bids because CAPREIT's intimate knowledge of the underlying
properties obviates the need for representations regarding such issues as the
Funds' tax-exempt status, while competitors, who have no way of obtaining such
information, are faced with significant unknown risks without such
representations and warranties.
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<PAGE>
(bb) Defendants fail to disclose in the Proxy Statement why a
refinancing like the Proposed Merger which benefits CAPREIT is acceptable, while
one which would benefit the BAC holders is not. While the Proxy Statement
acknowledges that extending the maturity dates of the mortgage revenue bonds
would allow the BAC holders to receive tax-exempt interest and to participate in
increases in the values of the underlying properties, it claims that such a
refinancing alternative was rejected because such benefits are outweighed by the
benefits offered by the Proposed Merger. In fact, the transaction costs to the
BAC holders involved in refinancing by extending the maturity dates are no
greater than for the Proposed Merger. Defendants have not explained why
refinancing for the benefit of CAPREIT is better than refinancing for the
benefit of the BAC holders.
(cc) On page 34 and 35 of the Proxy Statement, Defendants state that
their decision to reject the alternatives to the Proposed Mergers was largely
based on Oppenheimer's Fairness Opinion. Such a statement is false, given that
the General Partners agreed to do the Proposed Mergers with CAPREIT for $150
million (and therefore rejected other alternatives) before they had any Fairness
------
Opinion.
(dd) On page 19 of the Proxy Statement, Defendants state that
CAPREIT's ability to obtain the committed financing for the Proposed Mergers was
a reason why the General Partners decided to go forward with the Proposed
Merger. However, information on page 58 of the Proxy Statement shows that such
a statement is false, since CAPREIT also lacks committed financing in that it
does not yet have issuer commitments, and may have to attempt to obtain bridge
financing.
(ee) On page 34 of the Proxy Statement, Defendants state that
extending the mortgage loan maturities was rejected as an alternative to the
Proposed Merger because
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<PAGE>
that alternative would require issuer consents. Such a statement is materially
misleading, since CAPREIT's own transaction requires issuer consents.
E. DEFENDANTS' PROXY STATEMENT FALSELY STATES THAT THE PROPOSED MERGERS ARE
FAIR TO AND IN THE BEST INTERESTS OF THE BAC HOLDERS.
------------------------------------------------------------------------
(ff) Given: 1) the conflicts of interest of the merging parties and
improper inducements to proceed with the merger; 2) the significant value the
BAC holders could and should receive for their interests; 3) the fact that the
initial merger terms were reached without the benefit of an independent
investigation and analysis, or an appraisal of the underlying properties; and 4)
the barriers to competing bids, all of which are omitted, misrepresented or
obfuscated in Defendants' Proxy statement, it is false to state, as Defendants
do on pages 5, 26, and 27 of the Proxy Statement, that the Proposed Mergers are
"fair to and in the best interests of the BAC Holders." Far from being in the
"best interests," all indications point to significant losses hoisted upon the
BAC holders by the Proposed Mergers. Defendants, however, have omitted the
material information necessary to evaluate just how great those losses are.
(gg) Despite more than 100 pages of disclosure in the Proxy Statement,
Defendants have provided no information as to what the General Partners or
CAPREIT believe is the value of the properties securing the revenue bonds, or
why the General Partners view the Proposed Merger terms as fair for the BAC
holders, both of which are material omissions, as they deprive BAC holders of
the ability to assess what they will receive and what they will forego under the
terms of the Proposed Mergers.
(hh) It is materially misleading to characterize the Proposed Merger
as the "best" option for the BAC holders when the General Partners did not
consider, and in fact precluded, alternative options. The General Partners have
never attempted to solicit other merger
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<PAGE>
partners or market the Funds or the properties where all bidders have a level
playing field. They have never used a broker to market the properties or conduct
a competitive bidding process for the Funds. These efforts by the General
Partners to keep the negotiations regarding acquisition of the Funds exclusive
are not disclosed in the Proxy Statement.
77. These misrepresentations and omissions of fact and circumstances
are material to any decision by BAC holders concerning the upcoming vote on the
Proposed Mergers at the Special Meeting scheduled for October 29, 1996 and any
decision by members of the investing public making investment decisions
concerning the retention, sale or purchase of BACs, and have been made as a
result of knowing, reckless or negligent conduct by Defendants. The Proxy
Statement is an essential link in effecting the Defendants' scheme to seize and
maintain control of the Funds and their assets.
78. By virtue of the foregoing, Defendants have violated and continue
to violate Section 14(a) of the Exchange Act and Rule 14a-9 promulgated
thereunder.
79. Plaintiff and other BAC holders will be irreparably injured by
Defendants' activities if the Proxy Statement and transmittal letter are
continued to be distributed, or if any solicitations are made pursuant
therewith, in that the BAC holders they have solicited are likely to be misled,
confused or intimidated by Defendants' actions and are likely to be compelled to
make ill-informed proxy decisions concerning their stock and the Proposed
Mergers without the benefit of the full and fair disclosure to which they are
entitled under the Exchange Act.
80. Plaintiff has no adequate remedy at law.
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<PAGE>
PRAYER FOR RELIEF
-----------------
WHEREFORE, Plaintiff demands judgment in its favor.
1. For an order requiring Defendants to immediately amend their Proxy
Statement to reflect the matters set forth in this Complaint, if necessary, to
notify the BAC holders of a rescheduled Special Meeting at which a vote on the
Proposed Mergers will occur and to distribute said amended proxy statement to
the BAC holders in sufficient time to allow said BAC holders to vote their
proxies at the rescheduled Special Meeting;
2. For preliminary and permanent injunction enjoining Defendants and
their agents, consultants and advisors from filing or disseminating any false or
misleading proxy materials, or making any other untrue statements of fact to any
shareholder of Defendant;
3. For a preliminary and permanent injunction ordering Defendants,
their agents, officers, directors, employees, consultants and advisors, to
comply with the requirements of Section 14(a) of the Exchange Act and the rules
and regulations promulgated thereunder;
4. Directing that any proxies solicited or obtained by Defendants,
their agents, servants, employees, affiliated and related persons or entities
and by all persons who are entities acting in concert or participation with
Defendants, as a result of or because of Defendants' misleading proxy statement
materials shall be considered null, void and unenforceable;
5. For an Order compelling Defendants to, in fact, hold its
rescheduled Special Meeting if necessary to accommodate a lawful Proxy
Solicitation;
6. For all attorneys' fees and costs of this action incurred in
connection with this action; and
7. For such additional further relief as the Court deems just and
proper.
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<PAGE>
Dated: September 27, 1996 FAEGRE & BENSON LLP
/s/ Karen E. Wilson
-------------------
Thomas L. Kimer, #55736
Robert L. Schnell, Jr., #97329
Karen E. Wilson, #241726
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-3901
(612) 336-3000
Attorneys for Plaintiff Dominium Tax
Exempt Fund, LLP
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<PAGE>
EXHIBIT 99.17C9
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
X
- ---------------------------------------------
CAPITAL REALTY INVESTORS :
TAX EXEMPT FUND LIMITED :
PARTNERSHIP, CAPITAL : 96 CIV. LAK 7534
REALTY INVESTORS TAX EXEMPT FUND :
III LIMITED PARTNERSHIP, CRITEF :
ASSOCIATES LIMITED PARTNERSHIP, : COMPLAINT FOR
CRITEF III ASSOCIATES LIMITED : PRELIMINARY AND
PARTNERSHIP, CAPITAL APARTMENT : PERMANENT INJUNCTIVE
PROPERTIES, INC. AND C.R.I., INC., : RELIEF AGAINST UNLAWFUL
: PROXY SOLICITATIONS
PLAINTIFFS, : AND FOR DAMAGES
: FOR TORTIOUS
: INTERFERENCE WITH
: CONTRACT
: -----------------------
V. :
:
DOMINIUM TAX EXEMPT FUND L.L.P., :
A MINNESOTA LIMITED LIABILITY PARTNERSHIP, :
JACK W, SAFAR, DAVID L, BRIERTON, :
PAUL R. SWEEN, AND :
ARMAND E. BRACHMIAN :
:
DEFENDANTS. :
X
- ---------------------------------------------
Plaintiffs Capital Realty Investors Tax Exempt Limited Partnership
("CRITEF"), Capital Realty Investors Tax Exempt Fund III Limited Partnership
("CRITEF III," and, with CRITEF, the "Funds"); CRITEF Associates Limited
Partnership ("CRITEF Associates"), CRITEF III Associates Limited Partnership
("CRITEF III Associates", and, with CRITEF Associates, the "General Partners" ),
C.R.I., Inc. ("CRI") and Capital Apartment Properties, Inc. ("CAPREIT")
(collectively, "Plaintiffs"), allege as follows:
<PAGE>
I. INTRODUCTION
1. This action arises under the federal securities laws and the common law
arising from improper proxy solicitations containing false and misleading
statements made by Defendant Dominium Tax Exempt Fund L.L.P. ("Dominium") to
disrupt proposed mergers (the "Mergers") of the Funds with affiliates of
CAPREIT. The merger Dominium is seeking to upset was publicly announced over a
year ago and will be voted upon at meetings on October 29, 1996. Almost eight
months ago, Dominium first expressed interest in acquiring the Funds, and did
extensive due diligence over the ensuing months. Ultimately, Dominium failed in
its attempt to secure financing, and the merger proceeded. Angry that it could
not secure an agreement for compensation, and in order to advance its own
attempt to acquire the Funds or scuttle the Mergers, Dominium sent a letter
dated September 27, 1996, (the "Dominium Letter") to holders of securities in
the Funds, both publicly traded real estate limited partnerships, and a
subsequent press release dated October 1, 1996 (the "Press Release",), in which
Dominium urged investors to vote against the proposed Mergers. A true and
accurate copy of the Dominium Letter is attached hereto as Exhibit A, and a true
and accurate copy of the Press Release is attached hereto as Exhibit B.
2. Dominium did not send the investors a proper proxy statement prior to
or concurrently with its slanted communications, in a blatant attempt to "jump
the gun" and kill the proposed Mergers through the dissemination of incomplete,
false and misleading information.
II. PARTIES AND RELATED ENTITIES
3. CRITEF is a Delaware limited partnership with its principal place of
business at 11200 Rockville Pike, Rockville, Maryland 20852.
4. CRITEF III is a Delaware limited partnership with its principal place
of business at 11200 Rockville Pike, Rockville, Maryland 20852.
-2-
<PAGE>
5. The Funds were formed for the purpose of acquiring portfolios of tax-
exempt mortgage revenue bonds issued by various governmental entities which are
collateralized by non-recourse participating first mortgage loans on multi-
family residential developments. CRITEF is traded on the American Stock
Exchange in two separate series, CRITEF Series I and CRITEF Series 11. CRITEF
III is traded on the American Stock Exchange in one series. Both Funds are
managed and operated through their respective general partners, CRITEF
Associates and CRITEF III Associates. Units of beneficial interest in the
limited partner interests in each of the Funds are publicly owned through
securities known as Beneficial Assignee Certificates ("BACs") and are listed and
traded on the American Stock Exchange. There are approximately 10.7 million
BACs currently outstanding, held by approximately 13,000 securities holders
located in New York City, in New York state, and across the country.
Approximately 50% percent of BAC Holders hold their investments through
nominees, such as ADP, Inc. and CEDE & Co., located in New York, who serve as
vital means of communication with investors.
6. In September 1995, the General Partners, on behalf of the Funds,
announced that the Funds would be acquired by CAPREIT, subject to various
conditions including BAC Holder approval, through Mergers for approximately $150
million, representing approximately a 20% premium over the market value of the
BACs immediately prior to the public announcement of the Mergers. That price
was later increased to $162.3 million (subject to certain adjustments),
representing approximately a 26-33% premium over the market value immediately
prior to the initial public announcement of the Mergers.
7. Much of the preparation for these Mergers was performed in New York,
such as drafting the merger agreements, preparing the Funds' joint proxy
statement and work in connection with the financing for the transaction and the
fairness opinion.
-3-
<PAGE>
8. CRITEF Associates is a Delaware limited partnership with its principal
place of business at 11200 Rockville Pike, Rockville, Maryland 20852. CRITEF
Associates is the general partner of CRITEF. Under the terms of the proposed
Mergers, CRITEF Associates is to receive $500,000 in exchange for its 1.01%
general partner interest in CRITEF.
9. CRITEF III Associates is a Delaware limited partnership with its
principal place of business at 11200 Rockville Pike, Rockville, Maryland 20852.
CRITEF III Associates is the general partner of CRITEF III. Under the terms of
the proposed Mergers, CRITEF III Associates is to receive $500,000 in exchange
for its 1.01% general partner interest in CRITEF III.
10. C.R.I., Inc. is a Delaware corporation with its principal place of
business at 11200 Rockville Pike, Rockville, Maryland 20852. CRI is one of the
general partners of CRITEF Associates and is the sole general partner of CRITEF
III Associates. Under the terms of the proposed Mergers, CRI will receive
approximately $2 million, representing the purchase of accounts receivable for
accrued mortgage servicing fees that are due to CRI from the owners of many of
the properties that secure the bonds held by the Funds.
11. CAPREIT is a Maryland corporation with its principal place of business
at 11200 Rockville Pike, Rockville, Maryland 20852. CAPREIT is a self-managed,
self-administered, real estate investment trust that owns and/or manages over
15,000 apartments.
12. Upon information and belief, Dominium is a limited liability
partnership formed under the laws of Minnesota by the individual defendants Jack
W. Safar, David L. Brierton, Paul R. Sween and Armand E. Brachman herein, who
are each natural persons and are citizens and residents of the State of
Minnesota.
-4-
<PAGE>
III. JURISDICTION AND VENUE
13. The claims arise under Section 14(a) of the Securities Exchange Act of
1934, specifically rules 14a-3, 14a-7, and 14a-9, and under the common law.
Accordingly, this Court has subject matter jurisdiction under 28 U.S.C. (S)
1331, and Section 27 of the Securities Exchange Act of 1934, 28 U.S.C. (S) 1367
and the principles of supplemental jurisdiction. In addition, there is a
diversity of citizenship in that no plaintiff is a citizen of a state of which
any, defendant is a citizen, and the amount in controversy exceeds $50,000
exclusive of interest and costs. Accordingly, there is jurisdiction with
respect to Count IV pursuant to 28 U.S.C. (S) 1332(a).
14. Venue is proper in this district pursuant to 15 U.S.C. (S) 78aa,
because the improper proxy solicitations for which Plaintiffs seek relief were
transmitted into this district and were intended to be read and relied upon by
securities holders within this district.
IV. FACTS COMMON TO ALL COUNTS
THE PROPOSED MERGERS BETWEEN CAPREIT AND THE FUNDS
--------------------------------------------------
15. On September 20, 1996, the Funds filed with the Securities and
Exchange Commission a joint proxy statement (the "Proxy Statement") soliciting
approval by the BAC Holders of the proposed Mergers of the Funds and affiliates
of CAPREIT. On September 23, 1996, the Funds began distributing the Proxy
Statement to the BAC Holders.
16. After an eleven-page summary, the Proxy Statement details the proposed
Mergers in over 100 pages of disclosure, including details of the merger
proposals, the background of the funds, the recommendations of the General
Partners, and financial data on the Funds, among other things, including the
text of the merger agreements and the fairness opinions issued by Oppenheimer &
Co., Inc. ("Oppenheimer"), based in New York.
-5-
<PAGE>
17. As more fully described in the Proxy Statement, the proposed Mergers
were originally announced in September 1995 following months of discussion and
negotiation. The original merger consideration to be paid to the BAC Holders
amounted to $150 million. In addition, the General Partners were to receive
payments for their general partner interests of $500,000 per Fund, and CAPREIT
was to pay a total of $4.55 million to acquire certain accounts receivable
consisting of accrued mortgage servicing and administration fees ("Mortgage
Fees") payable to CRI and an affiliate of CRIIMI Mae, Inc., a publicly-held REIT
in which the two principals of CRI are the Chairman of the Board and President,
respectively, and beneficially own approximately 10% of the shares.
18. Over the course of the next year, there were four amendments to the
Merger Proposals. On January 31, 1996, in connection with the settlement of two
class action lawsuits described below, the merger parties amended the merger
agreements to improve the terms of the proposed transactions by increasing the
amount of cash to be received by the BAC Holders (the "Merger Consideration") to
approximately $158.5 million (subject to certain adjustments based on the amount
of cash, including certain reserves, called "Available Cash"). As with the
original transactions, the amended merger agreements were conditioned, among
other things, on obtaining the approval of the BAC Holders to the transactions
through a proxy solicitation and obtaining an independent fairness opinion. As
explained further below, immediately after the settlement and resulting
amendment to the Merger Agreements, Safar first expressed interest in acquiring
the Funds on behalf of a group, affiliated with Dominium Management Services,
Inc., which later formed Dominium (the group and Dominium will be referred to
collectively as "Dominium").
19. On July 15, 1996, CAPREIT and the General Partners executed the Third
Amended and Restated Merger Agreements with each of the Funds, eliminating the
possible downward
-6-
<PAGE>
adjustment of the Merger Consideration to account for Available Cash. On August
21, 1996, the parties entered into the Fourth Amended and Restated Merger
Agreements, containing an increase of $3.5 million to an aggregate of $162.3
million in Merger Consideration, an extension of the termination date of the
Mergers, and a $100,000 increase in the maximum amount of expenses for which the
Funds could be required to reimburse CAPREIT.
THE CLASS ACTIONS CHALLENGING THE MERGERS
-----------------------------------------
20. In September and October 1995, following announcement of the proposed
Mergers, counsel for two BAC Holders filed separate actions in the Chancery
Court for the State of Delaware (the "Class Action"), alleging that the General
Partners had violated their duties to the BAC Holders in connection with the
proposed Mergers. The Class Action plaintiffs alleged, among other things, that
the price being offered to the BAC Holders (the "Merger Consideration") was
inadequate, that the press release announcing the Mergers was false and
misleading, and that the defendants had breached their fiduciary duty to the BAC
Holders and engaged in self-dealing in connection with the Mergers. The Class
Action sought to enjoin the Mergers, to obtain damages, and to compel the
defendants to maximize the Merger Consideration and consider alternatives to the
proposed Mergers.
21. On January 31, 1996, following approximately three months of review of
financial and other information, consultation with a real estate expert for
counsel to the proposed classes ("Class Counsel"), and following a period of
negotiations among Class Counsel, CAPREIT, and the General Partners, a
memorandum of understanding was executed. CAPREIT agreed, among other things,
to improve the Merger Consideration by $8.5 million (less the amount of fees to
be awarded to Class Counsel). CRI, Dockser and Willoughby agreed to a reduction
of nearly $2.1 million (to $1.95 million) in the amount to be paid to CRI and
its affiliates for the Mortgage Fees.
-7-
<PAGE>
Class Counsel agreed to limit their request for attorneys' fees and expenses to
20% of the improved Merger Consideration, and obtained rights to review and
comment upon proposed proxy materials and to terminate the proposed settlement
under certain circumstances in the event of a superior proposal to acquire the
Funds.
22. Following extensive additional discovery by Class Counsel, including a
review of voluminous quantities of documents (including drafts of the Proxy
Statement) and depositions of representatives of the General Partners, CAPREIT
and Oppenheimer, Class Counsel satisfied themselves as to the terms of the
Mergers and related transactions and the Proxy Statement and executed a
Stipulation of Settlement with the defendants as of May 13, 1996, which was
filed with the Chancery Court on May 16, 1996 (the "Stipulation of Settlement").
A notice of the proposed settlement was published in the Wall Street Journal and
first mailed to the members of the class of BAC Holders on or about May 20,
1996. The notice announced that a fairness hearing on the proposed settlement
(the "Fairness Hearing") was scheduled to be held on June 19, 1996. The
Fairness Hearing was later rescheduled to July 2, 1996.
DOMINIUM ATTEMPTS TO ACQUIRE THE FUNDS
--------------------------------------
23. Meanwhile, during February 1996, the General Partners received an
inquiry concerning the possible acquisition of the Funds from the Dominium
group, led by David Brierton and Jack Safar of Dominium Management Services Inc.
and two principals of Piper Jaffray, Inc. The Dominium's group's inquiry
requested confidential information concerning the Funds. The General Partners
advised Dominium that the requested information would be provided once these
individuals executed appropriate confidentiality agreements, substantially in
the form signed by CAPREIT.
-8-
<PAGE>
24. On March 20, 1996, even prior to the receipt of signed confidentiality
agreements from all of the principals of Dominium, the Funds commenced providing
the requested material. By the beginning of April 1996 the Funds had provided
Dominium with all requested materials.
25. Thereafter, the General Partners heard nothing from Dominium's
representatives until June 28, 1996, days before the July 2, 1996, Fairness
Hearing.
26. On June 28, 1996, counsel to the Plaintiffs in the Delaware Class
Action ("Class Counsel") received a letter signed by Safar on behalf of
Dominium, indicating an interest in entering into merger agreements with the
Funds with similar terms to the Merger Agreements between the Funds and CAPREIT
and purportedly offering the BAC Holders an aggregate merger consideration of
approximately $168,230,000.
27. At the request of Class Counsel, the General Partners agreed to a
postponement of the July 2 fairness hearing in order to consider a response to
Dominium.
After reviewing the June 28 letter, the General Partners determined that
Dominium had not demonstrated any firm financing ability and that Dominium may
have failed to account appropriately for certain costs and expenses of the
proposed Mergers and the posting of reserves for the properties securing the
bonds held by the Funds. Notwithstanding their determination, the General
Partners notified Dominium on July 3, 1996, that they would continue to make
documents available to Dominium for its due diligence as they had done since
March.
28. During the weeks of July 8, July 22 and July 29, 1996, representatives
of Dominium visited the principal offices of the Funds and visited the
properties securing the bonds owned by the Funds to continue their due diligence
review.
29. Meanwhile, on July 12, 1996, the Funds received copies of
correspondence from Dominium to Class Counsel, in which Dominium claimed it had
received financing commitments,
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subject to completion of due diligence during the succeeding 21 days and the
payment by Dominium of an expense deposit of $75,000, a processing fee of
$100,000 on July 23, 1996, and a commitment fee in excess of $3,000,000, of
which $500,000 was due at the end of the 21-day due diligence period. According
to Dominium's letter, the net amount payable to BAC Holders under its adjusted
proposal would be at least $165,305,000.
30. By letter dated July 8, 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 General Partners never received any
evidence that the $500,000 portion of the loan commitment fee the $100,000
processing fee was paid.
31. The July 8 letter also requested that Dominium's counsel submit their
suggested revisions to the existing merger agreements with CAPREIT to reflect
the terms desired by Dominium. That request was reiterated by letter dated July
24, 1996. Copies of the merger agreements, marked to reflect Dominium's
proposed changes thereto (and areas for further discussion) were received on
July 29, 1996. By letter dated July 31, 1996, the General Partners requested
clarification of seven issues relating to Dominium's mark-up, but never received
a response.
32. On August 2, 1996, representatives of Dominium met in New York with
representatives of CAPREIT. CAPREIT attempted to assess the credibility of
Dominium's proposals and discern its motivations. Certain aspects of their
respective proposals were discussed. No understandings or agreements were
reached.
33. Dominium had indicated to Class Counsel that it would complete due
diligence and submit firm financing commitments for its proposal by August 5,
1996, in order to satisfy Class
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<PAGE>
Counsel's concerns about Dominium's ability to secure financing. No such
commitment was ever submitted.
34. The July 2, 1996, Fairness Hearing was further rescheduled a total of
three times, to August 14, 1996, in order to accommodate Dominium's claim that
its financing sources required more time to complete their due diligence. On
August 7, 1996, Class Counsel wrote to Dominium establishing a firm deadline of
noon, August 12, 1996, for receipt from Dominium of a documented "firm offer
economically superior to" the CAPREIT merger agreements.
35. On August 12, in order to bring finality to the process for approval
of the Stipulation of Settlement and prevent a fifth postponement of the
Fairness Hearing, CAPREIT agreed with Class Counsel to pay an additional $2
million in Merger Consideration.
36. Class Counsel notified Dominium by letter dated August 12, 1996, that,
in light of the further improvement in the Merger Consideration and Dominium's
repeated failure to respond to their inquiries and provide a firm offer, Class
Counsel intended to support the Stipulation of Settlement at the hearing to be
held on August 14, 1996.
37. On August 12, 1996, Dominium advised the Funds by letter that, among
other things, it was not in a position to provide evidence of its ability to
finance or to finalize its proposals.
38. On August 14, 1996, the Delaware Chancery Court convened the Fairness
Hearing. Class Counsel and counsel for the Funds advised the Court at length
about Class Counsel's efforts to elicit a superior proposal from Dominium, and
Dominium's abandonment of its efforts to secure firm financing. The Court
certified the class of BAC Holders, found that the proposed settlement was fair,
reasonable, adequate and in the best interests of the BAC Holders, approved the
Stipulation of Settlement, awarded to Class Counsel fees in the amount of $2
million, and entered a
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<PAGE>
final judgment dismissing the actions. Dominium did not object to the Settlement
or appear at the hearing.
39. On August 21, 1996, CAPREIT agreed to pay an additional $1.5 million,
in consideration for: extending the Termination Date of the merger transactions
and increasing the maximum amount of expenses for which the Funds would
reimburse CAPREIT in the event of termination of a merger agreement (under
certain circumstances).
40. On August 28, 1996, Dominium demanded that the General Partners of the
Funds provide Dominium with a list of all of the holders of BACs in each of the
Funds. In the demand letters and in sworn affidavits accompanying those
letters, Dominium specified the purpose for seeking lists of the BAC Holders:
Dominium will not use the Information for any purpose other than to
communicate with BAC Holders of the Fund in connection with matters of
common interest relative to the affairs of the Fund, including without
limitation, soliciting BAC Holders' proxies with respect to items to be
voted upon or proposed to be voted upon at any meeting of the BAC Holders
or items for which Dominium is seeking written consent or to communicate
with BAC Holders with respect to a solicitation commenced by the Fund.
(emphasis added)
41. On September 5, 1996, the General Partners notified Dominium that they
believed that the demand was deficient in a number of respects under applicable
law and, accordingly, they could not make any decisions with respect to the
request.
42. By letter dated September 11, 1996, Dominium renewed its request,
modifying its stated purpose to solicit proxies or consents to cause the removal
of the General Partners, or to demand, if necessary, a meeting to be called, or
a consent solicitation to be commenced, to cause the removal of the General
Partners. On September 16, 1996, the Funds advised Dominium that its renewed
request was deficient in a number of specified respects and rejected Dominium's
request.
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<PAGE>
43. By letter dated September 17, 1996, Dominium repeated its past
requests, further limiting its stated purpose in seeking the BAC Holder lists to
solicit proxies to oppose the proposed Mergers at the meeting of BAC Holders
called to vote upon the proposed Mergers.
44. On September 19, 1996, based upon the revised September 17, 1996,
request, the General Partners of the Funds agreed to provide Dominium with the
requested lists. The General Partners required, however, that Dominium confirm
its purpose stated in the September 17 request. On September 20, Safar sent a
letter in which he provided the requested confirmation.
45. While Dominium was agreeing to limit its use of the investor list
information, Safar and Richard Kadish, President and C.E.O. of CAPREIT, met one
another during a meeting of the Multi-Family Housing Council. Safar was upset
and angry with CAPREIT because he thought there was an agreement between
Dominium and CAPREIT reached back in August, one which could be terminated at
any time by either party, however, CAPREIT would be obligated to make a lump sum
payment to Dominium upon termination. He subsequently learned that there was no
agreement. Safar told Kadish that Dominium's first step would be to block the
merger, and afterwards do something else, but he would not disclose any further
steps he was considering.
DOMINIUM'S PROXY SOLICITATIONS
------------------------------
46. On or about September 27, 1996, Dominium issued the Dominium Letter
and, upon information and belief, caused it to be delivered to the BAC Holders
with the aid and assistance of its "proxy solicitor," Georgeson & Co., Inc,
located in New York.
47. The Dominium Letter asked investors to withhold proxies. The Dominium
Letter states: "we urge you not to take any action until you have received and
carefully considered the recommendations we will be sending you shortly." The
Letter also states:
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<PAGE>
"WE STRONGLY URGE YOU NOT TO SIGN OR RETURN ANY WHITE PROXY CARDS UNTIL YOU HAVE
THE OPPORTUNITY TO REVIEW AND CAREFULLY CONSIDER OUR MATERIALS." (emphasis in
original.)
48. The Dominium Letter is misleading. It conceals the fact that Dominium
is far from impartial or disinterested with respect to whether the BAC Holders
should grant or withhold proxies. It conceals that Dominium is and for some
months has been in the process of acquiring the Funds, and that it is soliciting
BAC Holder rejection of the proposed Mergers and has been and is still engaged
in seeking the replacement of the Funds' current management or adoption of an
alternative proposal by Dominium. The Dominium Letter also misleadingly implies
that Dominium will propose a better deal, which it has failed to do so.
49. The timing and content of the Dominium Letter, and its delivery to the
BAC Holders immediately after the Funds mailed the Proxy Letter, coupled with
Dominium's record clearly demonstrates that the Dominium Letter is calculated to
persuade the BAC Holders to vote their proxies against the Mergers or to
withhold their proxies altogether.
50. Not until October 1, 1996, did Dominium file the Dominium Letter with
the SEC.
51. Also on October 1, 1996, Dominium issued a press release (the "Press
Release"). The Press Release not only announced that Dominium had filed draft
preliminary proxy materials with the SEC, but went on to make statements
designed to encourage investors to withhold or withdraw their proxies and to be
prepared for alternative proposals from Dominium.
52. When the Dominium Letter and Press Release were issued. Dominium had
not furnished the BAC Holders with preliminary or definitive proxy statements
which meet the requirements of Schedule 14A and Rule 14a-101, as required by
Rule 14a-3.
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<PAGE>
53. Both Dominium's Letter and Press Release constitute improper
preemptive strikes aimed at having investors withhold or withdraw proxies on the
basis of false and incomplete information, to thwart the CAPREIT mergers by
diverting the investors' attention away from the extensive and carefully
detailed Proxy Statement disclosures, and to advance Dominium's attempt to
acquire the Funds.
54. Rule 14a-7 and Dominium's sworn verifications submitted to the Funds
prohibit Dominium from utilizing the information, including the lists of BAC
Holders provided by the Funds under Rule 14a-7, except for the purpose of
opposing the proposed Mergers. Dominium has far exceeded that purpose.
According to its own Letters, Dominium believes it has alternatives which the
BAC Holders should choose.
55. The Plaintiffs have no adequate remedy at law for the harm caused by
Dominium's violations of the proxy regulations.
56. Dominium's conduct has already caused significant harm, and they
should not be permitted to continue do so. Dominium's actions demonstrate
contempt for the policies of fair and honest debate which underlie the proxy
rules and a selfish ulterior motive to acquire the Funds or, failing that, to
frustrate and thwart the Mergers by means of a proxy solicitation with an as-
yet-undetermined true purpose. Dominium's and the individuals' conduct
constitutes tortious interference with the merger agreements which have damaged
and will continue to damage Plaintiffs.
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<PAGE>
COUNT I
VIOLATION OF SECTION 14(A) OF THE SECURITIES EXCHANGE ACT
OF 1934 AND RULE 14A-3 (AGAINST DOMINIUM)
57. The Funds repeat and reallege paragraphs I through 56 as if fully set
forth herein.
58. The Funds' BACs are securities registered under Section 12 of the
Securities and Exchange Act of 1934.
59. Dominium disseminated its Letter and Press Release throughout the
United States by use of the malls and/or means and instrumentalities of
interstate commerce.
60. The Dominium Letter and the Press Release were communications to the
Funds' BAC Holders made under circumstances reasonably calculated to influence
them either to vote their proxies against the merger or to withhold their
proxies in response to the Funds' solicitation. Such communications are part of
a continuous plan intended to defeat the proposed Mergers as well as to advance
alternatives proposed by Dominium. Consequently, the Dominium Letter and Press
Release constitute "solicitations" within the meaning of Section 14(a) of the
Securities Exchange Act of 1934 and Rule 14a-1(l) promulgated thereunder.
61. Rule 14a-3 requires that no solicitation shall be made unless the
party making the solicitation either concurrently sends or has previously sent a
publicly-filed preliminary or definitive written proxy statement containing the
material required by Schedule 14A (Rule 14a-101).
62. Neither at the time of the Dominium Letter and Press Release nor at
any prior time did Dominium provide the Funds' BAC Holders with any proxy
statement, let alone one that meets the requirements of Rule 14a-3 despite its
having recognized its obligation to do so by later filing with the SEC a
preliminary proxy statement.
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<PAGE>
63. As a consequence of failing to provide the BAC Holders with a complete
proxy statement prior to or concurrently with the Dominium Letter or Press
Release, Dominium has violated Section 14(a) of the Securities Exchange Act of
1934 and Rule 14a-3 promulgated thereunder.
COUNT II
VIOLATION OF SECTION 14(A) OF THE SECURITIES EXCHANGE ACT
OF 1934 AND RULE 14A-7 (AGAINST DOMINIUM)
64. The Funds repeat and reallege paragraphs 1 through 63 as if fully set
forth herein.
65. Rule 14a-7 requires registrants to furnish certain information,
including a list of investors, to security holders under certain circumstances
in connection with a proxy solicitation by the registrant. Rule 14a-7(d)
prohibits the security holder from using the information for any purpose other
than to solicit security holders with respect to the same meeting or for which
the registrant is soliciting or to communicate with security holders with
respect to a solicitation commenced by the registrant. Dominium initially
sought the BAC Holder lists in order not just to oppose the Mergers but to
advance its own proposals to obtain consents from the BAC Holders. Dominium
obtained the lists, however, only upon confirming the lists would be used solely
in opposition to the Mergers and for no other purpose.
66. Dominium, in violation of Rule 14a-7, is utilizing and has utilized
the information furnished by the Funds as part of a campaign to solicit approval
of its acquisition of the Funds or, failing that, for the purpose of thwarting
or disrupting the Mergers for malicious or unfair reasons.
COUNT III
VIOLATION OF SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14A-9 (AGAINST DOMINIUM)
67. The Funds repeat and reallege paragraphs I through 66 as if fully set
forth herein.
68. The Dominium Letter was false and misleading in the following specific
ways:
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<PAGE>
(A) The Dominium Letter failed to provide all of the information required
by Schedule 14A and Rule 14a-101, which are necessary in order to provide the
proper context for Dominium's statements and to avoid misleading the investors.
In addition to the specific items required by Schedule 14A, the letter failed to
include information crucial to understanding why Dominium is soliciting,
including, without limitation: background information about Dominium; Dominium's
attempt to acquire the Funds; the Funds' cooperation with Dominium's request for
postponements of the fairness hearing; Dominium's inability to secure financing
for its proposal; the Funds' production of documents and other information
requested by Dominium; Class Counsel's communications and efforts in connection
with Dominium's failed proposal, Dominium's decision not to object to the
proposed Stipulation and Settlement of the Class Action, as threatened;
Dominium's negotiations with CAPREIT; and that the Fund's Proxy Statement, makes
disclosures on the points raised in Dominium's Letter concerning conflicts of
interest, value of the Funds, and termination fees and expenses.
(B) The Dominium Letter fails to include the additional information
contained in Dominium's Preliminary Proxy Statement on file with the SEC, such
as the basis on which Dominium makes its "bullet-point" accusations against the
Funds and their General Partners, thereby misleading investors as to the meaning
and credibility of its attacks.
(C) The Dominium Letter falsely states that Dominium is "an established
real estate company." In fact, Dominium is a newly-formed entity which recently
acquired a de minimis number of BACs solely for the purpose of interfering with
the Merger and consists of four persons affiliated of Dominium Management
Services, Inc. It is a failed rival suitor for the Funds which admittedly could
not develop a superior offer with a firm financing commitment despite having
been given abundant opportunity to do so.
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<PAGE>
(D) In addition, the Dominium Letter is misleading in its implication that
Dominium has a superior alternative to the Merger to propose, when in fact it
has no such proposal.
69. The Dominium Press Release is misleading for the reasons stated in the
preceding paragraph and additionally for mischaracterizing the Dominium
Preliminary Proxy Statement.
70. Dominium knew at the time of publication of the Dominium Letter and
Press Release that these communications were misleading and omitted the
information identified in the preceding paragraphs.
71. The Dominium Letter and Press Release violate Section 14(a) of the
Securities and Exchange Act of 1934 and Rule 14a-9.
COUNT IV
TORTIOUS INTERFERENCE WITH
PROSPECTIVE ECONOMIC ADVANTAGE
(AGAINST ALL DEFENDANTS)
72. Plaintiffs repeat and reallege paragraphs 1 - 71 as if fully set forth
herein.
73. The General Partners, on behalf of the Funds, and CAPREIT have entered
into valid contracts creating a reasonable expectation of completing the Mergers
of CAPREIT and the Funds and have extended substantial sums to pursue the
transactions. Achievement of this expectation is dependent upon obtaining
approval of the proposed Mergers from the Funds' BAC Holders through a proxy
solicitation. Dominium and defendants Safar, Brierton, Sween, and Brachman had
knowledge of the Merger Agreements and of the Funds', CAPREIT'S, and the General
Partners' expectations.
74. CRITEF Associates has a reasonable expectation of receiving $500,000
in exchange for its general partner interest in CRITEF upon consummation of the
Mergers.
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<PAGE>
75. Similarly, CRITEF III Associates has a reasonable expectation of
receiving $500,000 in exchange for its general partner interest in CRITEF III
upon consummation of the Mergers.
76. Similarly, CRI has a reasonable expectation of receiving approximately
$1.95 million, representing the purchase of accounts receivable for the Mortgage
Fees that are due to CRI.
77. Similarly, CAPREIT has a reasonable expectation of acquiring the Funds
and receiving the economic and other benefits of the Mergers.
78. The BAC Holders also have a reasonable expectation as the
beneficiaries of the merger agreements of receiving the market premium and other
benefits upon completion of the proposed Mergers.
79. Dominium and the individual defendants are fully aware of the merger
agreements and the economic expectations of the Funds, the General Partners, the
BAC Holders, and CAPREIT. Having carefully studied these Mergers and the
confidential financial information Dominium requested, Defendants Safar,
Brierton, Sween, and Brachman (the "Individual Defendants") conspired to and did
launch an abortive bid to acquire the Funds, and have thereafter engaged and
continued to engage in a series of acts as part of a systematic plan calculated
to thwart, or at the very least interfere with, hinder and delay the proposed
Mergers, in part, upon information and belief, in order to gain unfair advantage
in negotiations to abandon their efforts in exchange for compensation.
80. Dominium and the Individual Defendants have intentionally, willfully
and maliciously interfered with the business relationship of each Plaintiff (and
the BAC Holders) by making false and misleading statements in the Dominium
Letter and Press Release, in order to
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induce the BAC Holders either to vote their proxies against the Mergers or
withhold their proxies altogether, thereby preventing the merger agreements from
being consummated.
81. Moreover, Dominium and the Individual Defendants have knowingly
interfered with the business relationships of each Plaintiff by unlawfully
issuing proxy solicitations and, consequently, endangering the consummation of
merger agreements between CAPREIT, the Funds, and the Funds' BAC Holders.
82. Moreover, Dominium and the Individual Defendants have knowingly
interfered with the business relationships of each Plaintiff by improperly
issuing a solicitation and, consequently, impairing the Mergers by means that
were unfair, unlawful and improper and which were specifically intended to
interfere with that business relationship. Defendants had no- legal
justification or excuse for their wrongful conduct and acted with the malicious
motive and intent to injure Plaintiffs.
83. By tortiously and intentionally interfering with the Mergers, Dominium
and the Individual Defendants have jeopardized the economic benefits that the
Funds, CRITEF Associates, CRITEF III Associates, CRI and CAPREIT and the BAC
Holders have a legitimate and reasonable expectation of receiving.
84. Plaintiffs have suffered damages as a consequence of Dominium's and
the Individual Defendants' tortious interference with the proposed Mergers, and
Plaintiffs will continue to suffer damages from Defendants' wrongful conduct, in
that the merger agreements have been jeopardized, BAC Holder confidence has been
undermined, and the burdens, expenses, and difficulty in obtaining the BAC
Holders' proxies has been significantly increased.
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<PAGE>
85. Defendants' unlawful and deceitful interference with the proposed
Mergers also threatens Plaintiffs with further and irreparable injury if they
succeed in their plan to thwart the Mergers by disseminating false and
misleading statements.
WHEREFORE, Plaintiffs demand judgment in their favor:
a. Temporarily and permanently restraining and enjoining Dominium
from soliciting any of the Funds' BAC Holders prior to providing the holders
with a proxy statement in accordance with Rules 14a-3;
b. Ordering Dominium to issue corrective disclosure in a manner to be
fashioned by the Court upon the evidence;
c. Ordering Dominium to restrict its use of the information it
obtained from the Funds pursuant to Rule 14a-7 to the purpose attested to and
confirmed by Dominium on September 17 and September 20.
d. Awarding Plaintiffs compensatory, consequential and incidental
damages from Dominium in an amount of not less than $5 million, to be determined
at trial in connection with Dominium's violations of Regulation 14A and Section
14(a) of the Exchange Act;
e. Awarding the Funds and CRI punitive damages from each Defendant,
jointly and severally, for their reckless, wanton, and malicious interference
with Plaintiffs' contracts and expectations, in an amount to be proven at trial
sufficient to punish and make an example of them and to deter such conduct in
the future;
f. Awarding the Plaintiffs all consequential and incidental damages
from each Defendant, jointly and severally, suffered by Plaintiffs as a result
of Dominium's tortious interference with their contracts and business
relationships;
g. Awarding Plaintiffs the cost of this action;
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<PAGE>
h. Awarding Plaintiffs their reasonable attorneys' fees in
prosecuting this action; and
i. Awarding Plaintiffs such other and further relief as the Court
deems just.
Dated: New York, New York
October 3, 1996
ARENT FOX KINTNER PLOTKIN & KAHN
By: /s/ David N. Wynn
--------------------------
David N. Wynn (DW 8660)
1675 Broadway, 25th Floor
New York, NY 10019
212/484-3900
Of counsel:
ARENT FOX KINTNER PLOTKIN & KAHN
Robert B. Hirsch
Hunter T. Carter
Evan S. Stolove
1050 Connecticut Avenue, NW
Washington, D.C. 20036-5339
202/857-6000
Attorneys for
Capital Realty Investors Tax
Exempt Fund Limited Partnership,,
Capital Realty Investors Tax
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<PAGE>
PEABODY & BROWN
By: /s/ Kevin J. Handly
----------------------------------
Kevin J. Handly (KH 4741)
Deborah L. Thaxter, P.C.
101 Federal Street
Boston, MA 02110-1832
617/345-1000
Attorneys for
CRITEF Associates Limited
Partnership, CRITEF III Associates
Limited Partnership, and C.R.I., Inc.
SCHULTE, ROTH & ZABEL
By: /s/ David J. Kramer
----------------------------------
Daniel J. Kramer (DK 12971)
900 Third Avenue
New York, NY 10022
212/758-0404
Attorneys for
Capital Apartment Properties, Inc.
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<PAGE>
EXHIBIT 99.17C10
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
____________________________________X
:
IN RE CAPITAL REALTY :
INVESTORS TAX EXEMPT FUND : CONSOLIDATED
LIMITED PARTNERSHIPS : C.A. NO. 14558
LITIGATION :
____________________________________X
DEFENDANTS' EMERGENCY MOTION
TO ENFORCE THIS COURT'S FINAL ORDER,
TO ENJOIN DOMINIUM TAX EXEMPT FUND L.L.P.
FROM VIOLATING THE FINAL ORDER, AND
FOR CIVIL CONTEMPT
The members of the Class in this case were enjoined by the Final Order
of this Court, dated August 14, 1996, from bringing suit in this or any other
court on any of the "Settled Claims." One member of the Class, Dominium Tax
Exempt Fund L.L.P. ("Dominium"), has filed an action in federal court in
Minnesota in violation of the Final Order, and seeks injunctive relief to stop
or delay a meeting of the Class members scheduled for October 29, 1996.
Defendants respectfully request immediate relief from this per se contempt of
the Final Order./1/
PRELIMINARY STATEMENT
---------------------
This memorandum of law is submitted on behalf of Capital Realty
Investors Tax Exempt Limited Partnership ("CRITEF"), Capital Realty Investors
Tax Exempt Fund III Limited Partnership ("CRITEF III," and, with CRITEF, the
"Funds"), CRITEF Associates Limited Partnership ("CRITEF Associates"), CRITEF
III Associates Limited Partnership ("CRITEF III
- -----------------------
/1/ [Class Counsel have advised the undersigned that they support this motion
and join in seeking relief.]-- HIRSCH TO CONFIRM.
<PAGE>
Associates," and, with CRITEF Associates, the "General Partners"), C.R.I., Inc.
("CRI"), William Dockser, H. William Willoughby and Capital Apartment
Properties, Inc. ("CAPREIT") (collectively, "the Defendants"), the defendants in
this case ("Class Action"), in support of their motion for an order to enjoin
Dominium Tax Exempt Fund L.L.P. from violating this Court's Final Order
approving the stipulation of settlement ("the Stipulation") entered on August
14, 1996. The Final Order and Stipulation, inter alia, expressly enjoined
members of the plaintiff class (the "Class") from prosecuting "Settled Claims"
as defined in the Stipulation, which included claims under federal securities
law, relating in any way to the proposed merger transaction among the Defendants
(the "Merger"). In exchange for the class members' release, among other things,
counsel for the class ("Class Counsel") was given the right to review and make
comments on the disclosure contained in the preliminary and definitive proxy
statements.
Now, with less than a month remaining before the special meeting to
vote on the Merger, Dominium, a Class member, is seeking a preliminary
injunction to enjoin the Funds' proxy solicitation to approve the Mergers -- a
claim which falls squarely within the definition of "Settled Claims." On
September 27, 1996, Dominium initiated a lawsuit in the United States District
Court for the District of Minnesota against the Funds, the General Partners,
CAPREIT, CRI, Dockser and Willoughby, i.e., the defendants in the Class Action.
Dominium Tax Exempt Fund L.L.P. v. Dockser, et al., Civ. No. 4-96-956 (D. Minn.)
("the Minnesota Action). Exhibit A. The complaint in the Minnesota Action
contains one count alleging violations of Section 14(a) of the Securities
Exchange Act of 1934, 15 U.S.C. (S) 78n, and Rule 14a-9 promulgated thereunder.
Accordingly, the Defendants ask that this Court hold an emergency hearing, find
Dominium in contempt of this Court's August 14, 1996, Final Order and enjoin it
from further litigating Settled Claims in the Minnesota Action.
2
<PAGE>
THE FACTS
---------
CLASS ACTION BACKGROUND
- -----------------------
In September and October 1995, following announcement of the proposed
Mergers, counsel for two BAC Holders/2/ filed separate actions in the Chancery
Court alleging that the Funds' General Partners had violated their fiduciary
duties to the BAC Holders in connection with the proposed Mergers. The two
actions were consolidated by the Court. The Class Action plaintiffs alleged,
among other things, that the press release announcing the Mergers was false and
misleading, and that the Defendants had breached their fiduciary duty to the BAC
Holders by: failing to take steps to maximize the value of the BACs by
conducting a public auction or soliciting third-party bids, obtaining timely,
independent and unbiased valuations of the BACs and the underlying assets,
maintaining an improper relationship between Dockser, Willoughby and CAPREIT,
engaging in self/dealing, and misleading the BAC Holders in connection with the
Mergers. (Zakin Compl. (P)(P) 12, 29-40); (Wingard Compl. (P)(P) 12, 29-40).
The Class Action sought to enjoin the Mergers, to obtain damages, and to compel
the Defendants to maximize the Merger Consideration and consider alternatives to
the proposed Mergers.
Plaintiffs in the Class Action were represented by sophisticated
counsel ("Class Counsel"), who were experienced in complex class action
litigation. Class Counsel received from Defendants confidential financial
information as a result of preliminary settlement discussions. Sucharow Aff'd,
Exhibit B (P) 6. From this information, Class Counsel discovered
- -----------------------
/2/ As the Court may recall, the Funds were formed for the purpose of
acquiring portfolios of tax-exempt mortgage revenue bonds issued by various
governmental entitles which are collateralized by non-recourse participating
first mortgage loans on multi-family residential developments. The Funds are
traded on the American Stock Exchange in three separate series, CRITEF Series I,
CRITEF Series II and CRITEF III. Units of beneficial interest in the limited
partner interests in each of the Funds are publicly owned through securities
known as Beneficial Assignee Certificates ("BACs") and are listed and traded on
the American Stock Exchange. There are approximately 10.7 million BACs
currently outstanding, held by approximately 13,000 securities holders ("BAC
Holders") located across the country.
3
<PAGE>
that the range of values for the Funds was "substantially lower" than the value
that the Class plaintiffs had envisioned; rather, they were of a value more
closely approximating the merger price, Id. at 7. Class Counsel came to this
determination, in part, by undertaking an informal market test to see if it
could generate third-party interest in the funds. Id. at 8. The market test
involved, inter alia, sending information packages, consisting of relevant
financial and descriptive information, to approximately six bona fide financial
or intermediary entities, which Class Counsel believed might have an interest in
acquiring the Funds. Id. at 10. Nonetheless, a superior proposal failed to
surface. After a period of negotiations, a memorandum of understanding regarding
settlement was executed on January 31, 1996, and publicly announced. Id. at 12-
7.
THE CLASS ACTION SETTLEMENT
- ---------------------------
Following extensive additional discovery by Class Counsel, including a
review of voluminous quantities of documents (including drafts of the Funds'
preliminary proxy statements) and depositions of representatives of the General
Partners, CAPREIT and Oppenheimer & Co., Inc. (an independent New York based
Investment Banking Group hired by CRITEF to render a fairness opinion on the
proposed Mergers) ("Oppenheimer"), Class Counsel satisfied themselves as to the
terms of the Mergers and related transactions and the proxy statement and
executed the Stipulation with the Defendants as of May 13, 1996, which was filed
with the Chancery Court on May 16, 1996. Stipulation, Exhibit C.
The Court entered an order on May 17, 1996 (the "Scheduling Order,
Exhibit D hereto), scheduling a hearing on the fairness of the proposed
settlement (the "Fairness Hearing"), and approving forms of rnailed (and
published) notice to the Class:
4
<PAGE>
"Class" means all persons who owned or purchased any BACs of
CRITEF (series I and II) or CRITEF III on or after September 11,
1995 and their successors-in-interest, heirs and assigns,
excluding Defendant and those who submit a timely, valid and
complete request for exclusion from the Class.
Stipulation, Exhibit C at 13.
Notice of the proposed settlement, as approved by the Court in its
Scheduling Order, was published in the Wall Street Journal and first mailed to
the members of the class of BAC Holders on or about May 20, 1996. See
Affidavits of Mailing, lodged with the Court on August 9, 1996 (Affidavits of
Falcone and DeBerenado). The Notice informed members of the Class of the
background of the Mergers, the claims against the Defendants, and the terms of
the Stipulation. The Notice also explained that Class members had the right to
exclude themselves from the Class, and explained the procedure for notifying the
Court and counsel for the parties of the election to be excluded from the Class.
To be excluded from the Class, the BAC Holder was required to "mail a
timely, valid and complete request for exclusion postmarked no less than seven
(7) days before the Settlement Hearing, pursuant to the instructions set forth
in the Notice." Stipulation, Exhibit C (P) 7, at 23. The final date to submit
a written request for an exclusion was June 12. Scheduling Order, Exhibit D at
3. (Due to certain mailing problems, the date was extended to June 28, 1996,
for persons who held their BACs in street name. Exhibit E.) Any Class member
who did not validly execute a timely request for exclusion, would "be
conclusively deemed to have released Defendants and Releases from any and all
such Settled Claims as defined herein .... " Stipulation, Exhibit C (P) 7.j,
at 23.
5
<PAGE>
The Scheduling Order also barred Class members, pending the Fairness
Hearing, from bringing any of the "Settled Claims" defined in the Notice in any
court other than this Court. Scheduling Order, Exhibit D.
THE DOMINIUM EPISODE
- --------------------
In the ensuing months, the Fairness Hearing was convened and adjourned
three times in order to accommodate requests by Dominium for additional time for
it and its lenders to complete due diligence with respect to an indication of
interest by Dominium to acquire the Funds for what it claimed was a superior
price for the BAC Holders.
As detailed by co-lead counsel for the Class in his affidavit in
support of the application for approval of the settlement, Class Counsel enjoyed
the right to terminate the Settlement in the event of a "Superior Proposal," and
pursuant to that right and their duty to the Class, Class Counsel very actively
communicated with Dominium, CAPREIT, and the General Partners of the Funds. On
June 28, 1996, Dominium contacted the Fund's General Partners, purporting to
make an offer superior to CAPREIT's offer. Sucharow Aff'd, Exhibit B (P) 22.
In an effort to ensure that the BAC Holders would receive the benefit of the
best possible deal, Class Counsel sought an adjournment of the then scheduled
July 8, 1996, settlement hearing "to allow them sufficient time to analyze
Dominium's proposal.... " Id. (P) 24. Class Counsel, thereafter, sent a
---
letter dated July 3, 1996, to Dominium seeking clarification on its financing
and other aspects of its proposal. Id. (P) 24. Dominium's July 12, 1996,
---
response revealed that "Dominium's financing was highly conditional.... Id.
---
(P) 25. Nonetheless, "plaintiff's counsel believed, at that time, that Dominium
was sincere and likely could obtain firm financing, [therefore,] they sought ...
a further continuance of the settlement hearing to August 2, 1996." Id.
---
6
<PAGE>
Dominium proceeded with its due diligence. In late July, Dominium
sent the General Partners a mark-up of the CAPREIT merger agreement, which
"continued to lead plaintiffs' counsel to believe that Dominium would be able to
present an economically superior proposal with firm financing." Id. (P) 28.
---
Furthermore, on July 29, 1996, Class Counsel and their expert had a telephone
conference with Dominium and its counsel in which Dominium advised them that
they perceived no problems in securing financing and expected "to have a firm
offer with fully committed financing in place no later than August 5, 1996.
They also stated that they anticipated and were prepared for a bidding contest
with CAPREIT to acquire the Funds." Id. (P) 29.
August 5, 1996, came and went without a word from Dominium in spite of
"numerous telephone messages" by Class Counsel to Dominium and its counsel. Id.
(P) 32. On August 7, 1996, Class Counsel sent Dominium's counsel a letter
inquiring as to their silence. Id. Class Counsel advised that unless "a firm
proposal [was] received by noon on Friday, August 9, 1996, plaintiffs would
proceed with the settlement." Id. (P) 37. In the end, however, "Dominium did
not respond to any of these communications. "Plaintiffs' counsel was compelled
to conclude that Dominium could no longer be considered a bona fide bidder for
---- ----
the funds." Id. By letter dated August 12, 1996, Class Counsel advised
Dominium's counsel that the Class intended to proceed with the CAPREIT merger.
Id. (P) 35
THE FAIRNESS HEARING AND FINAL ORDER
- ------------------------------------
On August 14, 1996, this Court finally convened the Fairness Hearing.
Class Counsel and counsel for the Funds advised the court at length about Class
Counsel's efforts to elicit a superior proposal from Dominium and other
potential bidders. The Final Order of the Court adopted all terms as defined in
the Stipulation and determined that (1) the Class was
7
<PAGE>
certified pursuant to Delaware Chancery Court Rules 23(a) and 23(b)(3); (2) the
form and manner of notice given to the Class members was "the best notice
practicable under the circumstances ... and in full compliance with Court Rule
23"; and (3) the settlement was "fair, reasonable, adequate, and in the best
interests of the Class." Final Order, Exhibit F (P)(P) 1-2, 4-5, at 2.
Furthermore, the Court dismissed with prejudice the Class Action and the Settled
Claims as defined in the Stipulation and permanently enjoined the members of the
Class.
either directly, representatively, derivatively, or in any other
capacity ... from instituting, commencing, asserting, prosecuting or
continuing any of the Settled Claims against any of the Defendants ...
in this or any other jurisdiction.
Id. (P)(P) 6-7, at 3. The Court also expressly "reserve[d] jurisdiction over
all matters relating to the administration and consummation of the Settlement."
Id. (P) 9, at 3.
On September 20, 1996, the Funds and CAPREIT issued a joint proxy
statement (the "Proxy Statement") and solicitation seeking BAC Holder approval
of the proposed Mergers. A special meeting to vote on the proposed Mergers is
currently scheduled for the morning of October 29, 1996.
THE MINNESOTA ACTION
- --------------------
Notwithstanding the Court's Final Order and the Stipulation, in or
about September 27, 1996, Dominium initiated an action against the Defendants in
federal district court in Minnesota, captioned Dominium Tax Exempt Fund L.L.P.
v. Dockser, et al., ("The Minnesota Action"). Exhibit A. In the Minnesota
action, Dominium challenges Defendant's Proxy Statement as false and misleading
in violation of Section 14(a) of the Securities Act of 1934, 15 U.S.C. (S) 78n,
and Rule 14a-9 promulgated thereunder. In particular, Dominium claims that the
Defendants have created a false impression as to the relationship between the
Funds and CAPREIT, the General Partners personal economic interests, the true
value of the BACs, the
8
<PAGE>
General Partners' attempts to determine a fair value of the BACs and the
underlying property, their willingness to consider competing bids, the fairness
of the proposed Merger, and whether the proposed Merger is in the best interest
of the BAC Holders. Id. (P)(P) 2, 4, 73-78. Dominium seeks to bar the use of the
proxies obtained through the Defendants September proxy solicitation, enjoin the
Defendants to amend their proxy and to reschedule the October 27, 1996, special
meeting to allow BAC Holders time to review the amended proxy. Id. (P) 6.
The types of claims and the relief sought in the Minnesota Action and
the Class Action are the same. "Essentially, the complaint repeated the
allegations about the [merger] that had previously been made in the Court of
Chancery, but framed the allegations as purported violations of federal
securities laws." SANDLER ASSOCS., L.P. V. BELLSOUTH CORP., 818 F. Supp. 615,
700 (D. Del. 1993), aff'd without op., 26 F.3d 123 (3d Cir.), and cert. denied,
115 S. Ct 482 (1994). Both actions allege that the General Partners have
breached their fiduciary duties with respect to the proposed Mergers, and that
the Defendants have failed to sufficiently disclose the relationships between
the parties, the background of the Mergers, and how the value of the BACs and
underlying assets were determined. In both lawsuits, the relief sought was
greater disclosure and an injunction against consummation of the proposed
Mergers in the interim. The claims raised by Dominium clearly relate to and
arise out of the Mergers and the facts alleged in the complaints by the
plaintiffs in the Class Action. See Id. at 1106-07 (both actions "arose under
same set of operative facts," i.e., issues of nondisclosure in the proxy
statement; court held that subsequent claims were extinguished by earlier
release).
It is equally clear that the claim asserted in the Minnesota Action is
a "Settled Claim" within the meaning of the Final Order. That claim was
dismissed and deemed released, and every member of the Class was enjoined from
prosecuting such claims in any court.
9
<PAGE>
Accordingly, Court should find Dominium in contempt and enjoin Dominium from,
and order it to cease prosecution of, the Minnesota Action.
ARGUMENT
--------
I. PROSECUTION OF THE DOMINIUM ACTION VIOLATES THE STIPULATION AND THIS
COURT'S FINAL ORDER IN THE CLASS ACTION AND THE DOMINIUM PLAINTIFFS SHOULD
BE ENJOINED
A. DOMINIUM WAS A MEMBER OF THE CLASS IN THE CLASS ACTION AND DID NOT
REQUEST EXCLUSION
The plaintiff Class in this case, as defined in the Stipulation and
Scheduling Order, includes:
all persons who OWNED OR PURCHASED ANY BACS OF CRITEF (SERIES I AND
II) OR CRITEF III ON OR AFTER SEPTEMBER 11, 1995 AND THEIR SUCCESSORS-
IN-INTEREST, HEIRS AND ASSIGNS, excluding Defendants and those who
submit a timely, valid and complete request for exclusion from the
Class.
Stipulation, Exhibit B at 13 (emphasis added).
According to Dominium's Preliminary Proxy Statement, filed with the
SEC on October 1, 1996, seeking proxies in opposition to the proposed mergers,
"Dominium was formed in 1996 for the specific purpose of engaging in activities
relating to the Funds." Exhibit 1 to Carter Aff'd, Exhibit G at 25. Dominium
owns three hundred BACs, one hundred from each series. Id. By virtue of its
formation in 1996, Dominium could not have acquired its BACs prior to September
11, 1995, the date of the first press release announcing the mergers.
Accordingly, Dominium is a member of the Class because it owned or purchased
BACs after September 11, 1995.
The Stipulation expressly states that everyone "who owned or purchased
any BACs ... on or after September 11, 1995" was a member of the Class unless
they "submit a
10
<PAGE>
timely, valid and complete request for exclusion from the Class." Stipulation,
Exhibit E at 13. In order that a request for exclusion to be deemed timely and
valid, the Class member seeking to "opt-out" was required to submit its request
in writing before June 28, 1996, at the latest, and mail it to each of the
attorneys listed as representing the Class and the Defendants.
Counsel upon whom such requests for exclusion were required to be
served have examined their files containing the requests for exclusion from the
Class and attest that Dominium never submitted a request for exclusion.
Affidavits of Hunter T. Carter, Cris Rodriguez, and Norman Monhait, Exhibits G,
H and I respectively, dated October 7, 1996. And, after causing some six weeks
of postponements and three separate adjournments of the Fairness Hearing,
Dominium did not even appear at the Fairness Hearing, and object to the
Settlement, or otherwise express its views.
In sum, Dominium is manifestly a member of the Class subject to this
Court's Final Order and the Stipulation which enjoined every Class Member from
prosecuting any claim which constitutes a "Settled Claims." Dominium's
initiation of the Minnesota action constitutes a flagrant violation of this
Court's enjoining order.
B. SETTLEMENT AGREEMENTS MAY BAR ALL CLAIM RELATED TO A CERTAIN
TRANSACTION, INCLUDING CLAIMS BASED UPON LEGAL THEORIES THAT WERE NOT
OR COULD NOT HAVE BEEN ASSERTED IN THE ORIGINAL COMPLAINT
The Delaware Courts have long recognized the validity of a general release as a
means for terminating litigation. See NOTTINGHAM PARTNERS V DANA, 564 A.2d
1089, 1105 (Del. 1989); CHAKOV V. OUTBOARD MARINE CORP., 429 A.2d 984, 985 (Del.
1981); Hob Tea Room, Inc. v. MILLER, 89 A.2d 851 (Del. 1952). "More
specifically, the Court of Chancery has a history of approving settlement that
implicitly or explicitly included a general release which would also release
federal claims." NOTTINGHAM PARTNERS, 564 A.2d at 1005 & n.36; see also IN RE
MCA,
11
<PAGE>
INC., 598 A.2d 607, 607, 691 (Del. Ch. Ct. 1991). Furthermore, in the class
action context, Delaware courts give settlement agreements heightened scrutiny
to ensure fairness to the class members and to protect them against unscrupulous
counsel. PREZNANT V. DEANGELIS., 636 A.2d 915, 921 (Del. 1994); KAHN V.
SULLIVAN, 594 A.2d 48 (Del. 1991); BARKAN V. ARMSTED INDUS., INC., 567 A.2d 1279
(Del. 1989).
In the Stipulation and the Court's Final Order, the Court specifically
enjoined members of the Class from pursuing "Settled Claims" contained in their
release,, including all claims related to the Mergers. The Stipulation defined
"Settled Claims" as follows:
"Settled Claims" means, collectively, all claims, rights, cause
of action, suits, matters and issues, whether known or unknown,
matured or unmatured asserted or unasserted or in the future could
have been asserted in the [Class] Action or in any court or any other
proceeding (including but not limited to any claims arising under
federal or state law, including the federal securities laws, relating
to alleged fraud, breach of any duty, negligence or otherwise) by or
on behalf of Plaintiffs or any members of the Class, whether
individual, class, derivative, representative, legal, equitable or any
other type or in any other capacity against Defendants or the
Releases, which have arisen, arise now or hereafter arise out of, or
RELATE IN ANY WAY TO THE MERGERS, THE MERGER AGREEMENTS OR ANY FACTS,
OCCURRENCES OR TRANSACTIONS OR EVENTS DESCRIBED IN THE COMPLAINTS IN
THE ACTION OR ANY DISCLOSURES RELATED THERETO; provided, however, that
the Settled Claims shall not include (a) the right of BAC Holders to
receive the Merger Consideration or revised Merger Consideration as
provided in the Merger Agreements and any revisions thereto, and (b)
the right to enforce the terms of the Stipulation and orders of the
Court in connection therewith."
* * *
The Plaintiffs and the Class members may hereafter discover facts
in addition to or different from those which he, she or it now knows
or believes to be true with respect to the subject matter of the
Settled Claims, but the Plaintiffs and Class members, upon the
Effective Date, shall be deemed to have, and by operation
12
<PAGE>
of the Final Judgment shall have, fully, finally, and forever settled
and released any and all Settled Claims, known or unknown, suspected
or unsuspected, contingent or non-contingent, whether or not concealed
or hidden, which now exist or theretofore have existed upon any theory
of law or equity now existing or coming into existence in the future,
including, but not limited to, conduct which is negligent,
intentional, with or without malice, or a breach of any duty, law or
rule, without regard to the subsequent discovery or existence of such
different or additional facts.
Stipulation, Exhibit C at 11-12 (emphasis added). Thus, the Final Order and
Stipulation could hardly have been clearer that all claims of any nature
relating to the Mergers, Merger Agreements, acts alleged in the complaints and
any disclosures related thereto were barred and released.
The violation of the Stipulation and the Court's Final Order in the
present case is manifest. Dominium's single claim in the Minnesota Action
arises under the federal securities laws and concerns the Mergers and
disclosures about the Mergers, and thus clearly falls within the scope of the
"Settled Claims." And, the definition of Settled Claims broadly includes "all
claims," irrespective of the capacity (individual, indirect, or otherwise) in
which the Class Member sues.
As Dominium's representatives in the Class Action, Class Counsel
secured, and the Final Order conferred upon them, the right to review the Funds'
preliminary and definitive proxy materials and to comment thereon, and required
the Funds "to include in such Proxy Materials reasonable disclosures recommended
by Class Counsel." Stipulation, Exhibit C at 24. In exchange, the issue of the
Class' rights to bring claims for violation of the federal securities laws in
correction with disclosures about the Mergers was settled, and the threat of
such actions as the Minnesota Action to disturb the proxy solicitation process
was put to rest. The Class' and
13
<PAGE>
the Funds' cooperation has, however, been utterly cast aside by Dominium, in
clear contempt of the Final Order.
B. THIS COURT'S FINAL ORDER BARS FEDERAL DISCLOSURE CLAIMS
The Stipulation and Final Order expressly enjoins members of the
class from pursuing federal claims. The Delaware Supreme Court has
affirmed that the state courts have the power to approve a release
which covers federal claims. NOTTINGLIAM PARTNERS, 564 A.2d at
1005 & n.36; see also IN RE MCA, 598 A.2d at 691. The Supreme
Court of the United States, in the term just ended, held that
state court orders approving settlements which release claims
within the exclusive jurisdiction of the federal courts are valid
and are to be given full faith and credit by the federal courts.
MATSUSHITA ELEC. INDUS. CO. LID V. EPSTEIN, 116 S. Ct. 873 (1996).
The fact that Dominium attempted to cast its objections to the
proposed mergers as federal disclosure claims is, therefore, of no
consequence.
Many courts reached the same conclusion before MATSUSHITA was decided.
A close example is GRIMES V. VITALINK COMMUNICATIONS CORP., 17 F.3d 1553 (3d
Cir.), CERT DENIED, 115 S. Ct. 480 (1994), in which a class action was also
maintained and settled by a court approved settlement in Delaware. The state
class action lawsuit alleged that the defendant corporations had breached their
fiduciary duties and duties of disclosure to the stockholders with respect to a
proposed merger of the two corporations. Ultimately, the class action suit was
resolved pursuant to a court approved settlement. Some class members, however,
subsequently initiated suit in the United States District Court for the Eastern
District of Pennsylvania, alleging that the same defendants in the state class
action had violated the Securities Exchange Act of
14
<PAGE>
1934 by failing to disclose information relating to the merger. This claim,
obviously, was unavailable in state court because it is exclusively a federal
claim. The GRIMES Court held, however, that the release entered into by the
class members in the Delaware suit barred the subsequent suit in federal court,
even though the subsequent suit asserted different legal theories over which the
Delaware court lacked subject matter jurisdiction. The court explained that the
release "manifests an intent by the parties to settle all claims arising from
the merger transaction." Id. at 1563. The release signed by the parties stated
that "[a]ll claims, rights, causes of actions, suits, matters and issues, known
or unknown, that arise now or hereafter out of, or that relate to, or that are,
were or could have been asserted in connection with" the merger were released
and discharged. Id. at 1555 n.1. According to the court "[w]hile this rule of
law may seem anomalous at first glance, it is widely recognized that courts
without jurisdiction to hear certain claims have the power to release those
claims as part of a judgment." Id. at 63. SEE ALSO, E.G., THOMPSON V. JONES &
CO., 992 F.2d 187, 190-92 (8th Cir. 1993) (when a class member fails to opt out
of the class or object to the settlement, that class member is precluded from
asserting claims in another court on different or same legal theories arising
from the same facts as the settled action); CLASS PLAINTIFFS V. SEATTLE, 955
F.2d 1268, 1288 (9th Cir.), CERT. DENIED, 506 U.S. 953 (1992); IN RE CORRUGATED
CONTAINER ANTITRUST LITIGATION, 643 F.2d 195 (5th Cir. 1981 ); SANDLER ASSOCS.,
L.P. V. BELLSOUTH CORP., 818 F. Supp. 695 (D. Del. 1993) (state court had power
to dismiss as part of a class action settlement not only claims before it, but
related claims not before it, and plaintiffs in a subsequent litigation were
barred by that settlement from prosecuting any such claims), AFF'D WITHOUT OP.,
26 F.3d 123 (3d Cir.), AND CERT. DENIED, 115 S. Ct. 481 (1994).
15
<PAGE>
As a result of the Final Order in this case, Class Members are
enjoined from asserting claims in any capacity against the Defendants, including
not only for that alleged violations of fiduciary duties with respect to the
Mergers, but also claims of false and misleading disclosures or omissions under
the federal securities laws.
C. DOMINIUM IS IN CONTEMPT OF THE FINAL ORDER AND MUST BE ENJOINED FROM
FURTHER VIOLATION OF IT
This Court explicitly retained jurisdiction to enforce the terms of
the Stipulation and the Final Order, including the aforementioned injunction.
Final Order, Exhibit D (P) 9, at 3. SEE ALSO MUMMERT V. WIGGIN, 616 A.2d 325
(Del. 1992) (per curiam) ("In the absence of a stay, a court of equity retains
inherent power to enforce its injunctions during the pendency of an appeal or at
any other time"); LACY V. GREEN, 428 A.2d 1171, 1178 (Del. Super. Ct. 1981)
("[T]he essence of judicial power is the final authority to render and enforce a
judgment.").
The Delaware Supreme Court has taken a particularly rigid stance on
violations of orders handed down by the State's courts: "No person may with
impunity disregard an order of the court having jurisdiction over the subject
matter and the parties." MAYER V. MAYER, 132 A.2d 617, 621 (Del 1957). Where a
party violates an order granting injunctive relief issued by the courts, the
contempt mechanism is an appropriate means to coerce obedience with the court's
orders. SEE, E.G., DELAWARE STATE BAR ASS'N V. ALEXANDER, 386 A.2d 652, 665
(Del.) ("coerce the respondents to finally cease and desist from pursing an
improper and persistent course of conduct") (footnote omitted), CERT. DENIED AND
APPEAL DISMISSED, 439 U.S. 808 (1978); WILMINGTON FED. OF TEACHERS V. HOWELL 374
A.2d 832 (Del. 1977) (upon a finding of contempt of the court's temporary
restraining order and preliminary injunction, the court has the discretion to
fashion a remedy designed to compel obedience); CITY OF WILMINGTON V. GENERAL
TEAMSTERS
16
<PAGE>
LOCAL UNION, 321 A.2d 123 (Del. 1974) (purpose of civil contempt proceeding is,
inter alia, "to compel obedience to orders and decrees made to enforce the
rights and administer the remedies to which the court has found them to be
entitled") (quoting IN RE NEVITT, 117 F. 448 (8th Cir. 1902)); CITY OF
WILMINGTON V. AMERICAN FED. OF STATE, COUNTY AND MUNICIPAL EMPLOYEES, 307 A.2d
820, 823 (Del. Ch. Ct. 1973); SEE ALSO Del. Ch. Ct. R. 70(b). Since Dominium
seeks to assert claims in the Minnesota Action that were released and barred
from further prosecution by the Stipulation and the Court's Final Order in the
Class Action case, this Court should find Dominium in contempt and enjoin
Dominium, ordering it to cease prosecution of the MINNESOTA Action. Furthermore,
if class members in settled cases are free to disregard the orders barring them
from re-opening litigation, there will be no incentive for parties to settle and
the class action, as a mechanism for judicial efficiency in cases of numerous
plaintiffs, will be seriously undermined.
Additionally, courts which have issued an injunction in furtherance of
a settlement containing a release of future claim have enjoined a member of the
class from relitigating the settled claims. For example, the court in IN RE VMS
SECURITIES LITIG., 145 F.R.D. 458 (N.D. Ill. 1992), confronted this very issue.
There, the court's final order approving settlement contained a release,
releasing all state and federal causes of action, known or unknown, which were
related in any way to any of the facts or transactions involved in the settled
claims. As in this Class Action, the court "expressly enjoined all parties from
asserting any released claim," and it retained jurisdiction to enforce the terms
of the settlement. Id. at 460. Several members of the class, nonetheless,
proceeded to pursue separate arbitration claims arising out of the same
transactions. The court granted defendant's motion to enjoin the class
17
<PAGE>
members from further prosecuting their claims. Id. at 465. SEE ALSO IN RE BOLAR,
1994 U.S. Dist. LEXIS 9236 (E.D. Pa. 1994), WITHOUT OPINION, 1995 U.S. App.
LEXIS 5114 (3d Cir. 1995).
A contempt order coercing obedience, and an injunction, are not only
warranted on the facts and law of this case, but needed in order to prevent
irreparable harm. Initiation and continued prosecution of the Action is causing
and will continue to cause the Funds and CAPREIT immediate and irreparable harm,
and directly flout the Final Order of this Court. Months of extensive
discussions and negotiations have resulted in the proposed Merger, with all of
its prospective benefit, but at tremendous expense to the parties engaged in the
Mergers. In reaching the settlement in the Class Action, the parties also
incurred tremendous legal fees. All may be for naught if a suit to block these
transactions brought at the instance of an enjoined party is not stopped.
More importantly, however, as Dominium prosecutes the Minnesota Action
in pursuit of a preliminary injunction to block the BAC Holders' meeting,
scheduled for October 29, 1996, it poses a tremendous and unquantifiable (but
ever-growing) threat that the other BAC Holders in the Class will not be able to
vote upon the CAPREIT proposal, and that the market premium paid by CAPREIT and
the other benefits of the Mergers, as improved by Class Counsel's efforts, may
be lost as a result. Similarly lost will be the benefit to the Class of having
their claims handled by Class Counsel acting in the interests of the entire
Class (not just one Class member who is, in reality, just a disappointed suitor
for the Funds). Such benefits have included Class Counsel's active review of
the Funds' proxy materials and the Funds' inclusion of reasonable disclosures
recommended by Class Counsel.
18
<PAGE>
In short, further prosecution of the Minnesota Action deprives the
Defendants and the other members of the Class of the principal benefit of the
Class Action settlement: peace and finality.
The Defendants made considerable concessions in reliance on this
Court's Final Order dismissing with prejudice all claims by Class members for an
injunction arising out the Defendants' actions related to the proposed Mergers
and the Proxy Statement, and barring and enjoining all Class members from
asserting any such claims in the future. This was a critical element of the
Settlement and one of the primary reasons this Court expressly retained
jurisdiction. Thus, unless Dominium is enjoined from prosecution of its claims
in the Minnesota federal district court, the Stipulation reached in the Class
Action will be rendered essentially ineffective. And, like the judicial reasons
weighing in favor of a contempt finding, there are judicial reasons compelling
an injunction, as the policy favoring settlements of complex class action
litigation will be utterly thwarted if members of the Class are not prevented
from disregarding the Court's approval of the negotiated settlement.
For all these reasons, an order enjoining Dominium from prosecuting of
the Minnesota Action is immediately necessary and should be entered to protect
and effectuate this Court's Final Order in the Class Action, and to afford the
Defendants the peace from litigation which they negotiated.
CONCLUSION
----------
For the reasons set forth above, the Defendants respectfully request
that this Court enter an order finding Dominium in contempt of this Court's
August 14, 1996, Final Order in the
19
<PAGE>
Class Action litigation, and further enjoining them from, and directing them to
cease and desist the continued prosecution of, the Minnesota Action against the
Defendants.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
By:
-------------------------------------
Thomas J. Allingham
One Rodney Square P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3070
- and -
ARENT FOX KINTNER PLOTKIN & KAHN
Hunter T. Carter
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
Counsel for the Funds, CRITEF Inc. and CRITEF III,
Inc.
Leigh R. Lasky
Beigel Schy Lasky Rifkind Fertik & Gelber
750 Lexington Avenue, 30th Floor
New York, New York 10022
Counsel for CAPREIT
Deborah L. Thaxter, P.C.
Peabody & Brown
101 Federal Street
Boston, Massachusetts 02110-1832
Counsel for the General Partners,
Dockser and Willoughby
Robert J. Stearn, Jr.
Richards, Layton & Finger
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
20
<PAGE>
EXHIBIT 99.17D2
CAPITAL REALTY INVESTORS TAX EXEMPT FUND
LIMITED PARTNERSHIP,
SERIES I & SERIES II
CAPITAL REALTY INVESTORS TAX EXEMPT FUND III
LIMITED PARTNERSHIP
c/o C.R.I., Inc.
11200 Rockville Pike
Rockville, Maryland 20852
October 3, 1996
Dear BAC Holder:
Dominium Tax Exempt Fund's recent letter to you omits or distorts the facts
concerning the proposed mergers between the CRITEF Funds and affiliates of
CAPREIT.
Dominium's interests are not the same as yours. Dominium holds only 100
BACs in each CRITEF Fund, purchased recently to give them standing to raise
objections to the mergers. The General Partners believe that Dominium wants to
gain control of the CRITEF Funds, not to get you more money for your shares.
Dominium tried for seven months to finance a bid that might pay more to BAC
Holders, but it failed to raise the money. The CRITEF Funds cooperated fully
with Dominium. Counsel in the class action postponed the settlement hearing
three times to give Dominium an opportunity to finalize an offer. Dominium was
never able to make a firm bid higher than CAPREIT's. Consistent with its past
failure, Dominium makes no monetary offer now.
Consider the following points Dominium neglects to tell you:
- The Delaware Chancery Court approved the settlement of the class
action suit concerning the mergers, finding it to be fair, reasonable
and in the best interests of BAC Holders.
- For eight months, class action counsel acting on behalf of investors
sought to obtain higher bids, including from Dominium, but failed to
produce any offers.
- Independent fairness opinions from a nationally recognized investment
banking firm support the fairness of the merger redemption prices
offered by CAPREIT to BAC Holders from a financial point of view.
- The merger prices represent substantial premiums of 26% to 33% over
the AMEX trading prices as of the date CAPREIT made its initial bid.
- All pertinent information concerning the relationships among the
Funds, their affiliates and CAPREIT is fully disclosed in proxy
materials filed with the Securities and Exchange Commission and mailed
to BAC Holders.
- CAPREIT has increased its aggregate offer to BAC Holders by $13
million since its initial bid.
Dominium offers you no alternative proposal. It simply seeks to block the
mergers. Perhaps Dominium hopes to benefit by driving down the current market
price of the BACs after frustrating the mergers. Perhaps Dominium's goal is to
extract some other financial benefit for itself.
Dominium failed to furnish a firm higher bid for the BACs after months of
trying. It still offers nothing. Its disgruntled efforts to thwart the mergers
for its own benefit should not be rewarded. You will be the one who is
financially hurt.
The General Partners urge you to sign and return the enclosed white proxy
card.
If you have questions, please contact MacKenzie Partners, our information
and proxy agent, at 1-800-322-2885.
The vote of every BAC Holder is important.
Very truly yours,
CRITEF III ASSOCIATES LIMITED PARTNERSHIP,
General Partner
By: C.R.I., Inc., its general partner
William B. Dockser
Chairman of the Board of C.R.I., Inc.
and
H. William Willoughby
President of C.R.I., Inc.
<PAGE>
EXHIBIT 99.17D3
NEWS RELEASE
For Immediate Release
CONTACT: James T. Pastore
202-546-6451
Susan T. Backman or
Curtis C. Rimmey
301-231-0231
CRITEF General Partners Sue Dominium For Violating Federal
Securities Laws;
Cite Misleading Statements About Proposed Mergers
Rockville, MD, October 4, 1996 -- (AMEX: CRA, CRB, CRL) -- The General Partners
of two CRITEF partnerships and a prospective merger partner, Capital Apartment
Properties, Inc. (CAPREIT), have filed suit in the United States District Court
for the Southern District of New York to have a temporary restraining order
issued against Dominium Tax Exempt Fund LLP, alleging that Dominium violated
Federal securities laws in its effort to impede a proposed merger between the
CRITEF partnerships and affiliates of CAPREIT.
The suit charges that Dominium violated Federal securities laws by sending a
letter and issuing a press release constituting proxy solicitations to investors
in the CRITEF partnerships before delivering more detailed preliminary proxy
materials to the investors.
The suit also charges that the letter and press release contain false and
misleading statements about the proposed mergers between the CRITEF partnerships
and affiliates of CAPREIT.
As a result, the CRITEF suit seeks to restrain Dominium from communicating
further with CRITEF BAC holders until Dominium delivers to the holders of CRITEF
Beneficial Assignee Certificates (BACs) a proper proxy statement in compliance
with Securities and Exchange Commission rules.
The CRITEF suit also seeks compensatory and punitive damages for Dominium s
tortious interference with the merger contracts, due to Dominium s unlawfully
issuing proxy solicitations and making false and misleading statements
jeopardizing the mergers and its malice towards the CRITEF partnerships and
CAPREIT.
Dominium s communications with CRITEF investors have left out key information,
such as:
- - - Dominium tried for seven months to come up with a proposal that would
exceed CAPREIT s offer of cash to BAC holders, but failed to obtain firm
financing.
- - - Dominium is presenting BAC holders with no alternative offer now.
- - - CAPREIT s offering prices represent 26% to 33% premiums over the American
Stock Exchange closing prices as of the day of CAPREIT s initial bid.
- - - As part of a recently settled class action, counsel representing the BAC
holders solicited higher bids from nationally recognized real estate firms.
Eight months of solicitation produced no bids at all.
- - - CAPREIT s merger offering prices are supported by independent fairness
opinions from a nationally recognized investment banking firm.
- - - All pertinent information concerning the relationships among the CRITEF
partnerships, their affiliates and CAPREIT is fully disclosed in their
proxy materials filed with the SEC and mailed to BAC holders.
William B. Dockser, chairman of CRI, Inc., the managing general partner of the
general partners of the CRITEF partnerships, said, We stand behind the merger
proposals and recommend that the BAC holders vote yes on all of the questions on
the proxies. Neither Dominium nor anyone else has been able to beat CAPREIT s
offer. CAPREIT s offer to BAC holders has been deemed fair by a nationally
recognized investment banking firm and the settlement of the class action has
been approved by the Delaware Chancery Court.
Mr. Dockser warned investors that, Dominium offers no alternative to the merger
proposals. Dominium s interests are not the same as the BAC holders . Dominium
purchased its 100 BACs for each series of CRITEF securities only recently in
order to claim standing for objecting to the mergers. We believe Dominium s
motive is to gain control of the CRITEF partnerships, not to see that BAC
holders get more for their investment.
Special meetings for BAC holders to vote on the merger proposals are scheduled
for October 29, 1996.
There are two CRITEF partnerships with three series of securities that trade on
the American Stock Exchange:
- - - Capital Realty Investors Tax Exempt Fund Limited Partnership, Series I
(CRITEF-I) (AMEX:CRA);
- - - Capital Realty Investors Tax Exempt Fund Limited Partnership, Series II
(CRITEF-II) (AMEX:CRB);
- - - Capital Realty Investors Tax Exempt Fund III Limited Partnership (CRITEF-
III) (AMEX:CRL).
The CRITEF partnerships together hold 18 tax-exempt mortgage revenue bonds used
to finance multifamily housing communities in eight states. Formed by CRI, Inc.
in 1986 and 1987, the partnerships began trading on the American Stock Exchange
on July 1, 1993.
CAPREIT, based in Rockville, Maryland, is a self-managed private real estate
investment trust. CAPREIT owns 30 multifamily communities containing 7,512
units located in 10 states. In addition, CAPREIT manages another 39 apartment
communities (including 14 of the CRITEF communities) for third-party owners.
The largest investor in CAPREIT is Apollo Real Estate Investment Fund, L.P.
<PAGE>
EXHIBIT 99.17D4
Capital Apartment Properties, Inc.
- --------------------------------------------------------------------------------
Rockville, Maryland
RE: Capital Realty Investors Tax Exempt Fund Limited Partnership, Series I
(AMEX Symbol: CRA), Capital Realty Investors Tax Exempt Fund Limited
Partnership, Series II (AMEX Symbol: CRB), and Capital Realty Investors Tax
Exempt Fund Limited Partnership, Series III (AMEX Symbol: CRL)
FOR IMMEDIATE RELEASE:
CAPITAL RESPONDS TO DOMINIUM TAX EXEMPT FUND LETTER
ROCKVILLE, MARYLAND, October 3, 1996-Capital Apartments Properties, Inc.
("CAPREIT") responded strongly to the false allegations and misstatements set
forth in a press release and in a letter to investors by the recently organized
Dominium Tax Exempt Fund L.L.P. attacking the proposed merger of affiliates of
CAPREIT with Capital Realty Investors Tax Exempt Fund Limited Partnership,
Series I (AMEX Symbol: CRA), Capital Realty Investors Tax Exempt Fund Limited
Partnership, Series II (AMEX Symbol: CRB), and Capital Realty Investors Tax
Exempt Fund Limited Partnership, Series III (AMEX Symbol: CRL).
Richard Kadish, President of CAPREIT, stated "This is obviously a last ditch
attempt on the part of Dominium to stop a transaction as to which they were
unwilling and incapable of coming to the table with a better price for BAC
holders, notwithstanding an eight month opportunity to do so. I am not entirely
surprised by this bad faith attempt to sabotage the merger in view of the
unwillingness of CAPREIT to agree to their request for greenmail payments in
order to avoid this potentiality."
Mr. Kadish further commented, "Our attorneys are currently reviewing this matter
with a view to putting a stop to these unwarranted and self-interested
misstatements."
CAPREIT is one of the nations largest owners and managers of multi-family
housing units throughout the United States.
