<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. 6
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. 6
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. 6 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. 6 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.
---------------------------------------------
(c)(11)........... Memorandum Opinion in the case styled Capital
-------
Realty Investors Tax Exempt Fund Limited
----------------------------------------
Partnership, et al. v. Dominium Tax Exempt Fund
-----------------------------------------------
L.L.P.
------
(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
(d)(5)............ October 11, 1996 Letter to BAC Holders from the
Funds
(d)(6)............ October 14, 1996 Press Release issued by CARPREIT
(d)(7)............ October 16, 1996 Press Release issued by CARPREIT
(d)(8)............ October 17, 1996 Letter to BAC Holders from the
Funds
(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 17, 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 17, 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(c)(11) Memorandum Opinion in the case style Capital Realty Investors
Tax Exempt Fund Limited Partnership, et al. v. Dominium Tax
Exempt Fund L.L.P.
17(d)(1) Letters to BAC Holders, Notice of Special Meetings, definitive
Proxy Statement and forms of Proxy.*
17(d)(2) October 3, 1996 Letter to BAC Holders from the Funds*
17(d)(3) October 4, 1996 Press Release issued by the Funds*
17(d)(4) October 3, 1996 Press Release issued by CARPREIT*
17(d)(5) October 11, 1996 Letter to BAC Holders from the Funds*
17(d)(6) October 14, 1996 Press Release issued by CARPREIT
17(d)(7) October 16, 1996 Press Release issued by CARPREIT
17(d)(8) October 17, 1996 Letter to BAC Holders from the Funds
* Previously filed.
<PAGE>
EXHIBIT 17(d)(6)
FOR: CAPREIT
CONTACT: Richard L. Kadish
(301) 231-8700
KCSA CONTACT: Leslie A. Schupak
(212) 682-6565 ext. 207
Fax: (212) 338-9558
E-Mail: [email protected]
FOR IMMEDIATE RELEASE
---------------------
CAPREIT ACCUSES DOMINIUM OF ATTEMPTING TO
SABOTAGE MERGER
ROCKVILLE, MD --October 14, 1996 -- Capital Apartments Properties, Inc.
(CAPREIT) Presidential Richard L. Kadish has called attempts by Dominium Tax
Exempt Fund LLP to impede a proposed merger between CRITEF partnerships and
affiliates of CAPREIT "malicious, egregious, and in furtherance of their 'green
mail' solicitations."
Kadish stated: "After Dominium tried and failed for seven months to
produce a better cash offer than CAPREIT's, Dominium proposed to CAPREIT that it
enter into a management contract which would have given Dominium $3.5 million in
termination fees upon approval of the merger of the Funds. I believe their
attempt to impede the merger is a continuation of their effort to obtain green
mail."
Kadish further pointed out that Dominium holds only 100 shares each of
CRITEF I, II and III which were only purchased within the last few weeks. "We
can only speculate that Dominium may seek to profit by a fall in the BAC prices
should the merger fail.
"By marked contrast," the CAPREIT President said, "Our offers, each of
which provides a premium to the BAC holders, has been reviewed and approved by
the Delaware Chancery Court. In addition, the price being offered to each BAC
Holder has the support of a
<PAGE>
Fairness Opinion from a nationally recognized investment banking firm with
extensive experience in real estate valuations."
CAPREIT's price offer constitutes a 27 percent premium to the market
price the day CAPREIT made its bid, according to Kadish. He pointed out that
the CRITEF proxy underwent an extensive review by the Securities and Exchange
Commission to ensure that all relevant facts were stated and explained.
"CAPREIT's offer has been made fairly and with the belief that BAC
Holders will receive significantly more value from the mergers than they would
be able to obtain by selling their BAC's in the public marketplace at the prices
that prevailed immediately prior to the initial announcement of the mergers.
This has been substantiated by the fact there has been no higher firm bids from
other nationally recognized real estate firms," Kadish said.
CAPREIT owns, develops and manages multifamily garden-style and
townhome communities throughout the Midwest, Mid-Atlanic, Northeast and
Southeast United States. CAPREIT currently owns and manages 30 properties with
8,942 housing units. CAPREIT also manages an additional 39 apartment
communities on behalf of third-party owners.
* * *
-2-
<PAGE>
EXHIBIT 17(d)(7)
FOR: CAPREIT
CONTACT: Richard L. Kadish
(301) 231-8700
KCSA CONTACT: Leslie A. Schupak
Phone: (212) 682-6565 ext. 207
Fax: (212) 338-9558
E-Mail: [email protected]
FOR IMMEDIATE RELEASE
---------------------
COURT CONFIRMS NO PRESENT BID FROM DOMINIUM ROCKVILLE, MD -- October
16, 1996 -- The Federal Judge for the Southern District of New York found that
Dominium's Tax Exempt Fund LPL's correspondence to BAC Holders of CRITEF I, II
and III Funds, may have contained numerous inaccuracies.
While denying CRITEF's request for extraordinary relief, the Court
indicated that it would entertain a renewal of that request for injunctive
relief unless Dominion made corrective disclosures which must be disseminated to
BAC Holders on or before October 21.
The Court in its opinion further indicated that "a competing bid by
Dominium is not now in the offing."
It further found that Dominium was "seeking to delay or defeat the
proposed mergers in the hope that it somehow would obtain the wherewithal to
acquire control or that it would make such a nuisance of itself that CARPEIT or
the Funds would pay it to go away."
In making this observation, the court noted: "Dominium has no
meaningful ownership interest in the Funds."
<PAGE>
In reviewing the Court's opinion, Richard L. Kadish, President of
CAPREIT, which has made an offer at a minimum 27 percent premium to the market
price the day it made its bid, stated: "The Court essentially confirmed what we
have been saying all along -- Dominium has no proposal,, has no significant
economic interest in the Funds and that its plan of harassment is strictly to
create some unique benefit for itself.:
CAPREIT owns, develops and manages multifamily, garden-style and
townhome communities throughout the Midwest, Mid-Atlantic, Northeast and
Southeast United States. CAPREIT currently owns and manages 30 properties with
8,942 housing units. CAPREIT also manages an additional 39 apartment
communities on behalf of third-party owners.
* * *
<PAGE>
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
IT'S NOW TIME TO VOTE
October 17, 1996
Dear BAC Holder:
If you are unsure about Dominium's true intentions in trying to block the
proposed CAPREIT-CRITEF mergers -- or about how to vote your proxy -- here are
several items that will help clear up any doubts:
. The United States District Court for the Southern District of New
York stated: "There is little doubt that Dominium is seeking to
delay or defeat the proposed mergers in the hope it will somehow
obtain the wherewithal to acquire control of the Funds or that it
will make such a nuisance of itself that CAPREIT or the Funds will
pay it to go away."
. Dominium's own Definitive Proxy Statement, however, confirms:
"Dominium is not presently pursuing financing, nor does it have any
present plans to make a superior proposal."
. Although the Federal Court denied our injunction motion, it
nevertheless found that Dominium's earlier communications to BAC
Holders:
...may have created the impression in some minds that Dominium's
interest was as a fellow investor. Yet Dominium has no
meaningful ownership interest....In these circumstances, the
failure to disclose its own interest in an acquisition and its
failure to finance a proposal at a price only marginally higher
than one it now characterizes as 'grossly inadequate' arguably
was materially misleading.
. The Court emphasized the absence of a superior proposal from
Dominium, or anyone else, in stating, "As the merger train comes
closer and closer to departure without the emergence of the hoped-
for better mode of transportation, more and more BAC holders will
hop aboard rather than be left at the station."
Other investors with a greater economic stake in the Funds than Dominium
demonstrate that they accept CAPREIT's now time-tested offer. The CRITEF Funds
have learned that an independent investment advisor, 2nd Market Capital Advisory
Corporation,
<PAGE>
BAC Holders
October 17, 1996
Page Two
controls 3% of each CRITEF Fund and has submitted all its proxies voting for the
---
proposed mergers. A letter to 2nd Market's clients states: "In light of the
free-flow of financial information and the assertive acquisitions and mergers
environment today, we can feel comfortable in believing sufficient time has
passed for the emergence of a superior third party offer. CAPREIT's offer
resembles our value expectations..."
The CRITEF General Partners continue to recommend that you approve the
proposed mergers for the reasons set forth in the proxy statement, including:
. For eight months, attorneys representing the BAC Holders in a
class action suit sought higher bids for the CRITEF Funds,
including a bid from Dominium, but received no firm offers.
. CAPREIT's merger redemption prices are supported by fairness
opinions from a nationally recognized investment banking firm.
. The redemption prices represent substantial premiums ranging
from 26% to 33% over the AMEX trading prices as of the date of
CAPREIT's initial bid.
Dominium offers you NO ALTERNATIVE PROPOSAL. It has NO MEANINGFUL
INVESTMENT IN THE FUNDS. It simply wants to disrupt the mergers to keep the
Partnership's properties "available." But for whose benefit -- yours or theirs?
The General Partners urge you to sign and return the enclosed white
proxy card.
In you have any questions, please contact MacKenzie Partners, our
information and proxy agent, at 1-800-322-2885.
<PAGE>
Very truly yours,
CRITEF ASSOCIATES LIMITED PARTNERSHIP and
CRITEF III ASSOCIATES LIMITED PARTNERSHIP,
General Partners
By: C.R.I., Inc., their general partner
/s/ William B. Dockser /s/ H. William Willoughby
William B. Dockser H. William Willoughby
Chairman of the Board President
<PAGE>
EXHIBIT 17(c)(11)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- ---------------------------------------x
CAPITAL REALTY INVESTORS TAX EXEMPT
FUND LIMITED PARTNERSHIP, et al.,
Plaintiffs,
96 Civ. 7534 (LAK)
-against-
DOMINIUM TAX EXEMPT FUND L.L.P., et al.,
Defendants.
- ---------------------------------------x
MEMORANDUM OPINION
Appearances:
David N. Wynn
Robert B. Hirsch
Hunter T. Carter
Evan S. Stolove
ARENT FOX KINTNER PLOTKIN & KAHN
Attorneys for Plaintiffs Capital Realty Investors Tax Exempt
Fund
Limited Partnership and capital Realty Investors Tax Exempt
Fund
III Limited Partnership
Kevin J. Handly
Deborah L. Thaxter
PEABODY & BROWN
Attorneys for Plaintiffs CRITEF Associates Limited
Partnership,
CRITEF III Associates Limited Partnership, and C. R..I.,
Inc.
Daniel J. Kramer
SCHULTE ROTH & ZABEL LLP
Attorneys for Plaintiff Capital Apartment Properties, Inc.
Paul M. Dodyk
CRAVATH, SWAINE & MOORE
Attorneys for Defendants
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LEWIS A. KAPLAN, District Judge.
Plaintiffs Capital Realty Investors Tax Exempt Limited Partnership and
Capital Realty Investors Exempt Fund III Limited Partnership (the "Funds") are
publicly traded real estate limited partnerships. They are parties to merger
agreements with affiliates of plaintiff Capital Apartment Properties, Inc.
("CAPREIT") and they have been soliciting proxies since September 23, 1996 for
approval of the mergers at security holder meetings scheduled for October 29,
1996.
Defendant Dominium Tax Exempt Fund L.L.P. ("Dominium"), a thus far
unsuccessful contestant for control of the Funds, is seeking to defeat the
proposed mergers in order to preserve the possibility that it will make a bid of
its own. Plaintiffs claim that it has violated the proxy rules in doing so and
move for a preliminary injunction.
Facts
Background
The Funds' involvement with Dominium and the current lawsuit are but
the latest chapter in a long saga, much of the background of which is described
in two opinions in a prior lawsuit. Capital Real Estate Investors Tax Exempt
Partnership v. Schwartzberg, 917 F. Supp. 1050 ("CRITEF I"), and 929 F. Supp.
105 ("CRITEF II") (S.D.N.Y. 1966). Briefly stated, the Funds have been trying
to merge with CAPREIT affiliates for many months. They have met a number of
obstacles along the way including a dispute with Martin Schwartzberg, a former
partner of the principals of the Funds' general partners,/1/ and extensive class
action litigation in
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/1/ That dispute led to the lawsuit that produced the opinions in CRITEF I and
CRITEF II.
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the Delaware Court of Chancery. The proposal now on the
table cells for an aggregate merger price of $162.3 million, which would net
$160.7 million for the Funds' security holders.
During much of the past year, Dominium has explored the possibility of
acquiring the Funds. In June and July 1996, it indicated an interest in mergers
for aggregate net consideration to the Funds' security holders of $165.3
million. In August, however, it acknowledged that it was not in a position to
provide of its liability to finance or finalize its proposal. As far as the
record discloses, its ability to do so is no better than it was in August.
There is little doubt that Dominium is seeking to delay or defeat the
proposed mergers in the hope that it somehow will obtain the wherewithal to
acquire control of the Funds or that it will make such a nuisance of itself that
CAPREIT or the Funds will pay it to go away. Much more could be said concerning
the complex background of this action. At this point, however, there is no need
for a more extensive discussion save for a description of the particular
Dominium communications and the preliminary proxy statement that are the foci of
this motion.
The Dominium Solicitations
The September 27 Letter
On September 27, 1996, prior to filing preliminary proxy materials
with the Securities and Exchange Commission ("SEC"), Dominium sent a letter to
holders of the Funds' securities (the "First Letter") urging them to withhold
proxies on the mergers pending recommendations by Dominium that it said would
follow shortly:
"We urge you not to take any action [on the Funds' request for
proxies] until you have received and carefully considered the
recommendations we will be sending you shortly.
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"We are an established real estate company which feels that the
proposed merger as currently structured does not maximize BAC
Holder[/2/] value. In order to do so, we believe an open, fair and
competitive environment needs to exist. We would like to participate
in such a process and provide alternatives which we believe can
deliver greater value to all.
* * *
"We believe there are alternatives which are superior to the proposed
merger and we will shortly be sending you additional materials which
will detail these alternatives."
The Letter did not disclose Dominium's previous attempts to acquire the Funds or
its prior inability to obtain financing. Nor did it disclose that its own
previous unfinanced -- and therefore unsuccessful -- proposal would have yielded
BAC holders $165.3 million as compared with the $160.7 million proposed by
CAPREIT.
The October 1 Press Release
On October 1, 1996, Dominium issued a press release announcing that it
had filed preliminary, proxy materials with the SEC. It went on to make
negative comments about the proposed mergers and stated:
"The holders will only receive the true value of their investment
through an open, fair and competitive process, a process which the
general partners have vigorously resisted.
"* * * CAPREIT's offer provides the security holders with
approximately $160 million, a price which Dominium believes is grossly
inadequate." (Internal quotation marks omitted)
The press release, like the First Letter, did not disclose the reason
for Dominium's interest in the situation or its prior actions. Nor did it
disclose that the $160 million merger price (actually a net of $160.7 million)
that it characterized as "grossly inadequate" was only $4.6
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/2/ The securities of the Funds are called beneficial assignee certificates,
or BACs. CRITEF I, 917 F. Supp. at 1052.
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million, or 2.8 percent, less than the price Dominium itself had offered -- and
been unable to finance -- just weeks ago.
The October 8 Letter
On October 8, Dominium again wrote to BAC holders (the "Second
Letter"). The Second Letter again urged security holders not to act until they
received materials from Dominium. It again attacked the proposed mergers and
the Funds' management. It concluded by saying:
"Our analyses lead us to believe that in an open, fair and
competitive process, the BAC Holders will receive greater values.
Significantly, it appears that the General Partners have not even
sought appraisals.
"SEND A CLEAR MESSAGE TO YOUR GENERAL PARTNERS TO PURSUE OTHER
ALTERNATIVES WHICH WILL MAXIMIZE BAC HOLDER VALUE. ONCE AGAIN, 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."
As before, the Second Letter said nothing about Dominium's prior actions and
proposal.
The Dominium Preliminary Proxy Statement
Dominium filed a preliminary statement with the SEC on September 30, 1996 which
has not yet received SEC clearance (the "Preliminary")./3/ The Preliminary
argues strenuously against the proposed mergers. It attacks the Funds' general
partners. It described Dominium's prior efforts with respect to the Funds,
including its prior acquisition proposal and its inability to finance it. And
it devotes approximately six of its 33 pages to a discussion of four
alternatives to the mergers which, it argues, would yield superior value to the
BAC holders: (1) holding the Funds'
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/3/ Dominium's counsel represented at the hearing that Dominium had received
staff comments on the preliminary proxy and that it had responded to those
comments on October 10 or 11, 1996. He was unable to give any indication
as to when the SEC is likely to give clearance.
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mortgage bonds until maturity followed by liquidation of the underlying
properties, (2) restructuring the underlying mortgages, (3) liquidation, and (4)
actively marketing the Funds or the underlying properties. Significantly, it
contains no proposal for a merger with or other acquisition by Dominium.
Discussion
Plaintiffs contend that the First and Second Letters and the press
release violated SEC Rule 14a-3, 17 C.F.R. (S) 240.14a-3, because they
constituted solicitations and were made without furnishing a proxy statement to
the security holders. They assert that the documents were materially misleading
and therefore violated Rule 14a-9, 17 C.F.R. (S) 240.14a-9. And they maintain
that Dominium violated Rule 14a-7, which restricts the purposes to which
security holders who obtain investor lists from an issuer may put those lists.
They seek a preliminary injunction restraining Dominium's solicitation of
proxies in opposition to the mergers pending the issuance of corrective
disclosure.
In order to obtain a preliminary injunction, plaintiffs must show (a)
irreparable harm and (b) either (1) likelihood of success on the merits or (2)
sufficiently serious questions going to the merits to make them a fair ground
for litigation plus a balance of hardships tipping decidedly toward the party
requesting the preliminary relief. E.g., Acquaire v. Canada Dry Bottling Co. of
New York, Inc. 24 F.3d 401, 409 (2d Cir. 1994); ICN Pharmaceuticals, Inc. v.
Kahn, 2 F.3d 484, 490 (2d Cir. 1993); CRITEF I, 917 F.Supp. at 1058; Holford USA
Ltd. v. Cherokee, Inc., 864 F.Supp. 364, 371 (S.D.N.Y. 1994). Moreover, a clear
showing of a threat of irreparable harm is essential. E.g. Triebwasser & Katz
v. American Tel. & Tel. Co., 535 F.2d 1356, 1359 (2d Cir. 1976).
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The Merits
The Rule 14a-3 Claim
Rule 14a-3 prohibits solicitations subject to Regulation 14A unless a
preliminary or definitive proxy statement is filed with the SEC and each person
solicited is furnished with a copy concurrently or in advance of the
solicitation. Here, Dominium does not dispute that the letters and the press
release constituted "solicitations" within the meaning of Regulation 14A. They
contend, however, that they were exempt from the requirements of Rule 14a-3 by
Rule 14a-12, 17 C.F.R. (S) 240.14a-12.
Rule 14a-12 provides in relevant part:
"(a) Notwithstanding the provisions of Rule 14a-3, a solicitation
(other than one subject to Rule 14a-11 ((S) 240.14a-11)) may be
made prior to furnishing security holders a written proxy
statement meeting the requirements of Rule 14a-3(a) if --
"(1) The solicitation is made in opposition to a prior
solicitation or an invitation for tenders or other
publicized activity, which if successful, could reasonably
have the effect of defeating the action proposed to be
taken at the meeting;
"(2) No form of proxy is furnished to security holders prior to
the time the written proxy statement required by Rule 14a-
3(a) ((S) 240.14a-3(a)) is furnished to security holders:
Provided, however, that this paragraph (2) shall not apply
where a proxy statement then meeting the requirements of
Rule 14a-3(a) has been furnished to security holders by or
on behalf of the person making the solicitation;
"(3) The identity of the participants in the solicitation (as
defined in Instruction 3 to Item 4 of Schedule 14A ((S)
240.14a-101)) and a description of their interests direct
or indirect, by security holdings or otherwise are set
forth in each communication published, sent or given to
security holders in connection with the solicitation, and
"(4) A written proxy statement meeting the requirements of this
regulation is sent or given to security holders solicited
pursuant to this section at the earliest practicable date."
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Plaintiffs claim that Dominium does not come within Rule 14a-12.
Plaintiffs argue first that the Rule would exempt Dominium's
solicitation from Rule 14a-3, assuming its other requirements were satisfied,
only if (1) Dominium's solicitation was made in response to a prior
solicitation, and (2) the prior solicitation, if successful, could defeat the
action proposed to be taken at the meeting. While they acknowledge that
Dominium's actions were taken in response to the Funds solicitation of proxies
in favor of the proposed mergers, they argue that Dominium nevertheless does not
qualify for the exemption because the Funds' prior solicitation, if successful,
would result in the approval of the proposed action, not its defeat. Thus,
plaintiffs read the phrase "which if successful, could reasonably have the
effect of defeating the action proposed to be taken at the meeting" in Rule 14a-
12(a)(1) as modifying "prior solicitation" as well as "invitation for tenders or
other publicized activity." Put another way, it is plaintiffs' position that
the Rule 14a-12 exemption is available only to proponents of corporate action to
be voted on at a meeting, not its opponents. This construction is not
persuasive.
Rule 14a-12(a)(1) is not a model of draftsmanship. As a matter of
linguistic analysis, the words might be read as plaintiffs suggest, although
that is not the only permissible construction. But doing so would ignore the
context in which the Rule must be applied, the understanding of a substantial
segment of the securities bar, and the history and purposes of the Commission's
actions in this area.
The purpose of Rule 14a-12 is to allow those who wish to respond to
proxy solicitations or other events that may affect the votes of shareholders on
proposed corporate action to do so quickly, before filing and obtaining
clearance of proxy statements from the SEC. Before there can be a response,
however, someone -- almost invariably the registrant -- must
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have proposed corporate action and at least started down the path toward calling
a shareholder meeting, filing a proxy statement and soliciting proxies. To read
Rule 14a-12 as plaintiffs suggest would, in the usual case, give an exemption
from the proxy statement filing requirement to the registrant -- which often
will not need it -- and withhold it from the contestant, the party with the need
to respond without the delay inherent in preparing and obtaining clearance of
its own proxy statement. Indeed, to read the Rule in this fashion would give an
advantage to registrants that seems inconsistent with the Commission's
objectives in this area./4/ It therefore is not surprising that Dominium has
presented the Court with evidence, albeit not conclusive evidence, that the rule
is understood and applied by the securities community as permitting all
contestants -- not only proponents -- to begin soliciting prior to the filing of
their own proxy statements as long as they do so in opposition to a prior
solicitation and otherwise come within the Rule. Compare Robert S. Reder &
Phillip Berkowitz, Doing Deals, 930 PLI/CORP 575, 596 (1996); Steven N. Gofman &
James K. Baer, Fight Letters: An Effective Tool in Proxy Contests, 10 No. 5
INSIGHTS 12 (1996); Michael W. Goroff & Guy W. Winters, Recent Developments in
Proxy Contests, 711 PLI/COMM 347, 357-58 (1995); Crozier Aff. (P)(P) 2-7; with
3C Harold S. Bloomenthal, SECURITIES AND FEDERAL CORPORATE LAW (S) 13.14[l]
(1996).
This view, contrary to plaintiffs' suggestion, is supported by the
Commission's actions in this area. In 1989, the Commission undertook a broad
review of the proxy rules and adopted a series of amendments, the object of
which was to eliminate unnecessary regulation of communication among security
holders with respect to matters to be put to votes. Sec. Exch. Act Rel. No. 34-
29315, 56 Fed. Reg. 28987 (June 25, 1991); Sec. Exch. Act Rel. No. 34-31326,
57
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/4/ See generally Sec. Exch. Act. Rel. No. 34-31326, 57 Fed. Reg. 48276 (Oct.
22, 1992); Sec. Exch. Act Rel. No. 34-29315, 56 Fed. Reg. 28987 (June 25,
1991).
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Fed. Reg. 48276 (Oct. 22, 1992); CRITEF 1, 917 F. Supp. at 1060. In the
release that proposed the 1992 rule amendments, the Commission summarized Rule
14a- 1 2 as "authoriz[ing] solicitations before proxy statement delivery in
connection with. . . non-election solicitations" without suggesting that it does
so only for proponents of corporate action. 56 Fed. Reg. at 28989. While the
Commission ultimately declined to adopt a proposal that would have broadened
Rule 14a-12 still further, it did so on the ground that change was not necessary
because "[t]he broad scope of current Rules 14a11(d)and 14a-12 reach virtually
all contested and responsive solicitations." Sec. Exch. Act Rel. No. 34-31326,
57 Fed. Reg. at 49283; see also Sec. Exch. Act Rel. No. 34-25217, 52 Fed. Reg.
48977, 48980 & n.38 Dec. 29, 1987. Thus, to the extent that the Commission has
spoken to this issue, its words suggest (a) a purpose to facilitate
communications among security holders, free of unnecessary restriction, and (b)
an intention that Rule 14a-12 be read broadly to facilitate that purpose. There
is little to support plaintiffs' position./5/ When this evidence is coupled
with the apparent lack of any Commission enforcement actions brought against
opponents of corporate action who have relied on Rule 14a-12 to solicit without
first filing proxy statements, the Court concludes that it is unlikely that
plaintiffs will
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/5/ Plaintiffs argue that their interpretation of the Rule must be correct
because the Commission in 1965 rejected a proposal that would have allowed
responsive solicitations without restriction in favor of substantially the
current text, thus supposedly evidencing an intention to permit prefiling
responsive solicitations only by proponents. The inference they propose is
not warranted by the record.
In 1964, the Commission proposed adoption of a version of what ultimately became
Rule 14a-12 that, to the extent relevant here, would have exempted any
"solicitation. . .made in opposition to a prior solicitation." Sec. Exch. Act
Rel. No. 34-7481, 1964 WL 7011, at *7 (Dec. 7, 1964). The Rule was adopted, in
relevant part, in much the same form as it now exists, a year later. Sec. Exch.
Act Rel. No. 34-7775, 1965 WL 7738, at *5(Dec. 22, 1965). But there is nothing
in the adopting release to suggest that the Commission intended to restrict
prefiling responsive solicitations to proponents, as plaintiffs contend.
Rather, the logical reading of the sparse regulatory history suggests that the
intention was to broaden the Rule 14a-12 exemption to permit prefiling
solicitations in response to non-solicitation events like tender offers as well
as in response to prior solicitations, which had been the exclusive focus of the
Rule as proposed in 1964.
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prevail on their contention that Dominium violated Rule 14a-3 because the Rule
14a-12 exemption is not available to it as an opponent of the corporate action
at issue.
Plaintiffs argue also that each of Dominium's solicitations failed to
satisfy Rule 14a-12(a)(3) because it did not include "a description of their
interests direct or indirect, by security holdings or otherwise." Their theory
is that the Rule required Dominium to disclose the background of its interest in
acquiring the Funds, that it was a newly-created entity, and that it sought to
make a deal with CAPREIT to resolve their competing bids. (Pl. Reply Mem. 5-6)
The press release stated that Dominium owned 100 BACs. The First and
Second Letters were address to "fellow BAC holders," thus implying, correctly,
that Dominium owned BACs, although neither indicated the number owned. All
three communications made Dominium's wish to defeat the proposed mergers clear.
They therefore disclosed a bare minimum of information that might be said to
constitute "a description of [Dominium's] interests direct or indirect, by
security holdings or otherwise." The more basic issue, however, is whether they
were obliged to do more, and, if so, how much more.
This much is clear. The point of Rule 14a-12 is to permit
participants in proxy contests to act quickly without preparing a proxy
statement in the circumstances to which the Rule applies. To the extent that
plaintiffs contend that the press release and the letters should have disclosed
the sort of extensive background information required in proxy statements, their
argument must be rejected in order to avoid defeating the purpose of the
exemption. On the other hand, it seems equally clear that Dominium should have
disclosed in each of the letters the fact that it owned 100 BACs, as it did in
the press release. That information is simple, easily disclosed, objectively
knowable, and within the plain language of the Rule. It is, moreover, arguably
significant because a security holder might well take a different view of a
solicitation
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by a nominal as opposed to substantial fellow security holder. The Court
therefore concludes that plaintiffs are likely to prevail, as a purely technical
matter, on their claim that Dominium's two letters violated Rule 14a-3 because
the failure there to disclose the extent of Dominium's BAC ownership took it out
of Rule 14a-12(a)(3).
The more difficult question is whether the Rule should be construed to
require at least some disclosure of facts concerning Dominium's prior efforts to
acquire the Funds and the motive for its opposition to the proposed mergers.
There are considerations pointing in opposite directions. Information as to the
interest of a contestant is important to many security holders in evaluating the
arguments made in opposition to proposed corporate action. On the other hand,
Rule 14a-12(a)(4) conditions availability of the exemption on prompt
dissemination of the solicitor's proxy statement, which must contain that
information. The security holders therefore will be provided with the
information in relatively short order. But it is unnecessary to determine the
precise requirements of Rule 14a-12(a)(3) in this respect at this time in light
of the Court's view of the equities and on the issue of relief. Infra.
The Rule 14a-9 Claims
Plaintiffs claim that the letters and the press release were
materially misleading in that they (1) failed to provide all information
required by Schedule 14A, (2) failed to provide extensive background information
concerning Dominium's prior interest in acquiring and involvement with the
Funds, (3) failed to set forth the basis for certain accusations made against
the Funds and their general partners, (4) falsely stated that Dominium was "an
established real estate company," and (5) implied that Dominium has an
alternative superior to the mergers to propose when in fact it does not. (Cpt
(P) 68) The press release is said to have violated Rule 14a-9
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for the additional reason that it supposedly mischaracterized Dominium's
Preliminary in some unspecified respect. (Id. (P) 69)
Most of the disclosure claims are specious on their face. Nothing in
Regulation 14A requires each solicitation to contain all of the information
required to be contained in a proxy statement. The claim that the press release
mischaracterized the Preliminary is not a sufficient basis for injunctive relief
because it does not specify the respects in which it supposedly did so.
Plaintiffs are correct in stating that the description of Dominium as "an
established real estate company" was technically false because Dominium is a
newly-formed entity. However, it is the instrument of Dominium Management
Services, Inc. and its principals, and there is no suggestion that the group of
which it is the instrument does not meeting that description. Hence, the
misstatement was not material.
The contention that the letters and the press release were materially
misleading because they falsely implied that Dominium is about to come forward
with a new and superior offer to acquire the Funds is more substantial.
Certainly the Preliminary, assuming its accuracy, demonstrates that a competing
bid by Dominium is not now in the offing. Yet the letters and the press release
all spoke of the need for "an open, fair and competitive" environment. The
First Letter said that Dominium "would like to . . . provide alternatives . . ."
While these references to competition and alternatives are consistent with
Dominium merely advancing alternative strategies for the Funds rather than
proposing a competing bid, a reader of the letters and the press release would
not be unjustified in concluding that Dominium was readying its own higher bid
for the Funds. The declaration of the Funds' proxy solicitor suggests that at
least some investors have drawn that conclusion. (Dennedy Decl. (P)(P) 4-7).
Hence, the Court finds that plaintiffs have established a fair ground for
litigation on their claim that the letters and the press
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release violated Rule 14a-9 by misleadingly suggesting Dominium intends in the
near future to make a bid for the Funds.
Nor are the claims that Dominium's communications were misleading
because they failed fully to set forth the nature of its interest, the
background of its efforts with respect to the Funds, and the basis for its
accusations readily dismissed. The letters, addressed to "[f]ellow BAC
Holders," may have created the impression in some minds that Dominium's interest
was as a fellow investor. Yet Dominium has no meaningful ownership interest.
Its real concern, viewed most charitably to it, is in defeating the mergers to
pave the way for an eventual takeover bid of its own. In these circumstances,
the failure to disclose its own interest in an acquisition and its failure to
finance a proposal at a price only marginally higher than one it now
characterizes as "grossly inadequate" arguably was materially misleading.
Hence, there is enough basis for concern with the accuracy and completeness of
the letters and the press release in this regard to conclude that plaintiffs
have established a fair ground for litigation on this point.
The Rule 14a-7 Claim
Rule 14a-7 provides a mechanism for those who wish to solicit proxies
to obtain a list of security holders from the registrant. It restricts the use
of that information, however, to communicating with security holders for that
specific purpose and requires that the information be held in confidence. 17
C.F.R. (S) 240.14a-7(d).
Plaintiffs claim that Dominium is using the lists it has provided for
the purpose of attempting to take over the Funds and thus for purposes not
contemplated by the Rule. At the hearing on the motion, it pointed to the
suggestion, at page 22 of the Preliminary, that the BAC holders "get yourselves
new General Partners" as demonstrating Dominium's intention to use
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the lists for a proscribed purpose. Dominium promptly represented that it would
delete the statement from its proxy statement.
Plaintiffs, in the Court' s judgment, are not likely to prevail on
this claim, particularly in view of the promised deletion. There is no question
that Dominium is using the investor lists for the purpose of soliciting proxies
in opposition to the mergers, precisely the proposed corporate action with
respect to which the Funds are soliciting proxies. That Dominium may have to
succeed in defeating the proposed mergers in order to accomplish its broader
objectives seems quite beside the point. Any different view of the Rule would
undermine dramatically the principle of shareholder democracy it is designed to
serve by enabling issuers to withhold access to or restrict use of lists of
security holders as long as they could characterize an opposing party's motive
as one of serving purposes of its own beyond interests shared by all security
holders in general. As proxy fights rarely if ever are mounted out of
disinterested motives, the interpretation of the Rule proposed by plaintiffs, if
adopted, effectively would repeal it and put an end to effective attacks on
corporate action supported by the management in control of an issuer's proxy
machinery.
The Equities and Relief
In assessing the threat of irreparable injury and the balance of the
equities, it is important to bear firmly in mind that the objective of courts
and of injunctive relief in cases like this not to "test the ingenuity of
sophisticated corporate counsel." Smallwood v. Pearl Brewing Co., 489 F.2d 579,
592 (5th Cir.), cert. denied, 419 U.S. 873 (1974). Nor is it "to punish."
Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 61 (1975) (quoting Hecht v. Bowles,
321 U.S. 321, 329-30 (1944)) (upholding denial of injunction despite finding of
securities law violation).
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Rather, it is to ensure that investors are provided in a timely fashion with the
accurate information necessary to the intelligent exercise of the corporate
franchise. E.g.., Buffalo Forge Co. v. Ogden Corp., 717 F.2d 757, 760 (2d Cir.
1983) (quoting Edgar v. Mite Corp., 457 U.S. 624, 640 (1982)). Moreover, as
Judge Friendly so aptly wrote, participants in proxy contents and tender offers
"act, not 'in the peace of quiet chamber,' . . . but under the stresses of the
market place." Electronic Specialty Co. v. International Controls Corp., 409
F.2d 937, 948 (2d Cir. 1969) quoting Hellenic Lines Ltd. v. Brown & Williamson
Tobacco Corp., 277 F.2d 9, 13 (4th Cir.), cert. denied, 364 U.S. 879 (1960)).
"They act," he went on, "quickly, sometimes impulsively, often in angry response
to what they consider, whether rightly or wrongly, to be low blows by the other
side. Probably there will be no more be a perfect tender offer [or proxy
solicitation] than a perfect trial." 409 F.2d at 948. These considerations bear
not only on the judgment to be applied in testing conduct and materiality, but
in determining relief as well. See id.
Here, the two letters probably violated Rule 14a-3 because the failure
to disclose the number of BACs owned by Dominium probably deprived it of the
Rule 14a-12 exemption. Any such violation, however, was of the most technical
sort. Dominium's contemporaneous disclosure in the press release of the number
of shares owned demonstrates that it was not trying to hide the fact and made
the information a matter of public knowledge. Certainly plaintiffs could tell
the Funds' security holders of the small size of Dominium's holding if they
think that fact likely to be persuasive. Plaintiffs in these circumstances are
not threatened with irreparable injury by virtue of Dominium's omission of the
number of shares from the two letters.
The next of plaintiffs' grievances is Dominium's allegedly false
implication that it intends to make a superior offer in the near future.
Plaintiffs claim that the prospect of such an
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offer has led BAC holders to delay giving proxies to management in the hope that
a higher bid will be forthcoming. They point to the fact that the mergers must
be approved by the affirmative vote of holders of a majority in interest of the
outstanding BAC and argue that a vote withheld is in substance a vote against.
Plaintiffs' argument may well be correct -- for the moment. It seems
clear, however, that if Dominium fails to make a superior offer before the
scheduled BAC holder meeting, the Funds' security holders will realize that the
mergers are the only game in town. To put the matter in more familiar parlance,
plaintiffs may well be suffering injury at the moment in the sense that BAC
holders have been led to delay, but the injury certainly is not irreparable.
Plaintiffs can counter any misleading impression Dominium may have created by
pointing out that Dominium's Preliminary does not contain another offer and that
Dominium was unable to finance an earlier proposal. Moreover, plaintiffs need
not even do so to avert difficulty. As the merger train comes closer and closer
to departure without the emergence of the hoped-for better mode of
transportation, more and more BAC holders will hop aboard rather than be left at
the station.
The last of plaintiffs' complaints about the Dominium communications -
- - the failure to disclose Dominium's prior failed attempt to acquire the Funds
and its inability to finance a proposal only marginally better than the mergers
now scheduled for a vote -- involves both Rules 14a-3 and 14a-9. But the
considerations controlling relief are the same with respect to each Rule.
Plaintiffs are at liberty to make to the BAC holders the points they have made
to this Court: essentially, that Dominium is acting as a spoiler which has
tried and failed to top CAPREIT's bid for the Funds and which has no alternative
transaction of its own to propose. Nor are they limited to their own assertion.
There is ample evidence in Dominium's Preliminary.
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Moreover, Dominium has represented that its final proxy statement will be
disseminated promptly when SEC clearance is received.
Assuming that the proxy statement goes out soon,/6/ the threat of
irreparable injury to plaintiffs is at most de minimus, and the balance of the
equities, to the extent it is relevant here, does not tip decidedly in favor of
the plaintiffs. The practical realities of the situation are that plaintiffs
and Dominium, respectively, can and presumably will put the material facts into
the hands of BAC holders promptly. At that point, any misleading impressions
created to date should be overcome, and the fate of the mergers will be for the
BAC holders to decide. See, e.g., Treadway Companies, Inc. v. Care Corp., 638
F.2d 357, 380 (2d Cir. 1980) (deficiencies in Schedule 13D cured by subsequent
filings); Burlington Industries, Inc. v. Edelman, 666 F.Supp. 799, 810 (M.D.
N.C.), aff'd, No. 87-1622(L), 1987 WL 91498 (4th Cir. June 22, 1987); Data Probe
Acquisition Corp. v. Datatab, Inc., 568 F.Supp 1538, 1557 (S.D.N.Y.), rev'd on
other grounds, 722 F.2d 1 (2d Cir. 1983), cert. denied, 465 U.S. 1052 (1984)
(proxy statement cured disclosure deficiency in earlier communication); see also
Gearheart Industries, Inc. v. Smith International, Inc. 741 F.2d 707, 716 (5th
Cir. 1984); San Francisco Real Estate Investors v. Real Estate Investment Trust
of America, 701 F.2d 1000,, 1010-11 (1st Cir. 1983). The issuance of an
injunction at this moment therefore would serve no useful purpose.
Conclusion
For the foregoing reasons, plaintiffs' motion for a preliminary
injunction is denied. Plaintiffs may renew the motion before the undersigned in
the event Dominium's proxy statement is not disseminated to BAC holders on or
before October 21, 1996.
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/6/ There is no claim that the Preliminary fails accurately to disclose all
material facts.
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The foregoing constitute the Court's findings of fact and conclusions
of law.
SO ORDERED.
Dated: October 15, 1996
/s/ Lewis A. Kaplan
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Lewis A. Kaplan
United States District Judge
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