<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. 7
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. 7
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. 7 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. 7 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.
------
(c)(12)........... Order and Memorandum of Judge Lebedoff in the case
styled Dominium Tax Exempt Fund, L.L.P. v.
-----------------------------------
Dockser, et. al.
----------------
(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 18, 1996 Letter to BAC Holders from the
Funds
(d)(9)............ October 18, 1996 Press Release issued by CAPREIT
(d)(10)........... October 22, 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 22, 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 22, 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(c)(12) Order and Memorandum of Magistrate Judge Lebedoff in the case
style Dominium Tax Exempt Fund, L.L.P. v. Dockser et. al.
----------------------------------------------------
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 18, 1996 Letter to BAC Holders from the Funds*
17(d)(9) October 18, 1996 Press Release issued by CAPREIT
17(d)(10) October 22, 1996 Letter to BAC Holders from the Funds
* Previously filed.
<PAGE>
EXHIBIT 17(c)(12)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
FOURTH DIVISION
Civil No. 4-96-956
Dominion Tax Exempt Fund,
Plaintiff,
ORDER AND MEMORANDUM OF
v. MAGISTRATE JUDGE LEBEDOFF
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,
Defendants.
- --------------------------------------------------------------------------------
The above matter came for hearing by this Court on October 7, 1996 on
Plaintiff's motion for expedited discovery and Defendants' motion to disqualify
the law firm of Faegre and Benson. Robert Schnell and John H. Hinderaker
appeared for and on behalf of Plaintiff. Janel E. LaBoda appeared on behalf of
Defendants; Howard Possick and Hunter Carter appeared on behalf of the Funds;
Deborah Thaxter appeared on behalf of William B. Dockser, William Willoughby,
CRI Inc., CRITEF Assoc. Ltd. Partnership and CRITEF III Assoc. Ltd. Partnership.
INTRODUCTION
------------
Plaintiff, Dominium Tax Exempt Fund, LLP, ("Dominium") seeks an order
from this Court authorizing it to conduct expedited discovery on its claim under
Section 14(a) of the Securities Exchange Act of 1934 and Rule 14(a)(9)
promulgated thereunder (the "14(a)(9) claim") against the defendants for the
dissemination of a false and misleading proxy statement
<PAGE>
to the holders of beneficial assignee certificates in the Funds ("BACs") in
connection with proposed mergers with affiliates of Capital Apartment
Properties, Inc., ("CAPREIT") (the "Mergers"). Dominium seeks to propound to
defendants, on an expedited basis, requests for documents to take depositions of
four individuals who have already given testimony in a Delaware Chancery Court
class action involving the proposed merger. Dominium is a BAC holder and did not
opt out of the class action. The settlement of that Delaware class action
prohibited further litigation over the terms of the proposed merger.
Dominium argues that expedited discovery is necessary in order to be
able to adequately prepare for a preliminary injunction motion which, to date
has not been filed or scheduled before Judge Doty. The injunction Dominium
intends to seek would prevent an October 29, 1996 BAC holder vote on the
proposed merger absent the opportunity to provide them with more or different
information than that which was contained in the proxy statement which BAC
holders have already received and which was approved by Class Counsel in the
Delaware action. Dominium claims that the deficiencies in the proxy statement
were that it failed to inform the BAC holders about the relatedness of the
entities to be merged, "unjustified kickbacks" to the general partners of the
funds, the true value of the BAC's and their underlying properties, the general
partner's failure to maximize the value of the BAC's shares, and the "obstacles
the self-interested general partners have created to prevent competing bids from
being made. (Dominium's Memorandum in Support of Plaintiff's Motion for an
Expedited Discovery and Briefing Schedule [Memo] at 3).
Defendants here argue Dominium's motion should be denied, inter alia,
----- ----
because Dominium is barred and enjoined by the Final Order and Judgment entered
on August 14, 1996 by the Delaware Chancery Court from bringing its 14(a)(9)
claim; Dominium fails to meet
2
<PAGE>
the standard for expedited discovery; there is no 14(a)(9) injury to the BAC
holders who, through Class Counsel and by operation of the settlement agreement,
have already negotiated and approved the Proxy Statement; and Dominium has in
its possession, or has had access to, virtually all of the documents it requests
and testimony of the same individuals it now wishes to depose.
For reasons discussed below, the Court denies Dominium's motion for
expedited discovery and denies without prejudice, Defendants' motion to
disqualify counsel.
I.
FACTS
- -----
A. THE PARTIES
-----------
THE FUNDS are Delaware limited partnerships whose securities are
---------
traded on the American Stock Exchange and are registered with the Securities and
Exchange Commission (the "SEC") pursuant to Section 12 of the Exchange Act.
Each Fund has an "assignor limited partner" which has assigned beneficial
interests in the limited partner rights to holders of Beneficial Assignee
Certificates or BACs. CRITEF has issued two series of BACS, Series I and Series
II, and CRITEF III has issued one series of BACS. Holders of the BACs in all
three series have, in effect, all of the rights of a limited partner in each of
the Funds, including the right to vote on certain partnership matters. The
general partners of the Funds, CRITEF Associates and CRITEF III Associates, are
also Delaware limited partnerships.
DOMINIUM is a limited liability partnership recently formed to acquire
--------
the Funds. Its principals are affiliated with Dominium Management Services,
Inc.
CAPREIT is a self-managed real estate investment trust that owns or
-------
manages over 15,000 apartments. Originally formed by CRI, CAPREIT is now
directly or indirectly
3
<PAGE>
owned and operated by Apollo Real Estate Acquisition Corporation, headquartered
in New York. CAPREIT proposes to redeem the interests of the BAC holders by
paying them cash in connection with the Mergers and, thereafter to merge CAPREIT
affiliates with the Funds.
B. BACKGROUND OF THE PROPOSED MERGERS
----------------------------------
1. THE PROXY STATEMENT AND THE MERGER AGREEMENTS
---------------------------------------------
On September 20, 1996, the Funds filed with the SEC a definitive 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 commenced distribution of the Proxy Statement. After an
eleven-page summary, the Proxy Statement sets forth, in over 100 pages, the
background of the merger proposals, the background of the Funds, the
recommendations of the General Partners, and financial data on the Funds. The
Proxy Statement includes the actual text of the merger agreements and the
fairness opinions issued by Oppenheimer & Co., Inc. ("Oppenheimer").
As is fully described in the Proxy Statement (pages 17-26), the
proposed Mergers were originally announced in September 1995. 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 Real Estate Investment Trust
("REIT") in which Dockser and Willoughby are the Chairman of the Board and
President, respectively, and beneficially own approximately 10% of the shares.
4
<PAGE>
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 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 to approximately $158.5 million (subject
to certain adjustments based on the amount of cash and certain reserves, called
"Available Cash"). As with the original transactions, the amended merger
agreements were conditional, among other things, on obtaining the approval of
the BAC holders to the transactions through a proxy solicitation and obtaining
independent fairness opinions. Immediately after the January class action
settlement and resulting amendments to the Merger Agreements Dominium first
expressed interest in acquiring the Funds.
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 adjustment of the Merger consideration based upon Available
Cash. On August 21, 1996, the parties entered into the Fourth Amended and
Restated Merger Agreements, reflecting an increase of $3.5 million to an
aggregate of $162.3 million in the 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 under
certain circumstances.
C. THE CLASS ACTIONS CHALLENGING THE MERGERS
-----------------------------------------
In September and October 1995, following the initial 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 fiduciary duties to the BAC holders in
connection with the proposed Mergers.
5
<PAGE>
On January 31, 1996, following approximately three months of review of
financial and other information, and consulting 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. Importantly, Class counsel
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.
Class Counsel then engaged in extensive additional discovery,
including a review of voluminous quantities of documents, drafts of the Proxy
Statement, and depositions of representatives of the General Partners, CAPREIT
and Oppenheimer. Following this discovery, Class Counsel, CAPREIT, the General
Partners and the Funds executed a Stipulation of Settlement 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 hearing was later rescheduled to July 2, 1996.
D. DOMINIUM ATTEMPTS TO ACQUIRE THE FUNDS
--------------------------------------
Meanwhile, during February 1996, the General Partners received a
further inquiry concerning the possible acquisition of the Funds from the
Dominium group, led by David
6
<PAGE>
Brierton and Jack Safar of Dominium Management Services Inc. The Dominium
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. The Confidentiality Agreement
provided that the information obtained by the Funds could not be used in any way
detrimental to the Funds nor used for any purpose other than evaluating a
possible acquisition of the Funds.
On March 20, 1996, following receipt of signed confidentiality
agreements from certain 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 of the materials they had requested.
On June 28, 1996, Class Counsel received a letter signed by Safar for
Dominium indicating an interest in entering into merger agreements with the
Funds, having 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.
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.
7
<PAGE>
Ten days later the Funds received copies of correspondence from
Dominium to Class Counsel, in which Dominium claimed it had received financing
commitments, 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 of 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.
The General Partners' 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, 196, the General
Partners requested clarification of seven issues relating to Dominium's mark-up,
but never received a response.
Dominium had indicated to Class Counsel that it would complete due
diligence and submit firm financing commitments for its proposal by August 5 in
order to satisfy Class Counsel's concerns about Dominium's ability to secure
financing. No such commitment was submitted on August 5, 1996, or any time
thereafter.
To accommodate Dominium, the July 2, 1996 Fairness Hearing was
rescheduled a third time, to August 14, 1996. 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 mergers. On August 12, Dominium advised the funds by letter that it was
not in a position to provide evidence of its
8
<PAGE>
ability to finance or to finalize its proposals. The same day CAPREIT agreed
with Class Counsel to pay an additional $2 million in Merger Consideration.
Class Counsel notified Dominium by letter of 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 affirm offer, Class
Counsel intended to support the Stipulation of Settlement at the hearing to be
held on August 14, 1996.
On August 14, 1996, the Delaware Chancery Court convened the Fairness
Hearing, at which Class Counsel and the Funds' Counsel 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 and entered a final judgment dismissing
the actions. Dominium did not object to the Settlement or appear at the hearing
and there is no evidence in the record that Dominium elected to opt out of the
class.
The Stipulation of Settlement (see Exhibit 1 to the LaBoda Affidavit),
defines who is to be included in the Class. The Class is defined as "all
persons who owned or purchased any BACs of CRITEF (Series I and II ) or CRITEF
II on or after September 11, 1995 and their successors-in-interest, heirs,
--------------------------------
assigns, excluding Defendants and those who submit a timely, valid and complete
request for exclusion from the Class." Stipulation at p. 13. The scope of the
release given by the Class covers not just the claims brought in the Delaware
actions but any federal securities actions as well, including 14(a)(9) claims.
Id. at p. 10./1/
- --
- ------------
/1/ Dominium filed the action underlying this motion on September 27, 1996.
At the same time, they sent letters to BAC holders advising them not to take
action on the merger and suggesting that Dominium would be forthcoming with a
better offer. Other communications to BAC holders and the SEC followed
9
<PAGE>
DISCUSSION
----------
1. STANDARD FOR EXPEDITED DISCOVERY
--------------------------------
Dominium herein seeks expedited discovery in order to prepare to
enjoin a vote of the BAC Holders on October 29, 1996. The threshold issue is
what showing must Dominium make to succeed on such a motion.
Federal Rule of Civil Procedure 26(f) as amended in 1993 provides that
in general, no formal discovery may be had until the parties have met pursuant
to Rule 26 and discussed a discovery plan. "Except for depositions that may by
rule be taken prior to the Rule 26(f) conference, the moratorium [against
discovery] applies to all discovery." 8 Charles Alan Wright & Arthur Miller,
Federal Practice and Procedure (S) 2046.1 (2d ed. 1994 & Supp. 1996). Federal
Rule of Civil Procedure 16(b) provides that with respect to scheduling and
planning, "A [pretrial] schedule shall not be modified except by leave of the
judge or magistrate when authorized by district court rule upon a showing of
good cause." Here, at the time this motion was filed, no pretrial conference
had been held, no discovery plan framed, and no pretrial schedule ordered.
Thus, this Court concludes that expedited discovery -- even in a
preliminary injunction action -- is not automatically granted. Plaintiff must
make a adequate showing of good cause why such discovery is necessary. Fed. R.
Civ. P. Rule 30(a)(2) and 26(b)(2).
- ----------
/1/ cont'd
shortly thereafter. In response, Defendants to this action sought a preliminary
injunction against further communications of this sort with the federal district
court for the southern district of New York (the New York action) and filed an
emergency motion to enforce the Delaware action's final order with the issuing
Chancery Court of Delaware.
10
<PAGE>
Defendants point to Judge Keenan's opinion, in Rosecliff, Inc. v. C3,
----------------------
Inc., 1995 U.S. Dist. LEXIS 5 (S.D.N.Y. January 3, 1995), which sets forth a
- ----
standard for expediting discovery which is coterminus with the showing required
for a preliminary injunction:
In order to be entitled to expedited discovery...the plaintiff
must demonstrate (1) irreparable injury, (2) some probability of
success on the merits, (3) some connection between the expedited
discovery and the avoidance of the irreparable injury, and (4) some
evidence that the injury that will result without the expedited
discovery looms greater than the injury that the defendant will suffer
if the expedited relief is granted.
Id. at 4.5 (quoting Notaro v. Koch, 95 F.R.D. 403 (S.D.N.Y. 1982) (motion for
--------------
expedited discovery denied).
Defendants do not point to nor does this Court's independent research
indicate that this demanding standard has ever been adopted by courts of this
circuit. To the contrary, in motions for a preliminary injunction, the more
usual practice is to grant expedited discovery on good cause shown. In such
cases, good cause may be shown by virtue of the fact that the parties need the
discovery to adequately prepare for the injunction hearing. Leonhardt v. Holden
-------------------
Business Forms Co., 828 F. Supp. 657, 672 (D. Minn. 1993); Education Corp. v.
- -----------------------------------------------------------------------------
Scientific Computers, Inc., 599 F. Supp 1084, 1088 (D. Minn.) aff'd in part and
- --------------------------
dismissed in part, 746 F.2d 429 (8th Cir. 1984).
However, even under this more relaxed standard, the Court finds that
Dominium has failed to make an adequate showing of good cause for several
reasons. First, Dominium already has virtually all of the information it now
seeks; second, as a class member to the Delaware action, Dominium, on the
evidence before this Court is bound by the class action settlement which bars
the instant action; and third, Dominium's 14(a)(9) claim is merely a refashioned
breach of fiduciary duty claim over which this Court has no jurisdiction.
11
<PAGE>
2. NO GOOD CAUSE SHOWN BECAUSE DOMINIUM HAS THE INFORMATION
--------------------------------------------------------
At the outset, the Court notes that as a matter of logic Dominium
cannot possibly make a showing of good cause that expedited discovery is
necessary when it has not, as of the date of this discovery motion was filed,
brought its motion for injunctive relief -- much less scheduled such a motion.
More importantly, Dominium has in its possession, or has had access
to, virtually all of the document it requests from the defendants and to the
deposition and trial testimony concerning the mergers of the very same
individuals it now wishes to depose. Rather than seek discovery, all Dominium
need do is seek waiver of the confidentiality agreement under which it acquired
this information.
For example:
(1) It has received documents relating to the value of the underlying
properties, including monthly operating reports, capital
expenditure reports, property budgets and projections, audited
and unaudited financial statements, the mortgage documents, the
closing binders on the bonds and mortgage loans, and all
information necessary to conduct its own appraisals.
(2) It has received documents relating to the Funds themselves,
including the financial statements, the basis for the Mortgage
fees, the support for the tax exempt status of the bonds and the
partnership agreements.
(3) It has interviewed representatives of CRI concerning all aspects
of the Funds, including Melissa Lackey, Senior Vice
President/General Counsel, Deborah K. Browning, Vice President
and Chief Accounting Officer,
12
<PAGE>
Arthur J. Lieberman, Vice President and Director of Taxation,
Patricia O'Boyle Hargis, Asset Manager and Susan R. Campbell,
Senior Vice President/Asset Management.
(4) It has inspected all of the underlying properties and obtained
appraisals of at least those located at Minnesota.
There is no question that Dominium now has and has had in its
possession sufficient information to determine the facts surrounding what it
calls "the most fundamental piece of information," the value of the properties
that secure the bonds held by the Funds.
Dominium also seeks to discover "the relationship between the merging
parties" and "the true motivations behind the self-interested merger
negotiations." These topics, together with value of the Funds, presumably will
be at the heart of the requested deposition discovery of the defendants Messrs.
Willoughby, Dockser, Kadish (as a representative of CAPREIT) and Oppenheimer.
As Dominium is well aware, however, these exact issues have been exhaustively
discovered not only in the Class Action but in other actions brought in both the
Delaware Chancery Court and the Federal Court for the Southern District of New
York between Martin C. Schwartzberg, a former general partner of the general
partner of one of the Funds, and these defendants.
In these many actions, Mr. Dockser has been deposed once, Mr.
Willoughby twice, Mr. Kadish once and a representative of Oppenheimer once. In
addition, Mr. Willoughby gave detailed testimony before the Delaware Chancery
Court on the fairness of the Mergers, the value of the Funds and the basis for
the payments to the General Partners. All of this discovery, with the possible
exception of Mr. Dockser's deposition, was filed in the Class Action and is a
matter of public record in the various other actions. Surely, given the intense
interest shown by
13
<PAGE>
Dominium in the Mergers, it has taken the opportunity to review and analyze this
testimony. If there remains unexamined areas, Dominium may propound, if
necessary, limited written questions to the designated deponents, subject to
objection by the defendants.
As with any discovery dispute, the Court looks also at the balance of
harms or burdens associated with the request. Here, the balance of harms falls
resoundingly on the defendants who will potentially suffer serious injury if
expedited discovery is granted. The discovery requested was doubtless calculated
to and will interrupt the solicitation activity of the BAC holders in advance of
the October 29th meetings. In so doing, it very well may jeopardize the Mergers.
As the judge in the New York action expressed it, "There is little doubt
Dominium is seeking to delay or defeat the proposed mergers in the hope that it
somehow will obtain the wherewithal to acquire the funds or that it will make
such a nuisance of itself that CAPREIT or the funds will pay it to go away."
CAPREIT v. Dominium Tax Exempt Fund, LLP et al., Civil no. 96-7534 at 3
(S.D.N.Y. 1996). The BAC holders who fought long and hard in the Delaware action
for a settlement agreement which maximizes their interests could be irreparably
injured if one dissident BAC holder (Dominium) of a mere 300 shares with only
$1,500 at stake who did not even opt out of the class can derail the CAPREIT
offer.
3. SCOPE OF DELAWARE CLASS ACTION SETTLEMENT
-----------------------------------------
While this Court does not presume to make a dispositive ruling on the
merits of Dominium's underlying action, the fact of the matter is that Dominium
cannot demonstrate good cause for expediting discovery in an action which is, on
the evidence before this Court, barred by the clear terms of the Delaware
settlement agreement.
On September 11, 1996 the defendants announced the Funds had entered
into a merger agreement with CAPREIT subject to obtaining an independent
fairness opinion. In
14
<PAGE>
September and October, 1995 two separate class actions were filed in the
Delaware Chancery Court. Just as Dominium asserts here, the Class Action
plaintiffs alleged, among other things, that the price being offered to the BAC
holders was inadequate, the press release announcing the proposed Mergers was
false and misleading, and the defendants breached their fiduciary duty to the
BAC holders and engaged in self-dealing in connection with the Mergers. The
Class Actions sought to enjoin the Mergers, to obtain damages, and to compel the
defendants to maximize the Merger price and consider alternatives to the
proposed Mergers.
After months of negotiation with Class Counsel, which included
negotiations concerning an increase in the Merger price as well as additional
disclosures to be included in the Proxy Statement, on May 16, 1996, the parties
filed a Stipulation of Settlement in the Delaware Chancery Court requesting
preliminary approval of the settlement, approval of class notice and a
scheduling of the Fairness Hearing for final approval. On August 14, 1996, Vice
Chancellor Jacobs entered a Final Judgment and Order approving the settlement.
The Final Judgment and Order (the "Chancery Court Order") states:
"The Plaintiffs and all members of the Class, either directly, representatively,
derivatively, or in any other capacity, permanently are barred and enjoined from
instituting, commencing, asserting, prosecuting or continuing any of the Settled
Claims against any of the Defendants and the Releases in this or any other
jurisdiction." (See Exhibit 2 to the LaBoda Affidavit.) Settled Claims "means,
collectively, all claims, rights, causes of action, suits, matters and issues,
whether known or unknown, matured or unmatured, asserted or unasserted or in the
future could have been assured . . . including but not limited to any claims
arising under federal or state law, including the federal securities laws . . ."
(Aff. of Janel LaBoda, Settlement Agreement at 10).
15
<PAGE>
The Stipulation of Settlement (see Exhibit 1 to the LaBoda Affidavit),
defines who is to be included in the Class. The Class is defined as "all
persons who owned or purchased any BACs of CRITEF (Series I and II) or CRITEFF
II on or after September 11, 1995 and their successors-in-interest, heirs,
--------------------------------
assigns, excluding Defendants and those who submit a timely, valid and complete
request for exclusion from the Class." Stipulation at p.13. The scope of the
release given by the Class covers not just the claims brought in the Delaware
actions but any federal securities actions as well, including 14(a)(9) claims.
Id. at p. 10.
- ---
Dominium which was formed in 1996 must have owned or purchased its
shares after September 11, 1995 (the date the Mergers were first announced
publicly). It therefore fits squarely within the definition of Class as
contained in the Stipulation of Settlement. In order for exclusion from the
class to be timely and valid, it must have been made in writing before June 28,
1996. Defendants here submit affidavits that Dominium did not file any request
to be excluded from the Class. The conclusion is inescapable that Dominium is a
class member is subject to the Delaware Chancery Court's injunction against
filing a "Settled Claim" in another jurisdiction, including the 14(a)(9) claim
now before this Court.
Even if Dominium were to argue that it purchased its shares from an
individual who did opt out of the Class, under the definition of Class contained
---
in the Stipulation, the class includes BAC holders and their successors in-
-----------------------
interest, who did not timely opt out. Accordingly, to be excluded from the
- --------
class Dominium itself would have had to submit "a timely, valid and complete
------
request for exclusion from the Class." Thus, on the record before this Court
Dominium is a class member which did not opt out of the settlement./2/
- ------------
/2/ Moreover, Dominium makes no argument and produces no evidence suggesting
any reason that it is not bound by the settlement agreement.
16
<PAGE>
Dominium argues that its claim could not be possibly be barred by the
Delaware action because the Proxy Statement it now objects to was not issued
until after the settlement agreement was reached and because its claims are
under federal securities laws not for a breach of fiduciary duty. This argument
is disingenuous at best.
First, the proxy statement which Dominium alleges violated federal
securities laws was the self same statement whose content was subject to review
and approval by the Delaware class. As such, it falls within the purview of a
"Settled Claim" which is barred under the terms of the Settlement Agreement./3/
Second, the law is now well established that a state court can approve
a class action settlement which resolves a federal securities claims although
those securities claims have not been pled in the underlying state action.
Matsushita Electric Industrial Co., Ltd., et al., Petitioners v. Lawrence
- -------------------------------------------------------------------------
Epstein, et al, 116 S. Ct. 873 (1996) (state court settlements which release
- --------------
purely federal claims are valid under principles of full faith and credit).
Therefore, if Dominium is a BAC holder within the definition of the class, and
this Court believes it is, their 14(a)(9) action is barred by the terms of the
Delaware settlement. It is logically and legally impossible to demonstrate good
cause for expedited discovery in an action such as this which is enjoined by a
binding settlement agreement.
- ----------
/3/ The settlement agreement provided:
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 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 to concealed or hidden . . . including but not
limited to . . . breach of any duty, law or rule . . ."
17
<PAGE>
4. LACK OF SUBJECT MATTER JURISDICTION
-----------------------------------
Again, while this Court does not presume to make a dispositive ruling
on this discovery motion, even a cursory reading of Dominium's complaint reveals
that Dominium's allegations center on defendants' actions or, more
significantly, their inactions, as opposed to their disclosures and
nondisclosures. Dominium's Memorandum in Support of its Motion for Expedited
Discovery ("Dominium's Memorandum") lists six examples of defendant's attempts
to "omit or obscure material facts." Dominium's Memorandum p.3. These so
called examples of disclosure violations mention no omitted or misstated facts,
they are, in reality, criticisms of the defendants' actions. Taking Dominium's
six items in order, the allegations are based on complaints that the defendants:
(1) agreed to sell the Funds to CAPREIT when they had at one time
a contingent ownership interest in a CAPREIT affiliate;
(2) agreed to accept payments for their general partner interests
and for the Mortgage Fees, which payments the plaintiff claims
should go to the BAC holders;
(3) failed to obtain a higher value for the Funds;
(4 & 5) agreed to a Merger price of $150 million in September of 1996
(albeit subject to a fairness opinion), without having first
obtained the fairness opinion, and then were unable to obtain
a fairness opinion at that price;
(6) agreed to Merger terms which provide to CAPREIT breakup fees
and payment of certain transaction expenses.
The types of claims in this action are the same as the claims in the
Delaware class action. 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 actions, the relief sought is to
enjoin
18
<PAGE>
the consummation of the mergers and to require greater or different disclosures
in the Proxy Statement.
Stripped to their essence, Dominium's allegations all relate to
alleged breaches of fiduciary duty and to matters finally settled in the
Delaware adjudication. They are not the sort of allegations contemplated by a
14(a)(9) action.
Dominium's attempt to fashion its a state breach of fiduciary duty
claim into Rule 14(a)(9) action is not novel. For example, in Golub v. PPD
------------
Corporation, 576 F.2d 759 (8th Cir. 1978), the Court of Appeals rejected a
- -----------
similar attempt on the plaintiffs' appeal of a district court's dismissal of
their complaint:
[I]t was not the purpose of the federal security laws to provide a
federal cause of action for stockholders who have been damaged by mere
corporate mismanagement or breach of fiduciary duty by those in charge
of the affairs of the corporation. Controversies in those areas have
traditionally been the subject of litigation in the state courts, and
federal legislation in the field of securities regulation was not
designed to draw such controversies into the federal courts in the
absence of diversity of citizenship and requisite amount in
controversy.
Id. at 764. Here, as in Golub,
- ---
[T]he plaintiffs are not complaining about any absence of facts in the
proxy statement. Their complaint is that those who prepared the
statement did not 'disclose' what the plaintiffs saw was the true
motivation of [the defendants] in selling the assets of the company,
and did not characterize the bonus aspect of the transaction as
plaintiffs would have it characterized. Under the Act and regulations
plaintiffs were not entitled to have such a 'disclosure' or such a
characterization.
Id. at 765 (holding plaintiffs had demonstrated no federal cause of action);
- ---
Sandler Assocs., L.P. v. Bellsouth Corp., 818 F. Supp. 615, 700 (D. Del. 1993)
- ----------------------------------------
("Essentially, the complaint repeat[s] the allegations about the [merger] that
had previously been made in the Court of Chancery, but frame[s] the allegations
as purported violations of federal securities laws.") (history omitted). See
---
also Santa Fe Industries, Inc. v. Green, 430 U.S. 462 (1977) (failure to allege
- ---------------------------------------
material
19
<PAGE>
misrepresentation or material failure to disclose not actionable under
Section 10(b) or Rule 10b-5); Anderson v. Boothe, 103 F.R.D. 430 (D. Minn. 1984)
------------------
(noting that Santa Fe may well be applicable in 14(a) context, and where
---------
actionable non-disclosures alleged, breaches of fiduciary duty can also be
heard, but breaches of fiduciary duty alone will not suffice). Without a
14(a)(9) claim, Dominium does not have federal jurisdiction. While this Court
does not presume to decide this dispositive aspect of the opposition to the
discovery motion (see 28 U.S. (S) 1367(c); Les Shockley Racing v. National Hot
--- -----------------------------------
Rod Association, 884 F. 2d 504, 509 (9th Cir. 1989)) it gives this Court further
- ---------------
powerful support for its conclusion that Dominium has not and cannot show good
cause for its potentially disruptive motion for expedited discovery.
II.
Finally, Defendants bring a motion to disqualify as counsel the law
firm of Faegre and Benson because they claim the firm has an undisclosed direct
conflict with another of its clients. At the hearing on this matter, both
parties declared that dismissal of counsel would be tantamount to a disposition
on the merits of the case because substitute counsel could not be found in time
for the October 29, 1996 vote. Because the Court has denied Dominium's motion
for discovery on the other grounds and because of the dispositive effect that
disqualification of counsel would have at this stage of the proceedings, the
Court declines to rule on this issue at this time.
20
<PAGE>
ORDER
Based upon the foregoing, all the files, records, and arguments of
counsel in this matter, IT IS HEREBY ORDERED THAT Plaintiff's motion for
expedited discovery is denied; and Defendant's motion to disqualify counsel is
denied without prejudice.
Dated: October 17, 1996 /s/ Jonathan G. Lebedoff
---------------- ------------------------------
HON JONATHAN G. LEBEDOFF
United States Magistrate Judge
21
<PAGE>
EXHIBIT 17(d)(9)
KCSA NEWS
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 CRITICIZES DOMINIUM'S ACTIONS AND
REJECTS MOTION TO DELAY PROPOSED MERGER
ROCKVILLE, MD -- October 18, 1996 -- A Federal Magistrate for the U.S. District
Court of Minnesota yesterday denied Dominium Tax Exempt Fund's motion for
expidited discovery that would have delayed BAC Holders of CRITEF I, II and III
Funds' (ASC:CRA) approval of a proposed merger with Capital Apartments
Properties, Inc. (CAPREIT) to be voted upon October 29.
The Court Order was particularly critical of Dominium's actions. Citing a
nine-month series of maneuvers on the part of Dominium, Judge Jonathan G.
Debedoff concluded in yesterday's Order that Dominium already has "virtually all
the information it now seeks..." and "expidited discovery -- even in a
preliminary injunction action -- is not automatically granted."
The judge added: "The discovery requested was doubtless calculated to and
will interrupt the solicitation activity of the BAC Holders in advance of the
October 29th meetings. In so doing, it very well may jeopardize the Mergers.
Judge Lebedoff then cited this week's opinion of the Southern District of
New York which found that Dominium's correspondence to BAC Holders may have
contained numerous
<PAGE>
CAPREIT2
inaccuracies. That Order said: "There is little doubt Dominium is seeking to
delay or defeat the proposed mergers in the hope that it somehow will obtain the
wherewithal to acquire the Funds or that it will make such a nuisance of itself
that CAPREIT or theFunds will pay it to go away."
Referring to the harm that BAC Holders faced as a result of Dominium's
actions, the Minnesota Court said: "The BAC Holders who fought long and hard in
the Delaware action for a settlement agreement which maximizes their interests
could be irreparably injured if one dissident BAC holder (Dominium) of a mere
300 shares with only $1,500 at stake, who did not even opt out of the class, can
derail the CAPREIT offer."
Commenting on the Court's ruling, Richard L. Kadish, President of CAPREIT,
stated: "The Court in Dominium's own home state of Minnesota has reaffirmed the
New York Court's opinion in the same week. Both support what we have been
saying all along -- Dominium has not been acting in good faith, has no real
interest in the Funds or its Holders and has simply tried to manipulate some
underhanded financial benefit for itself.
"I am very pleased at how the Courts have responded to Dominium's
outrageous behavior. We can now proceed with the meetings scheduled for October
29 and hopefully come to closure on the merger."
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 persons.
<PAGE>
EXHIBIT 17(d)(10)
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 22, 1996
Dear BAC Holder:
Your vote FOR the proposed CRITEF/CAPREIT mergers is even more critical
as we fast approach the October 29 date for the special meeting of BAC Holders.
Your failure to vote counts as a vote against the proposed mergers.
In over 13 months, the CRITEF Funds received no other firm offer.
Dominium's own proxy statement concedes that Dominium was unable to obtain
financing for a proposal last summer and that it has no plans to make a superior
proposal now.
The U.S. District Court for Minnesota last week echoed the CRITEF Funds'
view that Dominium is merely a disgruntled spoiler trying to block the proposed
mergers. In denying Dominium's discovery request, the Court stated:
. The BAC holders who fought long and hard in the Delaware action for a
settlement agreement which maximizes their interests could be
irreparably injured if one dissident BAC holder (Dominium) of a mere
300 shares with only $1,500 at stake . . . can derail the CAPREIT
offer.
The CRITEF General Partners believe there are sound reasons to vote FOR
the mergers:
. BAC Holders will receive significantly more cash in the mergers than
the highest AMEX trading prices for the BACs.
. A nationally-recognized, independent investment bank determined that
the redemption prices offered by CAPREIT are fair to BAC Holders from
a financial point of view. The fairness opinions take into account
the operations of the properties through June 30, 1996.
If you have not yet responded, the General Partners urge you to sign and
return the enclosed white proxy card immediately so that it is received in time
for the October 29 meeting. To ensure that your vote is counted at the Meeting
we encourage you to fax your vote to (212) 929-0308.
<PAGE>
If you have questions, please call MacKenzie Partners, our information
and proxy agent, at 1-800-322-2885.
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
