SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
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KRUPP REALTY FUND, LTD. - III
(Name of Subject Company)
KRUPP REALTY FUND, LTD. - III
(Name of Person Filing Statement)
LIMITED PARTNERSHIP UNITS
(Title of Class of Securities)
N/A
(CUSIP Number of Class of Securities)
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Laurence Gerber
The Krupp Corporation
470 Atlantic Avenue
Boston, Massachusetts 02210
(617) 423-2233
(Name, Address and Telephone Number of Person
Authorized to Receive Notice and Communications
on Behalf of the Person(s) filing Statement)
COPY TO:
Scott D. Spelfogel, Esq. James M. Dubin, Esq.
The Berkshire Group Paul, Weiss, Rifkind, Wharton & Garrison
470 Atlantic Avenue 1285 Avenue of the Americas
Boston, Massachusetts 02210 New York, New York 10019-6064
(617) 423-2233 (212) 373-3000
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject partnership is Krupp Realty Fund, Ltd.
- - III, a Massachusetts limited partnership (the "Partnership"), and the address
of its principal executive offices is c/o The Krupp Corporation, 470 Atlantic
Avenue, Boston, Massachusetts 02210. The title of the class of equity securities
to which this statement relates is the Partnership's Units of Investor Limited
Partnership Interests ("Units").
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to an unsolicited offer by Krescent
Partners L.L.C., a Delaware limited liability company (the "Purchaser"),
disclosed in a Tender Offer Statement on Schedule 14D-1 dated November 21, 1996
(the "Schedule 14D-1"), to purchase up to 5,117 issued and outstanding Units at
a purchase price of $315 per Unit, net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated November 21, 1996 and the related Letter of Transmittal, as each
may be supplemented, modified or amended from time to time (which collectively
constitute the "Krescent Offer" and are contained within the Schedule 14D-1).
The address of the Purchaser's principal executive offices is
1301 Avenue of the Americas, 38th Floor, New York, New York 10019.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Partnership, which is
the person filing this statement, are set forth in Item 1 above.
(b)(i) The general partners responsible for management of the
Partnership's business are The Krupp Corporation, a Massachusetts corporation
(the "Corporate General Partner"), and The Krupp Company, a Massachusetts
limited partnership (together with the Corporate General Partner, the "General
Partners"). Except as described below, there are no material contracts,
agreements, arrangements or understandings or any actual or potential conflicts
of interest between the General Partners or their affiliates and the
Partnership, its executive officers, directors or affiliates.
Pursuant to the Partnership Agreement of the Partnership (the
"Partnership Agreement"), the General Partners are entitled to certain cash
distributions in respect of their interests in the Partnership. The General
Partners have received aggregate cash distributions in respect of such interests
of $1,043, $3,132 and $4,174, respectively, for the years ended December 31,
1994, 1995 and 1996 (projected).
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Pursuant to certain management agreements, an affiliate of the
General Partners receives property management fees for its services as
management agent for the Partnership's properties. Such agreements provide for
the payment of monthly management fees payable at the rate of up to 5% of rents
and other income actually received by the Partnership. In addition, although the
General Partners and their affiliates do not receive any fees from the
Partnership for the partnership administration services they provide, affiliates
of the General Partners are reimbursed by the Partnership for the expenses they
incur in connection with providing those services, which include accounting,
computer, insurance, travel, payroll, legal and the preparation and mailing of
reports and other communication to the Unit holders. The Partnership paid such
affiliates property management fees and reimbursement of expenses aggregating
$585,800, $472,000 and $389,600, respectively, for the three years ended
December 31, 1994, 1995 and 1996 (projected).
Pursuant to the Partnership Agreement, the General Partners
are entitled to a brokerage fee in an amount equal to 3% of the contract sales
price of any real estate acquired by the Partnership, subject to certain
limitations. No brokerage fees have been paid or are projected to be paid to the
General Partners or their affiliates during the three-year period ending
December 31, 1996.
The General Partners are subject to certain conflicts of
interests in connection with the response to the Krescent Offer contained in
this Schedule 14D-9. The Partnership Agreement provides that, without the
concurrence of the General Partners, a majority in interest of the "Investor
Limited Partners" (a person who has been admitted to the Partnership as, and has
the rights afforded to, an Investor Limited Partner, as provided in the
Partnership Agreement) may vote to remove the General Partners or amend the
Partnership Agreement (including amending certain fees and compensation payable
or authorized to be payable to the General Partners or their affiliates), and
the ownership of a large block of Units by any person increases the likelihood
that the General Partners may be removed or that the Partnership Agreement may
be amended should that person become an Investor Limited Partner or otherwise
acquire the voting rights of an Investor Limited Partner. In addition, since
property management agreements between affiliates of the General Partners and
the Partnership are terminable without penalty on not more than 180 days notice,
the removal of the General Partners or the amendment of the Partnership
Agreement could result in a reduction of management fee income from the
Partnership to such affiliates. If a large number of Units were tendered
pursuant to the Krescent Offer, the likelihood of such removal or amendment
would increase. However, as described in Items 3(b)(ii) and 8 below, the
Purchaser is subject to a standstill agreement pursuant to which it has agreed,
among other things, not to acquire more than 25% of the outstanding Units for
the period ending 30 months after receipt from the Partnership and certain other
partnerships affiliated with the General Partners of any list of its unit
holders or investors. Accordingly, during such 30 month period the Purchaser
will not be in a position to unilaterally remove the General Partners or amend
the Partnership Agreement.
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(b)(ii) Except as described below, there are no material
contracts, agreements, arrangements or understandings or any actual or potential
conflicts of interests between the Partnership or its affiliates and the
Purchaser, its executive officers, directors or affiliates.
The Corporate General Partner and Liquidity Financial Group,
L.P., the financial advisor of the Purchaser ("Liquidity"), are parties to a
Settlement Agreement and Release, dated as of June 27, 1996, as amended as of
October 8, 1996 (the "Standstill Agreement"), pursuant to which Liquidity and
any of its affiliates are restricted from, among other things, acquiring more
than 25% of the outstanding Units for the period ending 30 months after receipt
from the Partnership and certain other partnerships affiliated with the General
Partners of any list of its unit holders or investors. Such a list was last
provided on November 20, 1996 and, pursuant to the Standstill Agreement,
additional lists may be requested through June 27, 1997. The Krescent Offer
states that, pursuant to an Assumption Agreement dated November 21, 1996 between
the Purchaser and Liquidity, the Purchaser has agreed to be bound by the
restrictions set forth in the Standstill Agreement.
On October 24, 1996, a representative of Liquidity contacted a
representative of the Partnership to request, on behalf of the Purchaser, that
the General Partners agree to admit the Purchaser as a "Limited Partner" (an
assignee of a Unit holder who, at the discretion of the General Partners, is
admitted as a Unit holder pursuant to the terms of the Partnership Agreement) or
as a recognized or registered owner of Units in the event the Purchaser made an
offer to purchase Units and the Purchaser accepted Units for payment pursuant to
the terms of such offer. During that conversation, the Partnership's
representative indicated that in order to agree to such treatment, the
Partnership had to be satisfied that the consummation of such offer and such
treatment would not cause the Partnership to be classified as a "publicly-traded
partnership" for tax purposes (a "PTP"). Later that day, the Partnership
received a memorandum from counsel to the Purchaser concluding that such a
tender offer would not cause the Partnership to be classified as a PTP and a
letter agreement was sent to the Corporate General Partner requesting that the
Purchaser be treated as a Limited Partner or a recognized or registered owner of
Units upon the acceptance of Units for payment pursuant to an offer anticipated
to be made by the Purchaser. On October 29, 1996, counsel for the Partnership,
in a letter to Liquidity, responded to the memorandum prepared by the
Purchaser's counsel. During the week of November 4th, counsel for the Purchaser
and counsel for the Partnership continued to discuss the PTP status issue. On
November 11, 1996, counsel for the Purchaser and counsel for the Partnership
agreed on a form of opinion letter regarding the PTP issue that would be
delivered upon the treatment of the Purchaser as a Limited Partner or recognized
or registered owner of Units. On November 12, 1996, the Partnership was notified
by Liquidity that the Purchaser planned to commence the Krescent Offer five
business days after the Partnership's receipt of such notice. On November 14,
1996, the Partnership received a request from Liquidity for a current list of
Unit holders and the lists of securityholders of
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various entities affiliated with the Partnership, which lists were delivered to
Liquidity on November 19, 1996 and November 20, 1996. Also on November 19, 1996,
the Corporate General Partner executed a letter to the Purchaser indicating its
agreement to admit the Purchaser, or cause the Purchaser to be admitted, as a
Limited Partner or a recognized or registered owner of Units (i) upon the
Purchaser's payment for Units pursuant to the Krescent Offer, (ii) upon delivery
of an opinion of the Purchaser's counsel (in the agreed form) that the Krescent
Offer would not cause the Partnership to be classified as a PTP and (iii) upon
delivery, in satisfactory form, of the Partnership's standard transfer
paperwork, payment of standard transfer fee and satisfaction of any other
standard ministerial matters. On November 20, 1996, a representative of the
Purchaser contacted a representative of the Partnership for the stated purpose
of confirming the commencement date of the Krescent Offer and to confirm the
fact that the Purchaser did not have any current plan to change the current
management or the operations of the Partnership.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Following receipt of the Krescent Offer, the Corporate
General Partner reviewed and considered the Krescent Offer. The Corporate
General Partner has determined that the Krescent Offer is inadequate and not in
the best interests of the Unit holders, and recommends that the holders of Units
reject the Krescent Offer and not tender their Units pursuant thereto.
(b) In reaching its conclusion described in paragraph (a)
above, the Corporate General Partner considered a number of factors, including
the following:
(i) While the value of the Units is not readily
ascertainable, since there is neither an established trading
market nor a consistent historical pattern of making annual or
periodic distributions in respect of the Units, the price
specified in the Krescent Offer of $315 per Unit represents a
significant discount from the Corporate General Partner's
estimate of the inherent value of such Units. Based on
estimated values of the Partnership's properties and current
market conditions, the Corporate General Partner has estimated
the net asset value of each Unit to be $661. (Such net asset
value assumes a sale of all of the Partnership's properties at
net asset value, after deduction for estimated transaction
costs, and the distribution of the net proceeds of such sale
to the Unit holders. Actual transaction costs and market
conditions will affect the actual amount available for
distribution.) While the actual amount of liquidation proceeds
distributed in respect of a Unit may be either above or below
the estimate, the Corporate General Partner believes its
estimate of the net asset value of a Unit is representative of
current value. The Krescent Offer is less than 48% of such
estimate. The Corporate General Partner recognizes that, in
exchange for receiving the certainty of a cash purchase price
from the Purchaser in
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connection with the Krescent Offer, Unit holders may prefer to
forego the opportunity to hold their Units and receive
proceeds upon the potential future liquidation of the
Partnership's assets in excess of the amount being offered by
the Purchaser. However, the Corporate General Partner believes
that the price specified in the Krescent Offer reflects too
great a discount to value.
(ii) As stated by the Purchaser in the Krescent
Offer, Unit holders who tender Units acquired from the
Partnership in connection with the original issuance thereof
are expected to recognize taxable gain, which will be in
excess of the purchase price received by them from the
Purchaser.
(iii) The Partnership currently is paying a
semi-annual cash distribution of $7.93, or $15.86 annually,
per Unit. Unit holders who sell their Units to the Purchaser
will lose their right to receive future semi-annual
distributions from operations that are payable in respect of
Units. Furthermore, Unit holders who sell their Units to the
Purchaser will lose the right to future distributions from
future sales of Partnership properties.
(iv) As stated by the Purchaser in the Krescent
Offer, the Purchaser is making the Krescent Offer with a view
to making a profit. Accordingly, there is a conflict of
interest between the Purchaser's desire to purchase the Units
at a low price and a Unit holder's desire to sell its Units at
a high price.
(v) As stated by the Purchaser in the Krescent Offer,
if the Krescent Offer is successful, the Purchaser may be in a
position to influence control over the Partnership and to
influence voting decisions, including the removal of the
General Partners.
ITEM 5. PERSONS RETAINED, EMPLOYED, OR TO BE COMPENSATED
Neither the Partnership nor any person acting on its behalf
has employed, retained or compensated, or intends to employ, retain or
compensate, any person to make solicitations or recommendations to Unit holders
on its behalf concerning the Krescent Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Neither the Partnership nor the General Partners have
effected any transactions in the Units during the past 60 days. The General
Partners are not aware of any transactions in the Units during the past 60 days
by any of its executive officers, directors, affiliates or subsidiaries.
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(b) Neither the General Partners nor, to the knowledge of the
General Partners, any of their executive officers, directors, affiliates or
subsidiaries intend to tender Units owned by them to the Purchaser pursuant to
the Krescent Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) No negotiation is being undertaken or is underway by the
Partnership in response to the Krescent Offer which relates to or would result
in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Partnership; (ii) a purchase, sale or transfer of a material
amount of assets by the Partnership; (iii) a tender offer for or other
acquisition of securities by or of the Partnership; or (iv) any material change
in the present capitalization or dividend policy of the Partnership.
The General Partners and their affiliates may explore
transactions such as asset sales, a consolidation, a merger, financings of
Partnership properties followed by distributions, or possibly a tender offer for
Units at a price in excess of the Krescent Offer. However, no plans for, or
negotiations relating to, any of these types of transactions have been made, and
there can be no assurances that any such discussions or plans will be developed
or that any such transactions could be successfully consummated.
(b) There are no transactions, board resolutions, agreements
in principle or signed contracts in response to the Krescent Offer which relate
to or would result in one or more of the matters referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The General Partners have in the past received numerous
requests from third parties requesting that such parties be provided with a list
of the Partnership's Unit holders. Such a list has only been provided by the
General Partners to parties in cases where the General Partners have been
satisfied that such list has been properly requested by a person entitled by the
Partnership Agreement to receive such a list and/or the party requesting the
list has demonstrated that such party has a proper partnership business purpose
in connection with such request, or the Corporate General Partner has been
satisfied that the Partnership and the Unit holders have obtained appropriate
protections from such party with respect to the use of such list. The Corporate
General Partner agreed to provide a list of the Partnership's Unit holders to
Liquidity, the Purchaser's financial advisor, in connection with obtaining the
agreement by such advisor, pursuant to the Standstill Agreement, that such
advisor and its affiliates, among other things, would refrain from acquiring in
excess of 25% of the Units for the period ending 30 months after receipt from
the Partnership of any list of its Unit holders. The Krescent Offer states that,
pursuant to the Assumption Agreement dated November 21, 1996 between the
Purchaser and
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Liquidity, the Purchaser has agreed to become bound by the same standstill
restrictions applicable to Liquidity.
By letter dated November 4, 1996, Longacre Corp. ("Longacre")
requested that the Partnership provide to it a list of the Partnership's Unit
holders. The letter stated that the request was being made to facilitate a
tender offer by an affiliate of Longacre. As a result of negotiations, the
Corporate General Partner agreed to provide a list of the Partnership's Unit
holders to Longacre in connection with obtaining the agreement by Longacre,
pursuant to a Standstill Agreement dated as of November 26, 1996, that Longacre
and its affiliates, among other things, would refrain from acquiring in excess
of 25% of the Units for a period ending 30 months after receipt from the
Partnership of any list of its Unit holders. The Corporate General Partner was
subsequently advised by Longacre that its affiliate, American Holdings I, L.P.
("American Holdings"), intended to commence an offer to acquire up to 4.9% of
the outstanding Units at a price of $325 per Unit, which is in excess of the
purchase price specified in the Krescent Offer. On December 4, 1996, a
representative of Liquidity advised a representative of the Partnership that an
agreement had been reached between persons affiliated with each of Longacre and
Krescent and that, as a result of such agreement, the offer by American Holdings
"would be withdrawn."
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
(a)(i) Form of cover letter to Unit holders from the
Partnership dated December 5, 1996.
(ii) Press release of the Partnership dated December 5,
1996.
(b) Letter of the Partnership to Unit holders dated
November 25, 1996.
(c)(i) Amended Agreement, dated as of June 1, 1982 (the
"Partnership Agreement"), by and among The Krupp
Company and The Krupp Corporation, as general
partners, The Krupp Company, as the Original Limited
Partner, and those persons who have been admitted to
the Partnership as Investor Limited Partners pursuant
to the terms of the Partnership Agreement.
(ii) Form of Property Management Agreement between the
Partnership and Berkshire Property Management
Company.
(iii) Settlement Agreement and Release, dated as
of June 27, 1996, between the Corporate
General Partner and Liquidity Financial
Group, L.P.
(iv) First Amendment to Settlement Agreement and
Release, dated as of October 8, 1996,
between the Corporate General Partner and
Liquidity Financial Group, L.P.
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SIGNATURE
After reasonable 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.
Dated: December 5, 1996
KRUPP REALTY FUND, LTD. - III
By: The Krupp Corporation, a
general partner
By: s/Laurence Gerber
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Name: Laurence Gerber
Title: President
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EXHIBIT INDEX
Exhibit Description Page
1. Form of cover letter to Unit holders from
the Partnership dated December 5, 1996
2. Letter of the Partnership to Unit holders
dated November 25, 1996
3. Press release of the Partnership dated
December 5, 1996
4. Amended Agreement, dated as of June 1,
1982 (the "Partnership Agreement"), by and
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among The Krupp Company and The Krupp
Corporation, as general partners, The Krupp
Company, as the Original Limited Partner,
and those persons who have been admitted to
the Partnership as Investor Limited Partners
pursuant to the terms of the Partnership
Agreement
5. Form of Property Management Agreement
between the Partnership and Berkshire
Property Management Company
6. Settlement Agreement and Release, dated as
of June 27, 1996, between the Corporate
General Partner and Liquidity Financial
Group, L.P.
7. First Amendment to Settlement Agreement
and Release, dated as of October 8, 1996,
between the Corporate General Partner and
Liquidity Financial Group, L.P.
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