<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
April 24, 2000
--------------
(Date of earliest event reported)
CAPTEC NET LEASE REALTY, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 1045281 38-3368333
(State of Other Jurisdiction (Commission File No.) (I.R.S. Employer
of Incorporation) Identification No.)
24 FRANK LLOYD WRIGHT DRIVE, LOBBY L, FOURTH FLOOR, ANN ARBOR MICHIGAN 48106
(Address of Principal Executive Offices)
(734) 994-5505
(Registrant's Telephone Number)
<PAGE> 2
ITEM 5. OTHER EVENTS.
On April 24, 2000 Captec Net Lease Realty, Inc. (the "Company")
was notified that two lawsuits had been filed against the Company in the Court
of Chancery of the State of Delaware in and for New Castle County. The
following is intended as a summary of these actions and is qualified in its
entirety by reference to the complaints filed in each of these actions. The
complaints are attached hereto as Exhibits 99.1 and 99.2, respectively, and are
incorporated herein by reference.
a. Steiner v. Beach, et al., C.A. 18005NC (Delaware Chancery
Court)
A complaint was filed by William Steiner, a stockholder of the
Company, individually and on behalf of an alleged class consisting of the
public stockholders of the Company, other than the defendants and any person
related to or affiliated with the defendants (the "Steiner Alleged Class"),
against the Company, Captec Financial Group, Inc. ("Financial Group"), Captec
Net Lease Realty Advisors, Inc. ("Advisors") and each of the Company's
directors individually in the Court of Chancery of the State of Delaware in and
for New Castle County. The allegations of the complaint arise from a December
20, 1999 Omnibus Agreement and Plan of Merger (the "Merger Agreement") by and
among the Company, Captec Acquisition, Inc. ("Acquisition"), Financial Group
and Advisors, which provides for the merger of Acquisition with and into
Financial Group and of Advisors with and into the Company (collectively, the
"Merger"). The complaint alleges, among other things, that the defendants
breached their fiduciary duties and other common law duties owed to the Steiner
Alleged Class in approving the Merger, the Merger is unfair to the Company's
stockholders, and the Steiner Alleged Class will be irreparably damaged if the
Merger is consummated. The complaint seeks a declaration that the suit is
properly maintainable as a class action, the certification of Mr. Steiner as
representative of the Steiner Alleged Class, a preliminary and permanent
injunction against the Merger, rescission of the Merger in the event the Merger
is consummated prior to disposition of the claim, and compensatory damages and
reasonable attorneys fees and expenses incurred by the Steiner Alleged Class.
b. Bailey v. Beach, et al., C.A. 18006NC (Delaware Chancery
Court)
A complaint was filed by John W. Bailey, a stockholder of the
Company, individually and on behalf of an alleged class consisting of the
public stockholders of the Company, other than defendants (collectively, the
"Bailey Alleged Class"), against the Company, Financial Group, Advisors and
each of the Company's directors individually in the Court of Chancery of the
State of Delaware in and for New Castle County. The complaint alleges, among
other things, that the defendants breached their fiduciary duties to the Bailey
Alleged Class, the defendants failed to disclose material facts about the
Merger in seeking stockholder action with respect to the Merger, the Merger is
unfair to the Company's stockholders, and the Bailey Alleged Class will be
irreparably damaged if the Merger is consummated. The complaint seeks a
declaration that the suit is properly maintainable as a class action, the
certification of Mr. Bailey as representative of the Bailey Alleged Class, a
preliminary and permanent injunction against the Merger, an order compelling
the defendants to correct misrepresentations and omissions in the defendants'
disclosures to stockholders concerning the Merger, an order compelling the
defendants to seek, consider and develop alternatives to the Merger that would
provide the best value available to the public stockholders, rescission of the
Merger in the event the Merger is consummated prior to disposition of the
claim, and compensatory damages and attorneys fees and expenses incurred by the
Bailey Alleged Class.
On May 1, 2000, the Company, Acquisition, Financial Group and
Advisors executed an agreement (the "Agreement") terminating the Merger
Agreement. The Agreement is attached hereto as Exhibit 99.4 and is
incorporated herein by reference.
<PAGE> 3
ITEM 7. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
99.1 Complaint in Steiner v. Beach, et al., Del. Ch., C.A. No. 18005 NC
99.2 Complaint in Bailey v. Beach, et al., Del. Ch., C.A. No. 18006 NC
99.3 Press release, dated May 1, 2000
99.4 Agreement by and among Captec Net Lease Realty, Inc., Captec Acquisition, Inc., Captec Financial Group, Inc. and
Captec Net Lease Realty Advisors, Inc., dated as of May 1, 2000
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 4, 2000
/s/ W. Ross Martin
------------------
Captec Net Lease Realty, Inc.
W. Ross Martin Executive Vice President and
Chief Financial Officer
<PAGE> 1
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
---------------------------------------
WILLIAM STEINER,
Plaintiff, C.A. No. 18005NC
- v. -
PATRICK L. BEACH, W. ROSS MARTIN,
H. REID SHERARD, RICHARD J. PETERS,
CREED L. FORD, III, WILLIAM H.
KRUL, II, LEE C. HOWLEY, ALBERT T.
ADAMS, WILLIAM J. CHADWICK, CAPTEC NET
LEASE REALTY ADVISORS, INC., CAPTEC
FINANCIAL GROUP, INC. and
CAPTEC NET LEASE REALTY, INC.,
Defendants.
---------------------------------------
COMPLAINT
Plaintiff alleges upon personal knowledge as to his own acts and upon
information and belief as to all other matters, as follows;
NATURE OF THE ACTION
1. Plaintiff brings this action individually and as a class action on
behalf of all persons, other than defendants herein and any entity related to or
affiliated with defendants, who own shares of the common stock of Captec Net
Lease Realty, Inc. ("Captec" or the "Company") for injunctive and other
appropriate relief in connection with a proposed transaction pursuant to which
the Company will be reorganized, financially restructured, and no longer able to
do business as a real estate investment trust
<PAGE> 2
("REIT"). As part of the transaction, Captec will merge with two private
companies owned or controlled by Captec management, defendants Captec Financial
Group, Inc. ("Financial Group") and Captec Net Lease Realty Advisors, Inc.
("Realty Advisors"). Defendants have agreed to the transaction despite the fact
that the terms overvalue management's privately held companies to the detriment
of Captec's public stockholders and the transaction will shift control of
Captec to Captec Management without maximizing value for Captec's public
shareholders.
2. Alternatively, in the event that the transaction is consummated,
plaintiff seeks to recover damages caused by the breaches of fiduciary duties
owed by defendants to plaintiff and the Class.
PARTIES
3. Plaintiff is and, at all relevant times, has been, the owner of
shares of Captec's common stock.
4. Captec is a Delaware corporation. Captec is an operating REIT that
invests in long-term net leased restaurant and retail properties.
5. Defendant Patrick L. Beach ("Beach") is and has been, at all
relevant times, President, Chief Executive Officer, and Chairman of the Board of
Captec. Beach owns or controls approximately 6.5% of Captec's outstanding stock.
Beach controls Financial Group and Realty Advisors.
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<PAGE> 3
6. Defendant W. Ross Martin ("Martin"), is and has been, at all
relevant times, an Executive Vice President, Chief Financial Officer,
Treasurer, and a Director of Captec. Martin owns or controls approximately 3.2%
of Captec's outstanding stock. Martin is a well-compensated principal of
Financial Group and Realty Advisors.
7. Defendant H. Reid Sherard ("Sherard"), is and has been, at all
relevant times, a Senior Vice President and a Director of Captec. Sherard also
is a well-compensated principal of Financial Group and Realty Advisors.
8. Creed L. Ford, III, ("Ford") is and has been, at all relevant
times, a director of Captec. Ford is Chief Executive Officer of Kona Restaurant
Group, which is a lessee of four Captec properties. 1999 total rents for these
properties were expected to be $750,000. Despite this substantial business
relationship, Ford was a member of the purportedly independent committee formed
to consider the self-dealing transaction which is challenged in this action.
9. Albert T. Adams ("Adams"), is and has been, at all relevant times,
a director of Captec. Adams is a partner at Baker & Hostetler LLP, which
provides legal services to Captec. Despite the on-going legal representation,
Adams was a member of the purportedly independent committee formed to consider
the self-dealing transaction which is challenged in this litigation.
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10. Defendant Richard J. Peters, William H. Krul, II, Lee C. Howley,
and William J. Chadwick are and have been, at all relevant times, directors of
Captec.
11. The Individual Defendants, by reason of their corporate
directorships and/or executive positions, stand in a fiduciary position relative
to the Company's public shareholders and owe them the highest obligations of
good faith, loyalty and care.
CLASS ACTION ALLEGATIONS
12. Plaintiff brings this action on his own behalf and as a class
action on behalf of all stockholders of the Company (except defendants herein
and any person, firm, trust, corporation, or other entity related to or
affiliated with any of the defendants,) who are threatened with injury arising
from defendants' actions complained of herein.
13. This action is properly maintainable as a class action because:
(a) The Class is so numerous that joinder of all members is
impracticable. Approximately 9.5 million shares of the Company's common stock
are held by hundreds of stockholders of record and many more beneficial owners;
(b) There are questions of law and fact common to the Class
including, inter alia, whether:
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(i) defendants have breached and will continue to breach
their fiduciary and other common law duties owed by them to plaintiff and the
members of the Class;
(ii) the proposed transaction is unfair to Captec's
public shareholders and;
(iii) plaintiff and the other members of the Class would
be irreparably damaged were the transaction complained of herein consummated.
(c) Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. Plaintiff's
claims are typical of the claims of the other members of the Class and plaintiff
has the same interests as the other members of the Class. Accordingly, plaintiff
is an adequate representative of the Class.
(d) The prosecution of separate actions by individual members
of the Class would create the risk of inconsistent or varying adjudications with
respect to individual members of the Class which would establish incompatible
standards of conduct for defendant, or adjudications with respect to individual
members of the Class which, as a practical matter, would be dispositive of the
interests of the other members not parties to the adjudications or substantially
impair or impede their ability to protect their interests.
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<PAGE> 6
(e) Defendants have acted, or refused to act, on grounds
generally applicable to, and causing injury to, the Class and, therefore,
preliminary and final injunctive relief on behalf of the Class as a whole is
appropriate.
SUBSTANTIVE ALLEGATIONS
14. On December 20, 1999, Captec announced a series of transactions
(the "Transaction") designed to reorganize the Company, principally changing it
from a REIT to a C corporation. As a C corporation, Captec would no longer be
required to distribute 95 percent of its taxable income to its shareholders. The
immediate effect will be a reduction of shareholder's dividends by approximately
71%.
15. The Transaction provides that Captec will merge with the
privately-held Financial Group and Realty Advisors, which are both owned by
Beach and other members of Captec's senior management. As part of the
Transaction, shares of Captec will be exchanged for equity interests in
Financial Group, and Captec also will forgive an $11 million loan that Captec
made to Financial Group. Additionally, Captec will issue 2.75 million common
shares to its public shareholders and cash payments of $2.5 million to certain
institutional warrant holders. Captec will issue an additional 2.0 million
common shares, payable solely to management pursuant to an earn-out agreement,
if it achieves certain performance targets.
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<PAGE> 7
16. Financial Group is grossly overvalued to the detriment of Captec's
public stockholders. Financial Group has continually lost money and is dependent
solely upon the $11 million loan from Captec for its survival. Captec's public
shareholders are receiving little, if anything, in exchange for the forgiveness
of the $11 million loan to Financial Group.
17. Beach, Martin and Sherard, along with other Captec employees, will
continue to act as the senior management team of the newly-constituted public
company. Beach, Martin and Sherard will increase their ownership in Captec to
almost 35%, vesting complete, effective working control in them. Notwithstanding
this shift in control, defendants have failed to explore strategic alternatives
which would maximize value for Captec's public shareholders.
18. The Company announced that the transaction was considered by a
purportedly independent committee of Captec directors other than Beach, Martin,
and Sherard. At a minimum, the independence of the committee was compromised by
the presence of Messrs. Ford and Adams who were not independent from the
interests of senior management.
19. Since the announcement of the proposed transaction that will
benefit Beach and other members of Captec management, the Company's stock price
has continually declined, most recently trading at $8.75 per share.
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<PAGE> 8
20. The consideration offered is unfair and inadequate, and offers no
advantage to any stockholder other than the senior management. Further, this
transaction is essentially a financial work-out for Financial Group that
favors the interests of senior management to the exclusion of strategic
alternatives that would favor the interests of the public stockholders such as
an arm's-length, third party transaction.
21. By reason of all of the foregoing, defendants have breached their
fiduciary duties to the Class by favoring senior management over Captec's public
shareholders and by failing to maximize shareholder value in a change of control
transaction.
22. As a result of defendants' wrongdoing, plaintiff and the Class
will be irreparably damaged. Unless enjoined by this Court, defendants will
continue to breach their fiduciary duties owed to plaintiff and the Class, and
will succeed in foisting an unfair and harmful transaction on Class members to
the irreparable harm of the Class.
23. Plaintiff and the Class have no adequate remedy of law.
WHEREFORE, plaintiff prays for judgment and relief as follows:
a. declaring that this lawsuit is properly maintainable as a
class action and certifying plaintiff as representative of the Class;
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<PAGE> 9
b. preliminarily and permanently enjoining defendants and
their counsel, agents, employees, and all persons acting under, in concert with,
or for they, from proceeding with or implementing the proposed Transaction;
c. in the event the Transaction is consummated, rescinding it
and setting it aside;
d. awarding the Class compensatory damages against defendants,
in an amount to be determined at trial, together with prejudgment interest at
the maximum rate allowable by law;
e. awarding plaintiff his costs and disbursements and
reasonable allowances for plaintiff's counsel and experts' fees and expenses;
and
f. granting such other and further relief as may be just and
proper.
ROSENTHAL MONHAIT GROSS
& GODDESS, P.A.
By: [SIG]
---------------------------------
Mellon Bank Center
919 Market Street
Wilmington, Delaware 19899
(302) 656-4433
Of Counsel:
WECHSLER HARWOOD HALEBIAN
& FEFFER LLP
468 Madison Avenue
New York, New York 10022
(212) 935-7400
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<PAGE> 1
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
C.A. No. 18006NC
-----------------------------------------------)
JOHN W. BAILEY, )
Plaintiff,
-against- )
)
PATRICK L. BEACH, W. ROSS MARTIN, )
H. REID SHERARD, RICHARD J. PETERS, )
CREED L. FORD, III, WILLIAM H. KRUL, II, )
LEE C. HOWLEY, ALBERT T. ADAMS, )
WILLIAM J. CHADWICK, CAPTEC NET )
LEASE REALTY ADVISORS, INC., CAPTEC )
FINANCIAL GROUP, INC., and CAPTEC )
NET LEASE REALTY, INC. )
Defendants. )
-----------------------------------------------)
CLASS ACTION COMPLIANT
Plaintiff, by his attorneys, alleges upon personal knowledge as to
himself and his own acts, and upon information and belief as to all other
matters, as follows:
NATURE OF THE ACTION
1. This is a class action brought on behalf of the public
shareholders of Captec Net Lease Realty, Inc. ("Captec" or the "Company"), other
than defendants and certain affiliates of the defendants, against the defendants
to enjoin the proposed special meeting to vote upon, and any other steps to
implement or close, a proposed merger (the "Merger") between the Company and two
companies controlled and owned by certain of the defendants. The Merger
<PAGE> 2
has been unfairly timed to take advantage of the decline in the Company's stock,
will substantially and unfairly dilute the ownership interests of the public
shareholders of Captec, and will deliver control of the Company to certain of
the defendants. In the event that the proposed transaction is effectuated,
plaintiffs seek to recover damages caused by defendants' breaches of fiduciary
duty, as set forth in detail herein.
2. The Merger has been initiated, timed, negotiated and structured to
benefit Captec's management and their affiliated entities. Moreover, the
businesses which are being contributed to the Company in the Merger in exchange
for the issuance of additional shares of the Company are businesses which are
essentially worthless, with no earnings and negative book value. In addition, in
connection with their solicitation of shareholder votes to approve the Merger at
a special meeting of stockholders, the defendants have failed to disclose the
true extent of the defendants' self dealing transactions, the actual reasons for
the proposal to merge the affiliated entities into Captec, and the existence of
other alternatives, such as offers for the Company or its properties, that were
available to the Company during the negotiation of the Merger. Finally, the
defendants have failed to adequately inform themselves as to the relative values
of the parties to the Merger, have relied upon advisors and advice which they
know to be hopelessly conflicted, erroneous, and inadequate, and have failed and
refused to make any effort to maximize shareholder value in a transaction which
delivers effective control of the Company to certain of the defendants.
PARTIES
3. Plaintiff John W. Bailey owns 4700 shares of common stock of
Captec and has owned common stock in the Company since prior to December, 1999.
- 2 -
<PAGE> 3
4. Captec is a corporation duly organized under the laws of the State
of Delaware with principal executive offices at 24 Frank Lloyd Wright Drive,
P.O. Box 544, Ann Arbor, Michigan 48l06-O544. Captec is a real estate investment
trust ("REIT") for purposes of federal tax law, which acquires, develops, and
owns high quality, free-standing properties to be leased principally on a
long-term, triple-net basis to national and regional chain and franchised
restaurants and retailers.
5. Defendant Patrick Beach ("Beach") is the Chairman of the Board of
Directors, President, and Chief Executive Officer of the Company. Beach is also
a director, officer, and controlling shareholder of defendants Captec Net Lease
Realty Advisors, Inc. ("Advisors"), which provides most of Captec's management
and advisory services relating to the acquisition, development and leasing of
Captec's properties, and Captec Financial Group, Inc. ("Financial Group"), which
performs virtually all of the services that Advisors provides to Captec. Beach
draws a salary from each of the three entities described above for rendering
services to Captec.
6. Defendant W. Ross Martin ("Martin") is the Senior Vice President,
Chief Financial Officer, and a director of the Company. Martin is also a
principal officer, director, and stockholder of Advisors and Financial Group,
and receives the majority of his compensation from those two entities. Martin
draws a salary from each of the three entities described above for rendering
services to Captec.
7. Defendant H. Reid Sherard ("Sherard") is the Senior Vice President
for Sales and Marketing and a director of Captec. Sherard is also a principal
officer, director and
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<PAGE> 4
stockholder of Advisors and Financial Group, and receives the majority of his
compensation from those two entities.
8. Defendant Lee C. Adams ("Adams") is a director of the Company.
Adams is a partner at the law firm of Baker & Hostetler LLP, which represents
the Company, Advisors, and Financial Group. In 1999, Adam's law firm was paid
over $293,000 by Financial Group, and approximately $19,000 by the Company.
Because Adam's firm has a significant financial interest in continued
representation of Financial Group and the Company, all of which depend on Adam's
continued good relationship with Beach, Adams cannot act independently of
management.
9. Defendant Creed L. Ford III ("Ford") is a director of the Company.
Ford is the Chief Executive Officer of Kona Restaurant Group, a lessee of four
properties from the Company. Ford's company paid total rent of $525,000 to the
Company in 1998, and approximately $750,000 in 1999. As a result of Ford's
substantial economic relationship to the Company, and interest in remaining in
the good graces of management, Ford cannot act independently of management.
10. Defendant William H. Krul ("Krul") is a director of the Company.
Krul is the President of Miller-Valentine Construction, Inc., which has provided
construction services to various affiliates and customers of the Company. As a
result of Krul's economic relationship with management, Krul cannot act
independently of management.
11. The remaining defendants, Richard J. Peters, Lee C. Howley, and
William J. Chadwick, are directors of the Company.
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<PAGE> 5
12. Financial Group is a privately held Michigan corporation and is an
affiliate of Captec and Advisors. Financial Group is a specialty commercial
finance company founded in 1981 that provides mortgage and business enterprise
loans, equipment leases and loans and construction financing to the franchise
and chain restaurant, and retail petroleum and convenience store markets.
Notwithstanding the fact that Financial Group has been in existence for over 19
years, it has no historical earnings and no substantial book value. Defendants
Beach, Martin and Sherard own 67.8%, 19.2% and 4% respectively (or a total of
91%) of the stock of Financial Group, and are its principal stockholders,
officers and directors. Financial Group's offices are located at Captec's
headquarters.
13. Advisors is a privately held Michigan corporation, which is an
affiliate of both Captec and Financial Group. Defendants Beach, Martin and
Sherard own 60%, 25%, and 6.1% respectively (or a total of 91.1% ) of the stock
of Advisors, and are its principal stockholders, officers and directors.
Advisors provides, in exchange for payment of substantial fees, administrative
support, management, investment and financial advisory services to Captec in
connection with the acquisition and development of properties. Virtually all of
the services provided by Advisors to Captec are performed by Financial Group.
Advisors has no significant assets other than its advisory agreement with
Captec. Advisors' offices are located at Captec's headquarters.
CLASS ACTION ALLEGATIONS
14. Plaintiff brings this action pursuant to Rule 23 of the Rules of
the Chancery Court, on behalf of himself and all other shareholders of the
Company and their successors in interest (except the defendants herein and any
person, firm, trust, corporation, or
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<PAGE> 6
other entity related to or affiliated with them (including the Public
Institution for Social Security)), who are or will be threatened with injury
arising from defendants' actions, as more fully described herein (the "Class").
This action is properly maintainable as a class action for the reasons set forth
below.
15. The Class is so numerous that joinder of all members is
impracticable. There are 9,508,108 million shares of Captec common stock
outstanding, of which approximately 8 million shares are held by thousands of
stockholders who are members of the Class.
16. There are questions of law and fact that are common to the Class
including, inter alia, the following:
i) Whether defendants have engaged in and are continuing to
engage in conduct which unfairly benefits defendants at the expense of the
members of the Class;
ii) Whether the individual defendants, as officers and/or
directors of the Company, are violating their fiduciary duties to plaintiff and
the other members of the Class;
iii) Whether defendants have failed to disclose material facts
about the nature of the proposed merger and the parties thereto in seeking
shareholder action with respect to the Merger;
iv) Whether defendants have failed to fulfill their fiduciary
duty to maximize shareholder value in connection with the Merger, which is a
transaction that will deliver control over the Company to the defendants;
v) Whether defendants have initiated and timed the Merger to
unfairly benefit defendants at the expense of the Company's public shareholders;
and
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<PAGE> 7
vi) Whether plaintiff and the other members of the Class would
be irreparably damaged were defendants not enjoined from the
conduct described herein;
17. The claims of plaintiff are typical of the claims of the other
members of the Class in that all members of the Class will be damaged alike by
defendants' actions.
18. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. Accordingly,
plaintiff is an adequate representative of the class.
19. The prosecution of separate actions by individual members of the
Class would create a risk of (A) inconsistent or varying adjudications with
respect to individual members of the Class which would establish incompatible
standards of conduct for the defendants and (B) adjudications with respect to
individual members of the Class which would as a practical matter be dispositive
of the interests of the other members not parties to the adjudications or
substantially impair or impede their ability to protect their interests.
20. The defendants have acted and refused to act on grounds generally
applicable to the Class, thereby making appropriate final injunctive relief and
corresponding declaratory relief with respect to the Class as a whole.
SUBSTANTIVE ALLEGATIONS
21. Captec acquires, develops and owns high-quality freestanding
properties leased principally on a long-term triple-net basis to national and
regional chain and franchised restaurants and national retailers. Such
triple-net leases generally impose upon the lessee responsibility for all
operating costs and expenses of the property, including the costs of repairs,
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<PAGE> 8
maintenance, real property taxes, assessments, utilities and insurance.
Captec's leases typically provide for minimum rent plus specified fixed
periodic rent increases over the 15 to 20 year term of the lease. Thus,
Captec's assets provide a steady, increasing stream of income to the Company.
22. Captec completed an initial public offering of 8,000,000 shares of
its common stock in November 1997 at $18.00 per share. At the time of its
offering, Captec stressed its status as a real estate investment trust ("REIT")
and its intention to pay out 95% of its income to shareholders. Under federal
tax law, a REIT such as Captec must distribute 95% of its net income to
shareholders, but does not pay income tax.
23. Following Captec's initial public offering, defendant Beach held
619,850 shares, or 6.5% of the common stock of Captec; defendant Martin owned
308,628 shares, or 3.2% of the common stock, and defendant Sherard owned 67,639
shares of the common stock of Captec. Thus, Beach, Martin and Sherard owned and
continue to own approximately 13% of Captec's stock. In addition, a group of
foreign investors, headed by Abbas Al-Qattan (the "Al-Qattan Investors"), which
invests with defendant Beach in a variety of businesses, including Financial
Group and several real estate partnerships in which Captec has interests, owned
and continue to own, through an entity known as the Public Institution for
Social Security, an additional 527,000 shares, or 5.2%, of the stock of Captec.
24. As of December 31, 1999, Captec had a portfolio of 162 properties
located in 28 states, with a cost basis of $229.5 million. Those properties are
leased to 51 operators of 33 distinct national and regional restaurant concepts
and 12 operators of 14 national and regional
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<PAGE> 9
retail concepts. In addition to those properties, Captec had entered commitments
to acquire 89 properties for an aggregate cost of $208.4 million.
25. Captec generally acquires properties from operators or developers
in locations that have demonstrated growth in retail sales and population. Upon
acquisition of a property, Captec normally enters into a long term triple-net
lease typically for a 15 to 20 year term with the lessee that will operate the
property. Captec believes that the structure of its leases provides steady,
periodically escalating long term cash flow while reducing operating expenses
and capital costs, and that its underwriting standards for new acquisitions and
leases reduce the risk of lessee default or non-renewal.
26. Captec's rental revenue has increased from $22.4 million in 1998
to $24.5 million in 1999. Its comparable net income from 1998 to 1999 increased
from $11.5 million to $14 million. On a per share basis, Captec's income
increased from $1.21 in 1998 to $1.44 in 1999. Because of its REIT status,
Captec paid no income tax on its income, and distributed total dividends of
$1.52 per share in 1999.
27. At the end of 1999, Captec had a book value of $134.9 million, or
approximately $14 per share. The net asset value per share of the Company, that
is, the value of its properties less its liabilities, is between $16 and $17 per
share.
28. Captec conducts its operations through an agreement with Advisors,
which manages the operations of Captec and provides the Company with investment
and financial advisory services pertaining to the acquisition, development, and
leasing of properties and administrative support. Advisors, in turn, relies on
Financial Group to provide those services. During 1998, the Company paid asset
management fees of $194,000, and acquisition fees of $1.1
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<PAGE> 10
million to Advisors; during 1999, the Company paid approximately $1.9 million in
fees to Advisors. The fees paid by the Company to Advisors vary according to
numerous circumstances, many of which are within the control of Advisors and
Financial Group, thus creating conflicts of interest and opportunities for self
dealing by the defendants. The defendants, however, have established no
procedures or safeguards to ensure that the Company is treated fairly in its
transactions with Advisors or Financial Group.
29. Although Financial Group was incorporated in 1981, it has not, in
its 19 years of existence, produced any historical earnings, and it has no
substantial book value. In 1998, Financial Group lost over $3.6 million.
30. In the early l990s, Financial Group began conducting asset
securitizations in connection with its specialty lending and franchise finance
business, which exposed it to enormous interest rate risks. The asset
securitization and franchise finance business, however, became very competitive
after 1995, when many large companies moved into the business. The entry of
large well capitalized companies into the franchise finance and asset
securitization business made it difficult, if not impossible, for smaller
companies such as Financial Group to operate profitably. Consequently, even in a
favorable interest rate environment in the mid 1990's, Financial Group was not
able to produce any earnings.
31. By late 1998, when the bond market declined and interest rates
rose, Financial Group could no longer finance its operations, and turned to
Prudential Securities Incorporated ("Prudential") to seek strategic alternatives
for the Company. Prudential had advised Financial Group in the past, and through
its subsidiary Prudential Securities Credit Corporation, had provided a
warehouse credit facility to Financial Group, for which it received,
- 10 -
<PAGE> 11
among other things, warrants to purchase shares of Captec common stock at $.01
per share. Financial Group owed approximately $238 million to Prudential under
that credit facility, and Prudential had an interest in ensuring that Financial
Group repaid its debt.
32. In early 1999, however, Financial Group was out of money, and was
in default under the liquidity requirements of its credit facility with
Prudential. In addition, Financial Group had borrowed over $11 million from
Captec to keep itself afloat. To meet the requirement in the Prudential credit
facility that Financial Group maintain liquid assets of not less than $1
million in cash or money market securities, defendants Beach, Martin and Sherard
loaned Financial Group approximately $1.5 million, which they in turn borrowed
from Prudential. Defendants Beach, Martin and Sherard received additional fees,
interest, and warrants to purchase Financial Group stock as a result of their
Prudential-financed loan to Financial Group.
33. Notwithstanding the personal loans of Beach, Martin and Sherard to
keep Financial Group afloat, Financial Group still is in a liquidity crisis,
cannot pay its bills, and faces liquidation when the Prudential credit facility
expires. That facility is now scheduled to expire in June, 2000. Moreover,
Financial Group's loan portfolio is exhibiting the classic signs of a distressed
finance company. In the two years ended March 31, 1999, Financial Group's bad
debt charge-offs have steadily increased more than tenfold, from $197,933 in
1997, to $1.6 million in 1998, to $2.5 million in 1999.
34. In 1999, defendants Beach, Martin and Sherard first attempted to
sell Financial Group to a third party, but were unable to conclude a sale. In
the absence of a sale, Financial Group's only hope to avoid liquidation is a
merger with Captec, which has sufficient
- 11 -
<PAGE> 12
unencumbered assets to serve as security for the necessary refinancing of
Financial Group's debt. Consequently, defendants Beach, Martin and Sherard
proposed the Merger of the Company with Advisors and Financial Group. Because
Financial Group does not qualify as a REIT, such a merger will result in Captec
losing its REIT status and the tax advantages that accompany that status.
35. The defendants made their merger proposal to Captec at a time when
REIT stocks had declined significantly, and were trading at below their book and
net asset values. Moreover, because of the significant self-dealing arrangements
between Captec and Advisors and Financial Group, and the absence of any
safeguards to control those arrangements, the stock price of Captec suffered a
steady decline from its $18 initial public offering price to $10.19 on December
13, 1999.
36. The defendants ultimately entered into the Merger, on
substantially the same terms as proposed, in December 14, 1999. The Merger
provides for the merger of Advisors and Financial Group into a subsidiary of
Captec, in exchange for the issuance of additional Captec shares and various
cash payments to defendants Beach, Martin and Sherard, as well as other warrant
holders of Financial Group and Captec, including Prudential. As a result of the
Merger, assuming that all "earnout" shares are distributed, Beach, Martin and
Sherard will increase their ownership in Captec from 13.7% to 34.9%.
37. In addition to transferring effective control of the Company to
Beach, Martin, and Sherard, the Merger will have an enormous dilutive effect on
the public shareholders and will burden the Company with Financial Group's
overwhelming debt. The Merger will dilute Captec's actual per share book value,
excluding "goodwill" created in the Merger, from
- 12 -
<PAGE> 13
$14.19 per share to $10.92 per share, a reduction of $3.27. The Merger would
also lower Captec's earnings per share from $1.44 per share in 1999 to $0.78 per
share on a pro forma basis. Upon assuming all of Financial Group's debt, which
roughly equals its assets, Captec would become a highly leveraged company whose
debt equals about 72% of its assets.
38. After the Merger was announced, the Company's stock price fell
approximately 40%. The Merger is subject to a vote of shareholders, at a
special meeting to be called for the purpose of such a vote. The defendants have
not yet scheduled the special meeting, but have filed a Preliminary Proxy
Statement on April 19, 2000 ("Preliminary Proxy") to be used to solicit
shareholders votes in favor of the Merger at the meeting.
39. While the Company appointed a "special committee" of
defendants other than Beach, Martin and Sherard, that committee was chaired by
Adams, whose law firm represents both the Company and Financial Group, and
receives ten times as much business from Financial Group than from Captec.
Moreover, the defendants simply disregarded all of their fiduciary obligations
in the consideration of the Merger.
40. First, the defendants allowed the Company to engage Prudential
as its financial advisor, and agreed to pay Prudential a fee of $3 million.
Prudential, however, was hopelessly conflicted, since it also provided financial
advisory services to Financial Group in connection with the Merger, and had a
financial interest in closing the Merger, since the Merger was the only method
by which the amount owing under the Financial Group credit facility would be
repaid or adequately secured. Moreover, Prudential negotiated, in addition to
its $3 million fee, an additional cash payment of $1,376,350 from Captec in
connection with the Merger to terminate its warrants in Financial Group.
Prudential, consequently, was completely incapable of
- 13 -
<PAGE> 14
providing any competent advice to the Company, yet the defendants, the special
committee, and the special committee's advisors relied primarily on the analyses
of Prudential. In such circumstances, no reasonable financial advisor would have
undertaken to provide advice to the Company, and no reasonable director, acting
in good faith, would have engaged such a financial advisor.
41. Second, the special committee appointed Adams as its chairman,
notwithstanding his obvious conflict of interest. Moreover, Adams' law firm
continued to represent both Captec and Financial Group, even as Adams chaired
the special committee.
42. Third, the Company employed J.C. Bradford as a financial
advisor to the special committee, under circumstances which gave it an
incentive to render advice which resulted in the Merger closing. The Company
agreed to pay J.C. Bradford a $100,000 bonus, in addition to its $450,000 fee,
if the Merger closed.
43. Finally, the special committee was aware that the analysis
provided by J.C. Bradford, to the extent it did any analysis, was inadequate.
First, the Preliminary Proxy reveals that Prudential provided financial and
operational information to J.C. Bradford relating to Financial Group and
Advisors, and that Prudential summarized various alternative options available
to Captec. The Preliminary Proxy does not indicate that J.C. Bradford did any
independent analysis other than analyses based on the information provided by
Prudential.
44. Second, in assessing the relative values of Captec, Financial
Group, and Advisors, J.C. Bradford did not use or consider any historical
financial figures for Financial Group, because Financial Group had no earnings
history. Instead, J.C. Bradford performed analyses "based solely on financial
information projected by senior management of Financial
- 14 -
<PAGE> 15
Group", which were projections of substantial future income, even though that
same management had never managed to produce earnings in its previous 19 years.
Only through the use of such unsubstantiated, hugely speculative future
projections could J.C. Bradford assign any value to Financial Group using any of
its valuation techniques.
45. J.C. Bradford also ignored the precipitous decline in the
price of Captec's stock upon announcement of the Merger. This decline directly
contradicted J.C. Bradford's total market return analysis, in which it assumed
that Captec's stock would trade at a higher multiple to earnings as a result of
the Merger and redirection of its business. The market's reaction to the Merger
and redirection of Captec's business demonstrates that J.C. Bradford's analysis
was completely inadequate, yet the defendants continued to use it.
46. J.C. Bradford, in addition to ignoring the historical
financial information with respect to Financial Group and the actual market
reaction to the Merger, also failed to consider the self-dealing arrangements
between Financial Group and defendant Beach, through which Financial Group pays
for considerable personal expenditures of defendant Beach. J.C. Bradford and
the special committee were aware, at least in part, of such self-dealing, but
simply ignored it in considering the Merger.
47. The defendants, the special committee, and J.C. Bradford
failed to consider, either in examining the fairness of the consideration or
the extent of their obligations to the Company and its shareholders, that the
Merger delivered a control block of stock to defendants Beach, Martin and
Sherard and effectively gave them control of Captec. Prior to the Merger,
defendants Beach, Martin and Sherard controlled only 13.7% of the stock, and
control of the Company rested in a large, fluid market of disaggregated
shareholders. As a result of the
- 15 -
<PAGE> 16
Merger, however, defendants Beach, Martin and Sherard will own a control block
of 34.9% of the stock (or 37.1% of the stock, including the holdings of the
Al-Qattan Investors), which, together with their positions as senior management
(through which they control the corporate machinery and treasury), will give
them complete and effective control over the Company.
48. Notwithstanding the fact that the special committee was
considering a transaction which would transfer control of the Company, neither
the special committee nor the board considered any alternatives to the Merger to
maximize shareholder value. While the Merger was being considered by the
Company, several offers were made for the Company's stock or its assets. The
Special Committee was authorized to receive, evaluate, and make recommendations
to the full board with respect to any acquisition offers the Company received.
As described in the Preliminary Proxy, however, the Special Committee refused to
consider two offers with respect to the Company's assets or its stock because
the board determined that the Company was not for sale. In addition, the Company
received at least one offer for the Company's stock in excess of $13.00 per
share, which offer was conveyed to Adams, which was not disclosed in the
Preliminary Proxy. The defendants did not analyze or pursue any of the offers
or consider them as alternatives to the Merger, notwithstanding the fact that
they provided much more value to the shareholders and the Company than the
Merger. To the contrary, defendants have explicitly refused to consider any
transaction other than the Merger.
49. As a result, the public shareholders have been deprived of the
opportunity to maximize the value of their shares through the best transaction
reasonably available, and are instead faced with an unfair self-dealing Merger
which (i) transfers control over the Company to defendants Beach, Martin, and
Sherard, (ii) unfairly dilutes the public shareholders' interests in
- 16 -
<PAGE> 17
the Company, (iii) eliminates the traditional dividend payment of 95% of the
Company's net income, (iv) saddles the Company with a worthless and highly
volatile finance business that has no earnings history and is on the verge of
collapse, and (v) bails Prudential out of its precarious credit facility with
Finance Group and Beach, Martin, and Sherard out of their personal liabilities
in connection with Finance Group.
50. In seeking shareholder action to approve the Merger, as
required in the Merger agreement, defendants have both misrepresented or failed
to disclose material facts that would be important to a shareholder of Captec in
deciding how to vote on the proposed Merger. Among other things, the defendants
have failed to disclose: (i) the existence of at least one offer for the
Company's shares in excess of the $12 per share offer that is disclosed in the
Preliminary Proxy; (ii) the "projections" for Financial Group upon which all of
the analyses with respect to the value of Financial Group are based; (iii) the
fact of, and reasons for, the recent ten-fold increase In Financial Group's bad
debt charge-offs between 1997 and 1999; and (iv) the actual dilution of book
value resulting from the Merger. Defendants have affirmatively misrepresented,
among other things, that the dilution in book value resulting from the Merger
would be $1.84, a figure determined only through the creation of $17.5 million
in fictitious "good will" as part of the Merger, when in fact the actual
dilution in book value, based on existing assets, is $3.27 per share.
51. The defendants have intentionally failed to inform themselves
of all necessary facts relating to the relative values and businesses of Captec,
Advisors, and Financial Group in connection with the Merger. The defendants have
hired advisors who have incapacitating conflicts of interests and who have
blindly and recklessly relied solely on
- 17 -
<PAGE> 18
projections of management, all with the complete knowledge of the defendants.
The defendants' actions, and failure to inform themselves or to hire adequate
advisors to inform them of the material and necessary facts relating to the
Merger and the relative values of the parties to the Merger, constitutes a
violation of defendants' fiduciary duties.
52. The defendants' approval of the Merger was not a fully
informed decision. The Merger is not entirely fair to the public shareholders of
Captec, and will result in a substantial dilution of, and change in, their
ownership interests in the Company.
53. The defendants have approved a Merger which results in a
change of control of the Company, since the Merger will give defendants Beach,
Martin and Sherard effective control over the Company. Defendants have a duty
in such circumstances to act reasonably to seek the transaction offering the
best value reasonably available to stockholders. Defendants failed to take any
action to seek the best value reasonably available to stockholders, and instead
refused to consider actions that might have provided better value to
stockholders than the Merger. Defendants' failure to consider alternatives to
the transfer of control to defendants Beach, Martin and Sherard, and their
efforts to prevent the development of any such alternatives, constitutes a
violation of the defendants' fiduciary duties.
54. As a result of defendants' breaches of fiduciary duty,
plaintiff and the Class are suffering, and will continue to suffer, immediate
and irreparable injury. Plaintiff and the Class are entitled to immediate
preliminary and permanent relief: (i) declaring defendants' conduct to be a
breach of their fiduciary duties; (ii) enjoining defendants from proceeding
further to obtain shareholder approval for, or cause the implementation of, the
Merger; and (iii) requiring defendants to seek, consider, develop, and analyze
alternative transactions that will provide the
- 18 -
<PAGE> 19
best value reasonably available to shareholders. Without such relief, plaintiff
and the Class will be deprived of the opportunity to have such alternatives
considered and pursued prior to the transfer of effective control of the Company
to defendants Beach, Martin and Sherard.
55. In addition, plaintiff and the Class are entitled to relief
requiring defendants to correct the misrepresentations and omissions contained
in defendants' disclosures to the public stockholders concerning the Merger.
56. In the event that preliminary or permanent declaratory and
injunctive relief is not granted, plaintiff and the Class are entitled to
rescission of the Merger if it is implemented, rescissory damages if rescission
cannot be granted, and other damages to compensate them for defendants' breaches
of fiduciary duty, including defendants' failure to seek, consider, or develop
alternatives to maximize value for the shareholders.
WHEREFORE, plaintiff prays for judgment and relief as follows:
(1) Declaring that this lawsuit is properly maintainable as a class
action and certifying plaintiff as representative of the Class;
(2) Preliminarily and permanently enjoining defendants and their counsel,
agents, employees, and all persons acting under, in concert with, or for them,
from proceeding with, seeking shareholder approval of, or implementIng the
Merger;
(3) Requiring defendants to correct the misrepresentations and omissions
in their disclosures to stockholders concerning the Merger;
(4) Requiring defendants to seek, consider and develop alternatives to
the Merger that would provide best value available to the public shareholders;
(5) In the event the Merger is consummated, rescinding it and setting it
aside;
- 19 -
<PAGE> 20
(6) Awarding compensatory damages against defendants, jointly and
severally, in an amount sufficient to compensate plaintiff and the Class for the
injuries resulting from the defendants' breaches of fiduciary duty, in an amount
to be determined at trial, together with prejudgment interest at the maximum
rate allowable by law;
(7) Awarding plaintiff his costs and disbursements and reasonable
allowances for plaintiff's counsel and experts' fees and expenses; and
(8) Granting such other and further relief as may be just and proper.
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By: [SIG]
-------------------------------------
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
HARNES KELLER LLP
International Plaza
750 Lexington Avenue
New York, NY 10022
- 20 -
<PAGE> 1
CAPTEC NET LEASE REALTY, INC.
24 FRANK LLOYD WRIGHT DRIVE
LOBBY L, 4TH FLOOR - P.O. BOX 544
ANN ARBOR, MI 48106
WWW.CAPTEC.COM
NASDAQ: CRRR
<TABLE>
<CAPTION>
AT THE COMPANY: AT THE FINANCIAL RELATIONS BOARD:
<S> <C> <C> <C> <C>
Patrick L. Beach W. Ross Martin Michael Rosenbaum Claire Koeneman Darcy Bretz
President & CEO Chief Financial Officer General Information Analysts/Investors Media Inquiries
(734) 994-5505 (734) 994-5505 (312) 266-7800 (312) 640-6784 (312) 640-6756
</TABLE>
MONDAY, MAY 1, 2000
CAPTEC AND AFFILIATES CANCEL MERGER PLANS;
REIT STUDIES OPTIONS TO MAXIMIZE VALUE
ANN ARBOR, MI, MAY 1, 2000 -- CAPTEC NET LEASE REALTY (NASDAQ: CRRR) today
announced cancellation of plans to merge with its affiliates into a full
service, specialty commercial finance company. Citing indications of less than
overwhelming shareholder support for the plan announced last December, the
publicly traded Real Estate Investment Trust indicated other options would be
studied.
"Since this transaction was announced, we have closely monitored our
shareholders' reaction to it," said Patrick Beach, chief executive officer of
Captec Net Lease Realty. "While we continue to believe the plan announced in
December would maximize value for all shareholders over the long term, there
does not appear to be overwhelming support for this transaction. In light of
that fact, the parties have mutually agreed to terminate the merger agreement."
In December, Captec Net Lease Realty announced a series of strategic actions
designed to enhance growth opportunities by signing a definitive agreement to
merge with its affiliates, Captec Financial Group, Inc. (CFG), a specialty
finance company serving the franchise restaurant market, and Captec Net Lease
Realty Advisors, Inc. (Advisors), the company's external advisor. The merger was
to have created a fully integrated, specialty commercial finance company focused
on the net lease and franchise finance sectors. As a result of the merger, the
company would have terminated its status as a real estate investment trust
(REIT) and converted to a C Corporation, bringing its operations more in line
with other public commercial finance companies. In announcing the termination of
the merger, Captec also stated that it is canceling its plan to terminate its
REIT status at this time.
Beach said Captec will consider other options to increase share value. In a
market unreceptive to REIT investment, management's goal continues to be a
differentiation between Captec's investment properties and strategies and those
of its industry.
Finally, Beach said, "Our goal has been, is and will continue to be to increase
returns to shareholders, period. Our study of alternate approaches will look at
all available options to accomplish that goal."
Captec also announced that it has learned that two shareholders of Captec have
each filed a separate class action complaint in the Delaware Chancery Court for
New Castle County against Captec, CFG, Advisors
more
<PAGE> 2
Captec Net Lease Realty, Inc.
Add 1
and each member of Captec's board of directors. Each complaint arises out of the
proposed merger (which has been terminated by the parties), alleges that the
defendants breached their duties owed to the shareholders of Captec in
connection with the proposed merger and seeks to bring a class action to enjoin
the proposed merger and compensatory damages. Mr. Beach stated that the lawsuits
had not yet been served on Captec, and that they would study the allegations and
respond as and when appropriate.
ABOUT CAPTEC
Captec Net Lease Realty, Inc. is a real estate investment trust (REIT) that
invests in long-term net leased restaurant and retail properties. At December
31, 1999, Captec owned and/or managed a diversified portfolio of 253
freestanding restaurant, retail and entertainment properties throughout the
United States.
SAFE HARBOR STATEMENT
Statements in this press release, which are not strictly historical, are
"forward-looking" statements. Forward-looking statements involve known and
unknown risks, which may cause the company's actual results in the future to
differ materially from expected results. These risks include, among others,
general economic conditions, local real estate conditions, construction delays
or other delays, and the availability of capital to finance planned growth, as
described in the company's filings with the Securities and Exchange Commission.
Consequently, such forward-looking statements should be regarded solely as
reflections of the company's current operating and development plans and
estimates. Actual operating results may differ materially from what is expressed
or forecast in this press release.
FOR MORE INFORMATION ABOUT CAPTEC TOLL-FREE VIA FAX, DIAL 1-800-PRO-INFO
(1-800-776-4636), FOLLOW THE VOICE MENU PROMPTS AND ENTER THE
COMPANY CODE "CRRR" (2777) ON ANY TOUCH TONE PHONE.
VISIT THE CAPTEC WEB SITE AT: WWW.CAPTEC.COM
#####
<PAGE> 1
EXHIBIT 99.4
EXECUTION COPY
AGREEMENT
THIS AGREEMENT is dated as of May 1, 2000 (the "Agreement") and is by and
among Captec Net Lease Realty, Inc., a Delaware corporation (the "Company").
Captec Acquisition, Inc., a Delaware corporation ("Acquisition") and a
wholly-owned subsidiary of the Company, Captec Financial Group, Inc., a Michigan
corporation ("CFG"), and Captec Net Lease Realty Advisors, Inc., a Delaware
corporation ("CA").
RECITALS
WHEREAS, the Company, Acquisition, CFG, and CA have entered into that
certain Omnibus Agreement and Plan of Merger, dated as of December 20, 1999,
which agreement was amended on April 5, 2000 (as amended, the "Merger
Agreement"); and
WHEREAS, the respective Board of Directors of each of the Company,
Acquisition, CFG and CA has determined to terminate the Merger Agreement
pursuant to the terms of Section 10.01 thereof.
NOW, THEREFORE, in consideration of the representations, warranties and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties to this
Agreement intending to be legally bound, agree as follows:
1. Termination. The Company, Acquisition, CFG and CA hereby terminate
the Merger Agreement pursuant to, and in accordance with, Section 10.01 thereof,
effective as of the date hereof.
2. Representations and Warranties of the Company and Acquisition. The
Company and Acquisition have all requisite corporate power and authority to
execute this Agreement. The execution and delivery of this Agreement has been
duly authorized by the Board of Directors of each of the Company and Acquisition
and no further corporate action is necessary on the part of the Company or
Acquisition. This Agreement has been duly executed and delivered by the Company
and Acquisition and, assuming the due execution and delivery of the other
parties hereto, constitutes a valid and binding obligation of the Company and
Acquisition, enforceable against each of the Company and Acquisition in
accordance with its terms.
3. Representations and Warranties of CFG and CA. CFG and CA have all
requisite corporate power and authority to execute this Agreement. The execution
and delivery of this Agreement has been duly authorized by the Board of
Directors of each of CFG and CA and no further corporate action is necessary on
the part of either CFG or CA. This Agreement has been duly executed and
delivered by each of CFG and CA and, assuming the due execution and delivery by
the other parties hereto, constitutes a valid and binding obligation of each of
CFG and CA, enforceable against each of CFG and CA in accordance with its terms.
<PAGE> 2
4. Governing Law. This Agreement and all disputes hereunder shall be
governed by, and interpreted and construed in accordance with, the internal laws
of the State of Delaware without regard to principles of conflicts of laws.
5. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
[Signature Page Follows]
2
<PAGE> 3
IN WITNESS THEREOF, the parties have executed and delivered this
Agreement on the date first written above by their respective officers
thereunto duly authorized.
CAPTEC NET LEASE REALTY, INC.
By: /s/ ALBERT T. ADAMS
------------------------------------
Name: Albert T. Adams
Title: Chairman, Special Committee
CAPTEC ACQUISITION, INC.
By: /s/ GARY A. BRUDER
------------------------------------
Name: Gary A. Bruder
Title: Secretary
CAPTEC FINANCIAL GROUP, INC.
By: /s/ W. ROSS MARTIN
------------------------------------
Name: W. Ross Martin
Title: Senior Vice President and
Chief Financial Officer
CAPTEC NET LEASE REALITY ADVISORS,
INC.
By: /s/ PATRICK L. BEACH
------------------------------------
Name: Patrick L. Beach
Title: President and Chief Executive
Officer
