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EXHIBIT 99.1
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Alfonso Larriva, Case No. 01-72568
Plaintiff, Hon. John Corbett O'Meara
v. Magistrate Judge Pepe
Patrick L. Beach, W. Ross Martin
H. Reid Sherard, Richard J. Peters,
Creed L. Ford, III, William H. Krul,
Lee C. Howley, Albert T. Adams,
William Chadwick and
Captec Net Lease Realty, Inc.
Defendants.
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Stephen Wasinger (P25963) Marc A. Topaz
Rita M. Lauer (P53075) Patricia C. Weiser
WASINGER KICKHAM and KOHLS SCHIFFRIN & BARROWAY
100 Beacon Centre Three Bala Plaza East, Suite 400
26862 Woodward Avenue Bala Cynwyd, PA 19004
Royal Oak, MI 48067 (610) 667-7706
(248) 414-9900 Co-Counsel for Plaintiff
Counsel for Plantiff
Bruce G. Murphy
265 Llwyds Lane
Vero Beach, FL 32963
(561) 231-4204
Co-Counsel for Plaintiff
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COMPLAINT AND JURY DEMAND
Plaintiff Alfonso Larriva, by his attorneys, alleges upon information and
belief, except as to paragraph 1 which is alleged upon personal knowledge, as
follows:
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THE PARTIES
1. Plaintiff Alfonso Larriva ("Plaintiff") is the owner of 10,000
shares of common stock of Captec Net Lease Realty, Inc. ("Captec" or the
"Company") and has been the owner of such shares continuously since prior to the
wrongs complained of herein. Larriva is a citizen of the state of Arizona.
2. Defendant Captec is a corporation duly existing and organized under
the laws of the State of Delaware, with its principal executive offices located
at 24 Frank Lloyd Wright Drive, P.O. Box 544, Ann Arbor, Michigan. The Company
does business in Wayne County, Michigan. The Company 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 long-term, triple, net basis to national and regional chain and
franchised restaurants and retailers.
3. Defendant Patrick Beach ("Beach") is and at all times relevant
hereto has been President, Chief Executive Officer, and Chairman of the Board of
Captec. On information and belief, Beach is a citizen of Michigan.
4. Defendants W. Ross Martin, H. Reid Sherard, Lee C. Adams, Creed L.
Ford III, William H. Krul, Richard J. Peters, Lee C. Howley and William J.
Chadwick are and at all times relevant hereto have been directors of Captec
(the "Director Defendants"). On information and belief, none of the Director
Defendants are citizens of Arizona.
5. The defendants referred to in paragraphs 3 and 4 are collectively
referred to herein as the "Individual Defendants."
6. By reason of the above Individual Defendants' positions with the
Company as officers an/or directors, said individuals are in a fiduciary
relationship with plaintiff and the other public stockholders of Captec, and owe
plaintiff and the
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other members of the class the highest obligations of good faith, fair
dealing, due care, loyalty and full, candid and adequate disclosure.
7. Defendants are sued both individually and jointly, and the liability
of each arises from the fact that each participated in the wrongful conduct
and/or aided and abetted others, in all or some of the unlawful acts charged
herein.
JURISDICTION AND VENUE
8. This court has jurisdiction pursuant to 28 U.S.C. section 1332.
The amount in controversy, exclusive of interest and costs, exceeds $75,000.
9. Venue is proper pursuant to 28 U.S.C. sections 1391(a) because a
substantial part of the events or omissions giving rise to the claim occurred in
this district.
CLASS ACTION ALLEGATIONS
10. Plaintiff brings this action on his own behalf and as a class
action, pursuant to Rule 23, F.R.Civ. P., on behalf of himself and holders of
Captec common stock (the "Class"). Excluded from the Class are defendants
herein and any person, firm, trust, corporation or other entity related to or
affiliated with any of the defendants.
11. This action is properly maintainable as a class action.
12. The Class is so numerous that joinder of all members is
impracticable. As of June 29, 2001, there were approximately 9.51 million
shares of Captec common stock outstanding.
13. There are questions of law and fact which are common to the Class
and which predominate over questions affecting any individual Class members.
The common questions include, inter alia, the following:
(a) whether the merger is grossly unfair to the Class;
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(b) whether plaintiff and the other members of the
Class would be irreparably damaged were the
transactions complained of herein consummated; and
(c) whether defendants have breached their fiduciary
and other common law duties owed by them to
plaintiff and the other members of the Class.
14. 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 and will
fairly and adequately protect the interests of the Class.
15. Plaintiff anticipates that there will be no difficulty
in the management of this litigation.
16. Defendants have acted on grounds generally applicable to the
Class with respect to the matters complained of herein, thereby making
appropriate the relief sought herein with respect to the Class as a whole.
SUBSTANTIVE ALLEGATIONS
17. On July 2, 2001, Captec announced that it has entered into a
definitive merger agreement (the "Merger Agreement") with Commercial Net Lease
Realty, Inc. ("CNL"), an equity REIT headquartered in Orlando, Florida (the
"Merger").
18. Pursuant to the terms of the Merger Agreement, CNL will
acquire all of the outstanding shares of common stock of Captec for a
combination of cash and stock, including 0.4575 shares of SNL common stock,
0.21034679 shares of a new class of CNL preferred stock, 9.0% Series A
Non-Voting Preferred Stock, and $1.27 in cash. Based upon the closing price of
CNL common stock on the New York Stock
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Exchange on June 29, 2001, and the stated liquidation preference value of the
preferred stock, Captec's board of directors has estimated the value of the
aggregate merger consideration to be paid to Captec's stockholders at $13.05
per share.
19. Immediately after the closing of the Merger, an affiliate of
defendant Beach will acquire certain unidentified non-real estate assets of
Captec and assume liabilities associated with those assets (the "Asset
Purchase").
20. Beach has access to internal financial information about
Captec, the true value of its properties, expected increase in true
value and the benefits of ownership of those assets which have been
hand-picked by him for purchase, to which plaintiff and the Class
members are not privy. Beach, with the acquiescence of the Individual
Defendants, is using such inside information to benefit himself and his
affiliates (including several of the Individual Defendants) in this
transaction, to the detriment of the Captec's public stockholders.
21. Beach has clear and material conflicts of interest and is
acting to better his own interests at the expense of Captec's public
shareholders. Beach has carefully selected valuable assets of the Company to
purchase, all to the detriment of Captec and its shareholders.
22. Captec has a shareholder's rights plan (the "Rights Plan")
which is triggered whenever a person or group acquires 15 percent or
more of Willamette's common stock. The Rights Plan provides for the
distribution of rights to shareholders ten days after a person or group
becomes the owner of 15% or more of the Company's common stock or makes a
tender or exchange offer which would result in the ownership of 15% or more of
the common stock. Once the rights are distributed, each right becomes
exercisable to purchase, for $45.00, 1/1000th of a share of a new series of
Company preferred stock, which share will entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the stockholders of the Company
and, will have a market value of two times the exercise price of the
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Right. The Rights Plan further provides that holders of Captec's common stock,
other than the "acquiring person", are entitled to acquire the common stock of
the "acquiring person" at half its market price.
23. The Rights Plan would thus make a takeover of Captec
prohibitively expensive without the Individual Defendants' approval.
24. Pursuant to the terms of the Rights Agreement, the
Individual Defendants have absolute discretion to determine whether
an acquisition proposal, even one highly favorable to class members,
can be effectuated.
25. The Rights Plan permits the Individual Defendants to
manipulate the corporate machinery of Captec, thereby impairing the
corporate democratic process within the Company at the expense and to
the detriment of the Company's common stockholders. The Rights Plan
restrains and impairs the ability of Captec stockholders to affect
corporate policy, and freely structure the directorial constituency
of the Company. The Rights Plan, inter alia, impedes shareholder ability to
accumulate shares and associate together to replace incumbent management,
oppose any management initiative, or otherwise affect corporate policy
through stockholder resolutions. By effectively preventing any single party
from owning and thereby voting greater than 15% of the outstanding common
shares, management clearly has a significant advantage in any proxy contest
which might threaten to eliminate or diminish their control over Captec. The
Rights Plan thereby serves to perpetuate senior management's control over the
business and operations of the Company and to frustrate potential bidders for
Captec.
26. Moreover, to further frustrate other third party bidders,
Captec agreed to a provision in the Merger Agreement which provides for the
payment of a $5 million termination fee to CNL under certain circumstances
(including a competing offer from a third party bidder) (the "Fee"). The Fee
is wholly disproportional and
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unfair as it represents over 4% of the total market value of the proposed
transaction.
27. The combination of the Rights Plan and the Fee improperly serve to
frustrate competing bidders from making a superior offer for the Company.
28. Beach, with the acquiescence of the Individual Defendants, is engaging
in self dealing and not acting in good faith toward plaintiff and the other
members of the Class. By reason of the foregoing, the Individual Defendants
have breached and are breaching their fiduciary duties to the members of the
Class.
29. Moreover, the merger consideration to be paid to Class members is
unconscionable, unfair and grossly inadequate because, among other things:
(a) the consideration agreed upon did not result from an
appropriate consideration of the value of Captec as the
Individual Defendants were presented with, and asked to
evaluate, the proposed merger without any attempt to
sufficiently ascertain the true value of Captec through
open bidding or a "market check" mechanism; and
(b) under the terms of the Merger Agreement, plaintiff and the
other members of the Class will not receive any premium and
are being asked to sell their Captec shares for less than
their current market value.
30. The Individual Defendants were and are under a duty:
(a) to fully inform themselves of Captec's market value before
taking, or agreeing to refrain from taking, action;
(b) to act in the interests of the equity owners;
(c) to maximize shareholder value;
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(d) to obtain the best financial and other terms when the
Company's independent existence will be materially altered by
a transaction;
(e) to act in accordance with their fundamental duties of due care
and loyalty.
31. By the acts, transactions and courses of conduct alleged herein,
defendants, individually and as part of a common plan and scheme or in breach of
their fiduciary duties to plaintiff and the other members of the Class, are
attempting to benefit themselves and to unfairly deprive plaintiff and other
members of the Class of the true value of their investment in Captec.
32. Captec shareholders will, if the transaction is consummated, be
deprived of the opportunity for substantial gains which the Company may realize.
33. By reason of the foregoing acts, practices and course of conduct,
defendants have failed to exercise ordinary care and diligence in the exercise
of their fiduciary obligations toward plaintiff and the other Captec public
stockholders.
34. As a result of the actions of defendants, plaintiff and the other
members of the Class have been and will be damaged in that they have not and
will not receive their fair proportion of the value of Captec's assets and
businesses and will be prevented from obtaining appropriate consideration for
their shares of Captec common stock.
35. Unless enjoined by this Court, the defendants will continue to breach
their fiduciary duties owed to plaintiff and the other members of the Class,
and may consummate the proposed transaction which will exclude the Class from
its fair proportionate share of Captec's valuable assets and businesses, and/or
benefit them in the unfair manner complained of herein, all to the irreparable
harm of the Class, as aforesaid.
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36. Plaintiff and the Class have no adequate remedy at law.
COUNT I: BREACH OF FIDUCIARY DUTIES
37. Plaintiff realleges Paragraphs 1 through 36.
38. Each of the Defendants has breached fiduciary duties owed to
Plaintiff and the Class.
39. As a direct and proximate result of such breaches, the Plaintiffs
and the Class have been injured and Defendants have been unjustly enriched.
40. Defendants have been, or will be, unjustly enriched as a direct and
proximate result of their breaches of fiduciary duty.
WHEREFORE, plaintiff demands judgment and preliminary and permanent
relief, including injunctive relief, in his favor and in favor of the Class and
against defendants as follows:
A. Declaring that this action is properly maintainable as a class
action;
B. Declaring and decreeing that the Merger Agreement was entered into
in breach of the fiduciary duties of the Individual Defendants and
is therefore unlawful and unenforceable;
C. Enjoining defendants from proceeding with the Merger Agreement and
the Asset Purchase;
D. Enjoining defendants from consummating the Merger, or a business
combination with a third party, unless and until the Company adopts
and implements a procedure or process, such as an auction, to obtain
the highest possible price for the Company;
E. Directing the Individual Defendants to exercise their fiduciary
duties to obtain a transaction which is in the best interests of
shareholders
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until the process for the sale or auction of the Company is
completed and the highest possible price is obtained;
F. Rescinding, to the extent already implemented, the Merger Agreement
or any of the terms thereof;
G. Awarding plaintiff and the Class appropriate damages;
H. Awarding plaintiff the costs and disbursements of this action,
including reasonable attorneys' and experts fees;
I. Granting such other and further relief as this Court may deem just
and proper.
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Jury Demand
Plaintiff demands a trial by jury.
WASINGER KICKHAM AND HANLEY
Counsel For Plaintiff
By: [SIG]
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Stephen Wasinger (P25963)
Rita M. Lauer (P53075)
100 Beacon Centre
26862 Woodward Avenue
Royal Oak, Michigan 48067
(248) 414-9900
Dated: July 9, 2001
Of Counsel:
SCHIFFRIN & BARROWAY, LLP
Marc A. Topaz
Patricia C. Weiser
Three Bala Plaza East
Suite 400
Bala Cynwyd, PA 19004
(610) 667-7706
LAW OFFICES OF BRUCE G. MURPHY
Bruce G. Murphy
265 Llwyds Lane
Vero Beach, FL 32963
(561) 231-4204
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