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Filed pursuant to Rule 424 (b)(4)
Registration Statement No. 333-66428
October 12, 2001
CAPTEC LOGO
Dear Fellow Captec Stockholder:
On July 2, 2001, the board of directors of Captec unanimously approved a
definitive merger agreement with Commercial Net Lease Realty, Inc. (CNLR), a
leading net lease REIT. Under the agreement, CNLR will acquire all of Captec's
outstanding shares for a combination of cash and stock with an aggregate value
of approximately $124 million, based on a value of $13.05 per share of Captec
common stock, at the time the agreement was executed. The stock portion is
expected to be tax-free to Captec stockholders and the transaction is expected
to be completed during the fourth quarter of 2001.
Our merger with CNLR will create one of the nation's largest owners of triple
net leased, freestanding retail properties with total assets of approximately $1
billion. We are asking Captec stockholders to approve the merger at a special
meeting to be held at 10:00 a.m., local time, on November 19, 2001 at the
Ritz-Carlton Hotel, 300 Town Center Drive, Fairlane Plaza, Dearborn, Michigan
48126. To ensure that you receive the value this transaction offers, YOUR BOARD
OF DIRECTORS RECOMMENDS THAT ALL CAPTEC STOCKHOLDERS SIGN, DATE AND RETURN THE
ENCLOSED WHITE PROXY CARD TODAY TO VOTE FOR THE PROPOSED MERGER.
YOUR BOARD OF DIRECTORS UNANIMOUSLY BELIEVES THAT THE PROPOSED MERGER
WITH CNLR IS IN THE BEST INTERESTS OF CAPTEC AND ALL OF ITS STOCKHOLDERS.
We expect that the greater scale and financial resources of a combined
CNLR-Captec will provide Captec stockholders with greater opportunities for
growth and long-term value than Captec could achieve on its own. Captec
stockholders will benefit from immediate cash consideration and the opportunity
to participate in the upside potential of a continued investment in a combined
CNLR-Captec.
- ATTRACTIVE CONSIDERATION FOR YOUR CAPTEC SHARES -- Under the terms of the
merger agreement, Captec stockholders will receive in exchange for each
share of Captec common stock a combination of $1.27 in cash, 0.4575
shares of CNLR common stock and 0.21034679 shares of a new class of CNLR
preferred stock, 9.0% Series A Non-Voting Preferred Stock. Based upon the
closing price of CNLR common stock on June 29, 2001, the last trading day
prior to the merger announcement, and assuming the $25.00 liquidation
preference as the value of the preferred stock, Captec stockholders would
receive total consideration of approximately $13.05 per Captec
share -- representing a premium of nearly 20% to Captec's closing stock
price on September 27, 2000, one day prior to the announcement of the
board's decision to pursue a sale of the company.
- CNLR HAS AN 11-YEAR HISTORY OF PAYING INCREASING DIVIDENDS -- For each of
the past 11 years, CNLR has paid increasing dividends to its
stockholders. CNLR's common stock dividend, which is currently $1.26 per
share, is significantly more secure than Captec's dividend. Captec, which
has a dividend payout ratio of 97.8%, would likely have to reduce its
dividend in the future were it to continue as an independent company.
- CNLR WILL BECOME A LARGER, MORE DIVERSIFIED REIT -- As a result of this
merger, CNLR will become one of the largest public REITs in the net lease
sector with an enhanced portfolio of more than 377 properties in 40
states. After the merger, CNLR will have total gross leaseable area of
approximately seven million square feet -- approximately seven times
Captec's current total gross leaseable area. CNLR's diversified tenant
base will become even more diverse with 96 tenants in 27 different retail
lines of trade.
- CNLR IS AN ECONOMICALLY ROBUST, INVESTMENT GRADE COMPANY -- The combined
CNLR-Captec, in comparison to Captec as an independent company, will have
a larger market capitalization and is expected to have higher average
trading volumes, increased liquidity and a lower cost of capital.
24 FRANK LLOYD WRIGHT DRIVE - LOBBY L, 4(TH) FLOOR - P.O. BOX 544 - ANN ARBOR,
MICHIGAN 48106-0544
TEL: (734) 994-5505 - FAX: (734) 994-1376 - www.captec.com
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Furthermore, the transaction is expected to be immediately accretive to
CNLR's funds from operation (FFO) by adding between $0.05 and $0.07 per
share. In addition, the nation's leading credit rating agencies, Standard
& Poors, Moody's and Fitch, have already affirmed that CNLR's debt will
continue to be rated investment grade. We are confident that these factors
greatly improve the growth prospects to Captec's stockholders.
THE CNLR MERGER AGREEMENT RESULTS FROM A SALE PROCESS
THAT WAS DESIGNED TO MAXIMIZE THE VALUE OF YOUR INVESTMENT IN CAPTEC
A SPECIAL COMMITTEE OF YOUR BOARD OF DIRECTORS CONDUCTED A THOROUGH AND COMPLETE
SALE PROCESS TO
SEEK THE HIGHEST VALUE FOR YOUR CAPTEC SHARES
- A special committee of independent directors, together with its outside
financial advisor, UBS Warburg LLC, undertook a thorough sale process in
which more than 50 companies were invited to participate.
- UBS Warburg provided the special committee with an opinion that, as of
the date of the opinion, the merger consideration to be received by
Captec's stockholders in the CNLR merger is fair, from a financial point
of view.
- The special committee and the board of directors, considering, among
other things, the opinion from UBS Warburg, unanimously determined that
the CNLR merger proposal is in the best interests of Captec and all of
its stockholders.
As further discussed in our proxy materials, CNLR conditioned its merger
proposal on the sale of certain of Captec's non-real estate assets. Patrick
Beach, Captec's chairman, president and chief executive officer, agreed to
acquire these assets for $7.5 million, plus the assumption of related
liabilities. In recommending to the board of directors that it approve the asset
sale agreement with Mr. Beach, the special committee considered the following:
- Other participants in the sale process indicated either that they were
not interested in acquiring these non-real estate assets or would offer
only nominal value for them.
- Captec's stockholders would receive immediate and certain cash
consideration of $0.79 per share for the non-real estate assets as a
result of the asset sale.
The special committee determined, after a comprehensive sale process and
consideration of all viable alternatives, that the asset sale agreement was the
best option available for those assets, and that the merger with CNLR, together
with the asset purchase agreement, were in the best interests of Captec and all
of its stockholders.
CAPTEC'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
PROPOSED MERGER WITH CNLR. TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND RETURN THE
ENCLOSED WHITE PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED, SELF-ADDRESSED,
STAMPED ENVELOPE. YOUR VOTE IS EXTREMELY IMPORTANT. FAILURE TO VOTE YOUR SHARES
HAS THE SAME EFFECT AS VOTING AGAINST THE MERGER. If you have any questions or
require any assistance in executing or delivering your proxy or voting
instructions, please call our proxy solicitor, Georgeson Shareholder
Communications at 800-223-2064 (toll-free) or (212) 440-9800.
On behalf of Captec's Board of Directors,
/s/ EDWARD G. PTASZEK
Edward G. Ptaszek
Secretary
Captec Net Lease Realty, Inc.
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CAPTEC NET LEASE REALTY, INC.
24 FRANK LLOYD WRIGHT DRIVE
LOBBY L, 4TH FLOOR
ANN ARBOR, MICHIGAN 48106
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NOTICE OF SPECIAL MEETING TO BE HELD ON
NOVEMBER 19, 2001
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To the Stockholders of
Captec Net Lease Realty, Inc.:
We will hold a special meeting of stockholders on Monday, November 19,
2001, 10:00 a.m., local time, at The Ritz-Carlton Hotel, 300 Town Center Drive,
Fairlane Plaza, Dearborn, Michigan 48126, for the following purposes:
1. to approve an Agreement and Plan of Merger, dated as of July 1,
2001, pursuant to which Captec Net Lease Realty, Inc., a Delaware
corporation, will merge with and into Commercial Net Lease Realty, Inc., a
Maryland corporation; and
2. to transact such other business as may properly come before the
special meeting or any adjournments or postponements of the special
meeting.
The merger proposal is more fully described in the accompanying proxy
statement-prospectus and appendices that are part of this notice.
Captec's board of directors has fixed the close of business on October 9,
2001 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the special meeting or any adjournments or postponements of
the special meeting. Only stockholders of record as of October 9, 2001 will be
entitled to notice of, and to vote at, the special meeting or any adjournments
or postponements of the special meeting. A list of stockholders of record as of
October 9, 2001 will be available for inspection at our offices at 24 Frank
Lloyd Wright Drive, Lobby L, 4th Floor, Ann Arbor, Michigan 48106 at least ten
days prior to the special meeting.
Captec's board of directors and management welcomes your attendance at the
special meeting. Whether or not you plan to attend the special meeting, we
request that you complete, sign, date and promptly return the enclosed proxy in
the accompanying postage-paid envelope. Your proxy will not affect your right to
vote in person if you attend the special meeting. You can revoke your proxy at
the special meeting as described under the caption "THE SPECIAL
MEETING -- Proxies; Proxy Solicitation" on page 20 of the accompanying proxy
statement-prospectus. Simply attending the special meeting, however, will not
revoke your proxy. Failure to return a properly executed proxy card or to vote
in person at the special meeting will have the same effect as a vote against the
merger.
CAPTEC'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE MERGER.
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE.
Sincerely,
/s/ EDWARD G. PTASZEK
Edward G. Ptaszek
Secretary
October 11, 2001
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CAPTEC NET LEASE REALTY, INC.
MERGER PROPOSAL
YOUR VOTE IS VERY IMPORTANT
The board of directors of Captec Net Lease Realty, Inc., has approved and
adopted a merger agreement that provides for the merger of Captec with and into
Commercial Net Lease Realty, Inc. pursuant to which the separate corporate
existence of Captec will terminate.
We are furnishing this proxy statement-prospectus in connection with our
solicitation of proxies for use at a special meeting of stockholders to be held
on Monday, November 19, 2001, 10:00 a.m., local time, at The Ritz-Carlton Hotel,
300 Town Center Drive, Fairlane Plaza, Dearborn, Michigan 48126, and any
adjournments or postponements of the special meeting. Delaware law requires
Captec to obtain stockholder approval of the merger by an affirmative vote of a
majority of the outstanding shares of Captec common stock entitled to vote on
the merger.
At the effective time of the merger, each issued and outstanding share of
Captec common stock will be converted into the right to receive $1.27 in cash
(which may be reduced for stockholders subject to withholding taxes), 0.4575
shares of CNLR common stock and 0.21034679 shares of CNLR 9% Series A Non-Voting
Preferred Stock.
After careful consideration, Captec's board of directors has determined
that the merger is in your best interest, and the board recommends on behalf of
Captec that you vote in favor of the merger.
This proxy statement-prospectus provides you with detailed information
about the proposed merger. You also can get information from publicly available
documents filed by Captec and CNLR with the Securities and Exchange Commission.
We encourage you to read this entire document carefully, including the section
entitled "Risk Factors" beginning on page 15.
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY
AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE SHARES OF COMMERCIAL NET LEASE REALTY, INC. TO BE
ISSUED UNDER THIS PROXY STATEMENT-PROSPECTUS OR HAS DETERMINED WHETHER THIS
PROXY STATEMENT-PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement-prospectus is dated October 11, 2001 and it is first being
mailed to Captec stockholders on or about October 12, 2001.
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TABLE OF CONTENTS
PAGE
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WHERE YOU CAN FIND MORE INFORMATION......................... 1
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 3
INTRODUCTION................................................ 7
SUMMARY..................................................... 8
Parties to the Merger..................................... 8
Merger Description........................................ 9
Special Meeting and Voting................................ 10
Selected Merger Agreement Provisions...................... 11
Financing, Accounting and Tax Matters..................... 13
FORWARD-LOOKING STATEMENTS.................................. 14
RISK FACTORS................................................ 15
HISTORICAL, PRO FORMA CONSOLIDATED AND PRO FORMA EQUIVALENT
PER SHARE DATA............................................ 17
COMPARATIVE PER SHARE MARKET INFORMATION.................... 18
PRICE RANGE OF COMMON STOCK AND DIVIDENDS................... 19
THE SPECIAL MEETING......................................... 20
General................................................... 20
Matters to be Considered.................................. 20
Recommendations of the Special Committee and the Board of
Directors.............................................. 20
Record Date; Shares Entitled to be Voted; Quorum.......... 20
Proxies; Proxy Solicitation............................... 20
Vote Required............................................. 21
Effect of Abstentions and Broker Non-Votes................ 21
THE MERGER.................................................. 22
Background................................................ 22
Captec's Reasons for the Merger........................... 30
CNLR's Reasons for the Merger............................. 32
Opinion of Captec's Financial Advisor..................... 33
Interests of Certain Persons in the Merger................ 40
Regulatory Approval....................................... 41
Stockholders Agreement.................................... 41
Asset Purchase Agreement.................................. 42
Loan Agreement............................................ 43
THE MERGER AGREEMENT........................................ 44
Terms of the Merger....................................... 44
Conversion of Securities.................................. 44
Exchange of Stock Certificates............................ 45
Representations and Warranties............................ 45
Covenants................................................. 46
Conditions to the Merger.................................. 49
Termination and Termination Fee........................... 50
DESCRIPTION OF CNLR STOCK................................... 52
General................................................... 52
Common Stock.............................................. 52
Preferred Stock........................................... 52
Restrictions on Ownership and Transfer.................... 55
Transfer Agent............................................ 56
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................... 57
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PAGE
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THE COMPANIES............................................... 60
Captec's Business......................................... 60
CNLR's Business........................................... 60
CNLR's Management and Additional Information.............. 61
COMPARISON OF STOCKHOLDER RIGHTS............................ 62
RESTRICTIONS ON RESALES BY AFFILIATES....................... 70
ADDITIONAL INFORMATION...................................... 70
Appraisal Rights.......................................... 70
Legal Matters............................................. 73
Experts................................................... 73
Stockholder Proposals for the 2001 Annual Meeting......... 73
Other Matters............................................. 74
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS................................................ 75
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WHERE YOU CAN FIND MORE INFORMATION
Captec Net Lease Realty, Inc. and Commercial Net Lease Realty, Inc. are
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, pursuant to which they each file reports and other information
with the United States Securities and Exchange Commission. These reports and
other information may be inspected and copied at public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's Regional Office at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies may be obtained
at prescribed rates from the Public Reference Section of the SEC at its
principal office in Washington, D.C. The SEC also maintains an internet web site
that contains periodic and other reports, proxy and information statements and
other information regarding registrants, including Captec and CNLR, that file
electronically with the SEC. The address of the SEC's web site is
http://www.sec.gov.
CNLR has filed with the SEC a registration statement under the Securities
Act of 1933, as amended, that registers the distribution to Captec stockholders
of the shares of CNLR common stock and preferred stock to be issued in
connection with the merger. In addition to serving as a proxy statement of
Captec for the special meeting of Captec's stockholders, this document also
serves as a prospectus for the shares of CNLR common stock and preferred stock
to be issued in the merger. The registration statement, including the attached
exhibits and schedules, contains additional relevant information about CNLR. The
rules and regulations of the SEC permit us to omit from this document some of
the information included in the registration statement. Copies of the
registration statement, including exhibits, may be inspected without charge at
the offices of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and
copies may be obtained from the SEC at prescribed rates. The registration
statement is also available from the SEC's web site.
The SEC allows Captec and CNLR to "incorporate by reference" information
into this document. This means that Captec and CNLR can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be part of
this proxy statement-prospectus, except to the extent it has been superseded by
information that is included in this document or in a document subsequently
filed with the SEC that is incorporated by reference.
This proxy statement-prospectus incorporates by reference the documents
listed below. These documents contain important information about Captec and
CNLR and their respective financial condition.
DOCUMENTS INCORPORATED BY REFERENCE:
Captec SEC Filings (SEC File Number 0-29650)
1. Captec's Annual Report on Form 10-K for the fiscal year ended December 31,
2000;
2. Captec's Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2001;
3. Captec's Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2001; and
4. Captec's Current Reports on Form 8-K filed with the SEC on July 6, 2001, July
17, 2001, July 25, 2001, August 8, 2001 and September 7, 2001, respectively.
CNLR SEC Filings (SEC File Number 0-12989)
1. CNLR's Annual Report on Form 10-K for the fiscal year ended December 31,
2000;
2. CNLR's Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2001;
3. CNLR's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2001;
4. CNLR's Current Report on Form 8-K filed with the SEC on July 3, 2001;
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5. CNLR's Definitive Proxy Statement on Schedule 14A filed with the SEC on April
3, 2001 for CNLR's annual meeting of stockholders held on May 31, 2001; and
6. The description of CNLR's common stock set forth in the registration
statement filed with the SEC under Section 12 of the Exchange Act, including any
amendment or report filed with the SEC for the purpose of updating the
description.
We are also incorporating by reference any additional documents that either
Captec or CNLR may file with the SEC between the date of this document and the
date of the special meeting. These documents include periodic reports, such as
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as well as any proxy statements.
Captec has supplied all information contained or incorporated by reference
in this proxy statement-prospectus relating to Captec, and CNLR has supplied all
information contained or incorporated by reference in this proxy
statement-prospectus relating to CNLR.
Documents incorporated by reference are available from Captec and CNLR, as
applicable, without charge, excluding any exhibits to those documents, unless
the exhibit is specifically incorporated by reference as an exhibit in this
proxy statement-prospectus. You can obtain documents incorporated by reference
in this proxy statement-prospectus by requesting them in writing or by telephone
from Captec and CNLR, as applicable, at the following addresses:
CAPTEC NET LEASE REALTY, INC. COMMERCIAL NET LEASE REALTY, INC.
24 Frank Lloyd Wright Drive 450 S. Orange Avenue, Suite 900
Lobby L, 4th Floor Orlando, Florida 32801
Ann Arbor, Michigan 48106 Attention: Kevin B. Habicht
Attention: W. Ross Martin (407) 265-7348
(734) 994-5505
You also can obtain documents incorporated by reference in this document
from the SEC's web site, http://www.sec.gov.
If you would like to request documents, please do so by November 1, 2001 to
receive them before the special meeting. If you request any incorporated
document, Captec or CNLR, as applicable, will mail it to you by first-class
mail, or another equally prompt means, as soon as practicable following receipt
of your request.
Neither Captec nor CNLR has authorized anyone to give any information or
make any representation about the merger or our companies that is different
from, or in addition to, that contained in this proxy statement-prospectus.
Therefore, if anyone gives you such information, you should not rely on it. This
proxy statement-prospectus is dated October 11, 2001. You should not assume that
the information contained in this document is accurate as of any other date
unless the information specifically indicates that another date applies.
IF YOU WOULD LIKE ADDITIONAL COPIES OF THIS PROXY STATEMENT-PROSPECTUS OR
HAVE QUESTIONS ABOUT THE MERGER, YOU SHOULD CONTACT:
GEORGESON SHAREHOLDER COMMUNICATIONS, INC.
17 STATE STREET
10TH FLOOR
NEW YORK, NEW YORK 10004
(800) 223-2064
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHAT AM I VOTING ON?
A. You are being asked to vote on the adoption of a merger agreement between
Captec and CNLR, as a result of which Captec will merge into CNLR, the separate
corporate existence of Captec will cease, and CNLR will be the surviving
corporation.
Q. WHAT IS CNLR?
A. CNLR is a fully integrated, self-administered equity real estate investment
trust (REIT) formed in 1984 that acquires, owns, manages and indirectly develops
a diversified portfolio of high-quality, freestanding properties that are
generally leased to major retail businesses under full-credit, long-term
commercial net leases. As of June 30, 2001, CNLR owned, either directly or
through investment interests, 241 properties in 36 states that are leased to
major businesses, including Academy, Barnes & Noble, Bed Bath & Beyond, Best
Buy, Borders, CVS, Eckerd, Food 4 Less, IHOP, Office Depot, OfficeMax, Pier 1
Imports, Supervalu, The Sports Authority, Wal-Mart and 7-Eleven. CNLR's property
portfolio was 98 percent leased at June 30, 2001. See "THE COMPANIES -- CNLR's
Business" (p. 60).
Q. WHAT WILL I RECEIVE IN THE MERGER FOR MY SHARES?
A. For each of your shares of Captec common stock you will receive:
- $1.27 in cash;
- 0.4575 shares of CNLR common stock; and
- 0.21034679 shares of CNLR 9% Series A Non-Voting Preferred Stock.
See "THE MERGER AGREEMENT -- Conversion of Securities" (p. 44). For a complete
discussion of the CNLR common stock and preferred stock, including a discussion
of the rights and attributes of such stock, see "DESCRIPTION OF CNLR STOCK" (p.
52).
Q. WHY IS CAPTEC PROPOSING TO MERGE WITH CNLR? HOW WILL I BENEFIT?
A. Captec's ability to increase its share price and maintain its dividend is
severely limited by its inability to generate sufficient funds from its net
leasing business, its inability to obtain debt or equity capital on reasonable
terms, if at all, and its small market capitalization. In contrast to the
financial constraints faced by Captec, following the merger, Captec believes
CNLR is in the position to provide growth opportunities to Captec's
stockholders. CNLR will have approximately four times the total assets and
approximately seven times the total gross leaseable area of Captec and greater
diversification of assets than Captec. In addition, CNLR has unsecured debt
ratings of BBB- by Standard & Poors, Baa3 by Moody's and BBB by Fitch. As a
result, Captec believes you will have a greater opportunity for growth in the
value of your investment and a significantly more secure dividend.
Q. WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR THE MERGER?
A. Captec's board of directors has determined, based upon the unanimous approval
and recommendation of the special committee and other factors described in this
proxy statement-prospectus, that the terms and provisions of the merger
agreement regarding the proposed merger are advisable to and in the best
interests of Captec and its stockholders. See "THE SPECIAL
MEETING -- Recommendations of the Special Committee and the Board of Directors"
(p. 20).
Q. WHAT DID THE BOARD OF DIRECTORS DO TO MAKE SURE THAT THE MERGER CONSIDERATION
I WILL RECEIVE IS FAIR TO ME?
A. Captec's board of directors performed a comprehensive analysis of Captec's
strategic alternatives to maximize stockholder value. As a result of this
analysis, Captec's board of directors determined that a sale of Captec was most
likely to maximize stockholder value and appointed a special committee
consisting of
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independent directors, who are neither employed by, or otherwise affiliated
with, Captec, to assist in a possible sale of Captec. The special committee
retained UBS Warburg, LLC, to act as its financial advisor. The special
committee conducted an extensive sales process, contacting over 50 parties
identified as potential purchasers and provided confidential information
concerning Captec to 28 parties that indicated a potential interest in
purchasing Captec. At the conclusion of the sales process, the CNLR offer
represented the best transaction available in light of the issues facing Captec.
The special committee and Captec's board of directors concluded that the merger
with CNLR is advisable and in the best interests of Captec and its stockholders
and have unanimously recommended approval of the merger to the stockholders. See
"THE MERGER -- Captec's Reasons for the Merger" (p. 30).
Q. WAS A FAIRNESS OPINION RENDERED IN CONNECTION WITH THE MERGER?
A. Yes. The special committee has received and the special committee and
Captec's board of directors have relied upon an opinion from UBS Warburg that,
subject to and based on the considerations in its opinion, as of the date of the
merger agreement, the merger consideration Captec stockholders will receive was
fair to Captec stockholders from a financial point of view. The full text of UBS
Warburg's opinion, dated as of July 1, 2001, which sets forth, among other
things, the assumptions made, procedures followed, matters considered and
limitations on the review undertaken by UBS Warburg, is attached as Appendix B
to this proxy statement-prospectus. We urge you to read the UBS Warburg opinion
in its entirety. See "THE MERGER -- Opinion of Captec's Financial Advisor" (p.
33).
Q. WILL I CONTINUE TO RECEIVE REGULAR QUARTERLY DIVIDENDS?
A. Yes. Regular quarterly dividends will be paid on your shares of Captec common
stock until the merger is completed. Depending on the timing of the consummation
of the merger, a special prorated dividend may also be paid for the partial
quarter ending on the day immediately prior to the effective time of the merger.
Q. WILL I RECEIVE FUTURE DISTRIBUTIONS WITH RESPECT TO THE SHARES OF CNLR
COMMON STOCK AND PREFERRED STOCK I RECEIVE IN THE MERGER?
A. Yes. Historically, CNLR has made regular quarterly distributions to its
stockholders. Over the past 11 consecutive years, CNLR has paid increasing
dividends to stockholders and expects to continue to do so in the future. In
order to maintain CNLR's status as a REIT, CNLR must, among other things,
distribute at least 90.0% of its taxable income to its stockholders on an annual
basis. The CNLR common stock presently pays an annualized dividend of $1.26 per
share and the CNLR preferred stock provides for an annual cumulative dividend of
$2.25 per share.
Q. WHAT ARE THE FEDERAL TAX CONSEQUENCES OF THE MERGER?
A. The merger has been structured to qualify as a "reorganization" for federal
income tax purposes. Even if your tax basis in your Captec common stock exceeds
the fair market value of the cash, CNLR common stock and preferred stock you
receive in the merger, you will not recognize any loss on the exchange. If the
fair market value of this cash, CNLR common stock and preferred stock exceeds
your tax basis in your Captec common stock, you will recognize taxable gain, but
only to the extent the fair market value is greater than your tax basis, or only
to the extent of the cash you receive, whichever number is smaller. If the CNLR
preferred stock is determined to be "nonqualified preferred stock," you would
recognize gain, but only to the extent the fair market value of the cash, CNLR
common stock, and preferred stock you receive exceeds your tax basis in your
Captec common stock, or to the extent of the cash and the fair market value of
the CNLR preferred stock you receive, whichever is smaller. CNLR will take the
position, and has represented to Captec, that the CNLR preferred stock is not
"nonqualified preferred stock," but its position is not binding on the Internal
Revenue Service or any court having jurisdiction over such matters. See
"MATERIAL FEDERAL INCOME TAX CONSEQUENCES" (p. 57).
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Q. CAN I SELL CNLR COMMON STOCK AND CNLR PREFERRED STOCK RECEIVED IN THE MERGER
IMMEDIATELY?
A. Yes. The CNLR common stock and preferred stock to be issued to Captec
stockholders in consideration of the merger will be listed on the NYSE. Unless
you are an affiliate of Captec, meaning that you control, are controlled by, or
are under common control with Captec, you will be able to sell all or a portion
of your CNLR common stock and preferred stock that you receive in the merger
immediately following completion of the merger. If you are an affiliate of
Captec, you may be subject to restriction on the sale of your CNLR common stock
and preferred stock. If you think you may fall within this restriction, you
should consult with your legal advisor. See "RESTRICTIONS ON RESALES BY
AFFILIATES" (p. 70).
Q. ARE THERE ANY CONDITIONS TO CLOSING THE MERGER?
A. Yes. In addition to approval by Captec's stockholders, the merger agreement
contains customary and transaction-specific conditions to closing the merger.
See "THE MERGER AGREEMENT -- Conditions to the Merger" (p. 49).
Q. SHOULD I SEND IN MY SHARE CERTIFICATES NOW?
A. No. You should not send in your share certificates until you receive written
notice that the merger has been completed, together with a transmittal letter
and written instructions on how to exchange your share certificates. You will
receive your cash, and CNLR common stock and preferred stock promptly after the
exchange agent receives from you a properly completed letter of transmittal,
together with your share certificate. See "THE MERGER AGREEMENT -- Exchange of
Stock Certificates" (p. 45).
Q. WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?
A. A vote by the holders of a majority of the outstanding shares of Captec
common stock is required to approve the merger. See "THE SPECIAL MEETING -- Vote
Required" (p. 21).
Q. HOW DO I VOTE?
A. Complete and sign the enclosed proxy card and return it in the enclosed
envelope or vote in person at the special meeting. We urge you to vote to assure
the representation of your shares at the special meeting. See "THE SPECIAL
MEETING -- Proxies; Proxy Solicitation" (p. 20).
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A. Yes. You can change your vote prior to the taking of the vote at the special
meeting by:
- delivering to Captec's secretary a written revocation of a previously
delivered proxy bearing a later date than the proxy;
- executing, dating and delivering to Captec's secretary a subsequently dated
proxy; or
- attending the special meeting and voting in person.
Simply attending the special meeting will not revoke your proxy. For a more
complete description of voting procedures, see "THE SPECIAL MEETING -- Proxies;
Proxy Solicitation" (p. 20).
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A. No. Unless you provide instructions to your broker on how to vote, your
broker will not vote your shares for you. You should follow the directions
provided by your broker regarding how to instruct your broker to vote your
shares. Failure to instruct your broker to vote in favor of the merger will have
the effect of a vote against the merger. See "THE SPECIAL MEETING -- Effect of
Abstentions and Broker Non-Votes" (p. 21).
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Q. CAN I VOTE MY SHARES IN PERSON?
A. Yes. You may attend the special meeting and vote your shares in person,
rather than signing and mailing your proxy card. See "THE SPECIAL
MEETING -- Proxies; Proxy Solicitations" (p. 20).
Q. HOW WILL MY SHARES BE VOTED IF I RETURN A BLANK PROXY CARD?
A. If you sign and send in your proxy card and do not indicate how you want to
vote, your shares will be voted in favor of the merger. See "THE SPECIAL
MEETING -- Proxies; Proxy Solicitation" (p. 20).
Q. WHAT WILL HAPPEN IF I DO NOT VOTE?
A. If you do not return your proxy card or vote at the special meeting, it will
have the same effect as if you voted against the merger. See "THE SPECIAL
MEETING -- Proxies; Proxy Solicitation" (p. 20).
Q. ARE THERE ANY RISKS IN THE MERGER THAT I SHOULD BE AWARE OF?
A. Yes. There are certain risks to Captec stockholders in connection with the
merger, which will result in Captec stockholders exchanging their investment in
Captec for an investment in the capital stock of CNLR and cash. See "RISK
FACTORS" (p. 15).
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We are working to complete the merger as quickly as possible. We hope to
complete the merger during the fourth quarter of 2001.
Q. WHAT DO I NEED TO DO NOW?
A. Mail your completed and signed proxy card in the enclosed return envelope, as
soon as possible, so that your vote concerning approval of the merger will be
counted at the special meeting.
Q. WHAT RIGHTS DO I HAVE IF I OPPOSE THE MERGER?
A. You can vote against the merger by indicating a vote "Against" the merger on
your proxy card and signing and mailing your proxy card, or by voting against
the merger in person at the special meeting. Failure to submit a proxy or to
vote at the special meeting will have the same effect as a vote against the
merger. Under Delaware law, you also have the right to a judicial appraisal, and
to receive the fair value in cash, of your shares if you do not vote for the
merger and fulfill certain other requirements under Delaware law. See
"ADDITIONAL INFORMATION -- Appraisal Rights" (p. 70).
Q. WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
A. Captec does not expect any other matters to be voted on at the special
meeting.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you would like additional copies of this document, or have any questions
about the merger, you should contact:
GEORGESON SHAREHOLDER COMMUNICATIONS, INC.
17 STATE STREET
10TH FLOOR
NEW YORK, NEW YORK 10004
(800) 223-2064
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INTRODUCTION
This proxy statement-prospectus is furnished in connection with the
solicitation by Captec's board of directors of proxies for use of at a special
meeting of stockholders to be held on November 19, 2001 at 10:00 a.m., local
time, at The Ritz-Carlton Hotel, 300 Town Center Drive, Fairlane Plaza,
Dearborn, Michigan 48126. At the special meeting, Captec's stockholders will be
asked to vote on the approval of an Agreement and Plan of Merger, dated as of
July 1, 2001, between Captec and CNLR which, if completed, will result in the
merger of Captec into CNLR with CNLR being the surviving corporation.
As of October 9, 2001, the record date for the special meeting, 9,508,108
shares of Captec common stock were outstanding. Only stockholders of record at
the close of business on the record date are entitled to notice of, and to vote
at, the special meeting. Each stockholder will be entitled to one vote for each
share of Captec common stock held as of the record date. The affirmative vote of
the holders of a majority of the outstanding shares of Captec common stock
entitled to be voted at the special meeting is required to approve the merger
described in this proxy statement-prospectus.
CAPTEC'S BOARD OF DIRECTORS, BASED IN PART UPON THE UNANIMOUS
RECOMMENDATION OF A SPECIAL COMMITTEE OF THREE INDEPENDENT DIRECTORS,
UNANIMOUSLY APPROVED THE MERGER AND THE MERGER AGREEMENT, DETERMINING THEM TO BE
ADVISABLE AND IN THE BEST INTERESTS OF CAPTEC AND ITS STOCKHOLDERS. THE BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER.
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SUMMARY
This summary highlights selected information presented in this proxy
statement-prospectus and may not contain all of the information that is
important to you. To understand more fully the merger proposal to be voted on at
the special meeting, and for a more complete description of the legal terms of
the merger and merger agreement, you should carefully read this entire proxy
statement-prospectus and the documents to which it refers. A copy of the merger
agreement is attached as Appendix A to this proxy statement-prospectus.
PARTIES TO THE MERGER (P. 60)
CAPTEC
Captec is an externally advised REIT which 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. Captec generally acquires properties from operators or developers in
locations which have exhibited growth in retail sales and population. Upon
acquiring a property, Captec typically enters into a long-term triple net lease
(typically 15 to 20 years plus one or more five year renewal options) with the
lessee. Triple net leases generally impose on the lessee responsibility for all
operating costs and expenses of the property, including the costs of repairs,
maintenance, real property taxes, assessments, utilities and insurance.
Captec believes that the structure of its leases provides steady,
periodically escalating, long-term revenue, while reducing operating expenses
and capital costs, and that its underwriting standards reduce the risk of lessee
default under or non-renewal of the leases. Captec's leases typically provide
for minimum rent plus specified fixed periodic rent increases. Other revenues
are derived primarily from interest income on loans to affiliates and fee income
earned from affiliated ventures.
As of June 30, 2001, Captec had a portfolio of 136 properties located in 26
states, with a cost basis of $212.0 million. The properties are leased to 46
operators of 33 distinct national and regional restaurant concepts and 10
operators of 12 national and regional retail concepts. Captec's address and
phone number are:
Captec Net Lease Realty, Inc.
24 Frank Lloyd Wright Drive
Lobby L, 4th Floor
Ann Arbor, Michigan 48106
(734) 994-5505
CNLR
Commercial Net Lease Realty, Inc. is a fully integrated, self-administered
equity real estate investment trust (REIT) formed in 1984 that acquires, owns,
manages and indirectly develops a diversified portfolio of high-quality,
freestanding properties that are generally leased to major retail businesses
under full-credit, long-term commercial net leases.
CNLR's portfolio emphasizes properties that are located within intensive
commercial corridors near traffic generators such as regional malls, business
developments and major thoroughfares. These properties, which generally have
purchase prices of up to $10.0 million, attract a wide array of established
retail tenants, such as Academy, Barnes & Noble, Bed Bath & Beyond, Best Buy,
Borders, CVS, Eckerd, Food 4 Less, IHOP, Office Depot, OfficeMax, Supervalu, The
Sports Authority, Wal-Mart and 7-Eleven. Consequently, CNLR's management
believes that such properties offer attractive opportunities for stable current
returns and potential capital appreciation. In addition, management believes
that the location and design of properties in this niche provide flexibility in
use and tenant selection and an increased likelihood of advantageous re-lease
terms upon expiration or early termination of the related leases.
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CNLR generally acquires properties that are newly constructed or
re-developed as of the time of acquisition. In addition, CNLR generally acquires
properties that are subject to a lease in order to avoid the risks of not
finding a tenant on a timely basis and to provide an immediate revenue stream.
CNLR's leases typically provide that the tenant bears responsibility for
substantially all property costs and expenses associated with ongoing
maintenance and operation, including utilities, property taxes and insurance,
and generally also provide that the tenant is responsible for roof and
structural repairs. Such leases typically do not limit CNLR's recourse against
the tenant and any guarantor in the event of a default and for this reason are
considered "full-credit" leases. CNLR's properties are leased on a long-term
basis, generally 10 to 20 years, with renewal options for an additional 10 to 20
years.
As of June 30, 2001, CNLR owned, either directly or through investment
interests, 241 properties, which were 98% leased, located in 36 states. The
average remaining initial lease term of CNLR's properties was approximately 13
years. Leases representing approximately 74% of annualized base rental income
from CNLR's properties, as of June 30, 2001, have initial terms extending until
at least December 31, 2011. Approximately 83% of annualized base rental income
is derived from leases that provide for periodic, contractually fixed increases
in base rent.
CNLR's address and phone number are:
Commercial Net Lease Realty, Inc.
450 S. Orange Avenue
Suite 900
Orlando, Florida 32801
(407) 265-7348
MERGER DESCRIPTION (P. 22)
The Merger Structure. The merger agreement provides that Captec will be
merged with and into CNLR. The merger will become effective when certificates of
merger have been filed with, and accepted by, the Maryland State Department of
Assessments and Taxation in accordance with the Maryland General Corporation Law
and by the Secretary of the State of Delaware in accordance with the Delaware
General Corporation Law or at a subsequent time as CNLR and Captec may agree and
specify in the certificates of merger. At that time, Captec will be merged with
and into CNLR. CNLR will be the surviving corporation in the merger, and Captec
will cease to exist as a separate entity. Captec expects the merger to become
effective as soon as practicable after the approval of the merger by Captec's
stockholders and the satisfaction or waiver of all other conditions to the
merger. See "THE MERGER AGREEMENT" (p. 44).
What You Will Receive in the Merger. At the effective time of the merger,
each issued and outstanding share of Captec common stock will be converted into
the right to receive $1.27 in cash (which may be reduced for stockholders
subject to withholding taxes), 0.4575 shares of CNLR common stock and 0.21034679
shares of CNLR preferred stock. It is a condition to closing of the merger that
the CNLR common stock and preferred stock to be issued to Captec stockholders in
the merger be listed on the New York Stock Exchange. See "DESCRIPTION OF CNLR
STOCK" (p. 52).
YOU SHOULD NOT SEND IN YOUR SHARE CERTIFICATES UNTIL YOU RECEIVE A LETTER OF
TRANSMITTAL.
Quarterly Dividends. Regular quarterly dividends will be paid by Captec
until the merger is completed. Depending on the timing of completion of the
merger, a special prorated dividend will be paid for the partial quarterly
period, if any, ending on the day immediately prior to the effective time of the
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merger. The CNLR common stock presently pays an annual dividend of $1.26 per
share and the CNLR preferred stock provides for a cumulative annual dividend of
$2.25 per share.
Recommendation of the Special Committee and Board of Directors. Captec's
board of directors, based in part on the unanimous recommendation of a special
committee of three independent directors, unanimously approved the merger and
the merger agreement, determining them to be advisable and in the best interests
of Captec and its stockholders, and unanimously recommends that you vote "FOR"
the proposal to approve the merger. See "THE SPECIAL MEETING -- Recommendations
of the Special Committee and the Board of Directors" (p. 20).
Background and Reasons for the Merger. In making the determination to
approve the merger, Captec's board of directors considered various factors and
alternatives to the merger, including those described under the heading "THE
MERGER -- Captec's Reasons for the Merger" (p. 30).
Opinion of Financial Advisor to the Special Committee. In connection with
the merger, the special committee received an opinion from UBS Warburg LLC, its
financial advisor, which also was relied upon by Captec's board of directors,
that, as of the date of the merger agreement, the merger consideration to be
received by Captec stockholders was fair to Captec's stockholders from a
financial point of view. UBS Warburg's written opinion, dated as of July 1,
2001, is attached to this proxy statement-prospectus as Appendix B. We encourage
you to carefully read this opinion it its entirety for a description of the
procedures followed, assumptions made, matters considered and limitations on the
review undertaken by UBS Warburg in providing its opinion. See "THE
MERGER -- Opinion of Captec's Financial Advisor" (p. 33).
Appraisal Rights. Under Delaware law you have the right to a judicial
appraisal and to receive the fair value in cash of your Captec common stock,
provided that you do not vote in favor of the merger and you fulfill the other
requirements of Delaware law. See "ADDITIONAL INFORMATION -- Appraisal Rights"
(p. 70).
SPECIAL MEETING AND VOTING (P. 20)
The Special Meeting. The special meeting of the stockholders will be held
on Monday, November 19, 2001 at 10:00 a.m. at The Ritz-Carlton Hotel, 300 Town
Center Drive, Fairlane Plaza, Dearborn, Michigan 48126. At the special meeting,
Captec's stockholders will be asked to consider and vote upon a proposal to
approve the merger. See "THE SPECIAL MEETING" (p. 20).
Record Date and Voting Power. Captec's board of directors has fixed the
close of business on October 9, 2001 as the record date for determining
stockholders entitled to notice of, and to vote at, the special meeting. As of
the record date, 9,508,108 shares of Captec common stock were outstanding and
held by approximately 75 stockholders of record. Captec has no other class of
voting securities outstanding. Stockholders of record on the record date will be
entitled to one vote for each share of Captec common stock held by them on the
proposal to approve the merger and any other matter that may properly come
before the meeting and any adjournment or postponement of the meeting. See "THE
SPECIAL MEETING" (p. 20).
Quorum and Vote Required. Captec's bylaws require the presence, in person
or by duly executed proxy, of shares representing at least a majority of the
votes entitled to be cast at the special meeting in order to constitute a
quorum. Delaware law requires the affirmative vote of shares representing a
majority of the outstanding shares entitled to be voted at the special meeting
to approve the merger. Failure to return your proxy or direct your broker or
nominee how to vote your proxy will have the same effect as a vote against the
merger. See "THE SPECIAL MEETING -- Proxies; Proxy Solicitation" (p. 20).
Proxies, Voting and Revocation. Shares represented at the special meeting
by properly executed proxies received prior to or at the special meeting and not
revoked will be voted at the special meeting, and at any adjournments or
postponements of the special meeting, in accordance with the instructions on the
proxies. If a proxy is duly executed and submitted without instructions, except
for broker non-votes,
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the shares represented by that proxy will be voted "FOR" the approval of the
merger. Proxies are being solicited on behalf of Captec's board of directors.
A proxy may be revoked by the person who executed it at, or before, the
taking of the vote at the special meeting by:
- delivering to Captec's secretary a written revocation of a previously
delivered proxy bearing a later date than the proxy;
- executing, dating and delivering to Captec's secretary a subsequently
dated proxy; or
- attending the special meeting and voting in person.
Attendance at the special meeting will not, by itself, constitute
revocation of a proxy. See "THE SPECIAL MEETING -- Proxies; Proxy Solicitation"
(p. 20).
Captec will bear the cost of solicitation of proxies and reimburse
brokerage houses, fiduciaries, nominees and others for out-of-pocket expenses in
forwarding proxy materials to beneficial owners of Captec common stock held in
their names. Captec has retained the services of Georgeson Shareholder
Communications, Inc. to assist in the solicitation.
Broker Votes. Shares held in the name of your broker or a nominee, or in
"street name," will not be voted by your broker or nominee unless you provide
instructions on how to vote. Your broker or nominee will provide directions
regarding how to instruct your broker or nominee to vote your shares. Without
your instructions, your shares will not be voted, which will have the same
effect as a vote against the merger.
If you hold your shares in a brokerage account, your brokerage firm may
also provide you with the ability to vote electronically, including voting by
internet and/or telephone. Instructions for these voting methods, if they are
being made available to you, are included on the ballot that accompanies this
proxy statement.
SELECTED MERGER AGREEMENT PROVISIONS (P. 44)
Conditions to the Merger. Each party's obligation to complete the merger
depends upon the satisfaction or waiver of certain conditions, including:
- approval of the merger by Captec's stockholders;
- absence of governmental actions having the effect of making the merger
illegal or otherwise prohibiting the merger; and
- listing on the New York Stock Exchange of the CNLR common stock and
preferred stock to be issued to Captec's stockholders.
CNLR's obligation to complete the merger also depends upon the satisfaction
or waiver of a number of additional conditions, including:
- the material correctness of the representations and warranties of Captec
in the merger agreement and the material performance by Captec of its
obligations under the merger agreement;
- receipt by CNLR of an opinion of its counsel that the merger will be
treated as a tax-free reorganization for federal income tax purposes;
- receipt by CNLR of an opinion of Captec's counsel as to the status of
Captec as a REIT;
- receipt by CNLR of a letter from Captec's independent auditors confirming
that Captec has distributed all of its earnings and profits for all
taxable years through the date of the closing of the merger; and
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- other than completion of the merger, the satisfaction of all of the
conditions to closing contained in the asset purchase agreement relating
to the sale of the excluded assets. See "THE MERGER -- Asset Purchase
Agreement" (p. 42).
For a more detailed description of the conditions to the merger, see "THE MERGER
AGREEMENT -- Conditions to the Merger"(p. 49).
Termination of the Merger Agreement. Captec and CNLR may, by mutual
written consent, terminate the merger agreement without completing the merger.
The merger agreement may also be terminated:
By either Captec or CNLR:
- if the merger is not approved by Captec's stockholders;
- if the merger is not completed by January 31, 2002;
- if any final, nonappealable order of any governmental entity or court is
in effect that prevents the completion of the merger;
- if any of the conditions to a party's obligation to complete the merger
becomes impossible to fulfill and is not waived by the other party; or
- if it is not in material breach of its obligations under the merger
agreement and if any of the representations and warranties of the other
party are materially untrue or inaccurate or the other party has breached
any of its covenants or agreements in the merger agreement so that any of
the other party's conditions to complete the merger would not be
satisfied.
By CNLR:
- if Captec's board of directors approves or recommends, or proposes to
approve or recommend, an acquisition proposal other than the merger;
withdraws or modifies its recommendation or approval of the merger or
causes Captec to enter into any letter of intent or agreement for a
competing acquisition proposal; or
- if a tender or exchange offer for Captec is commenced and, within 10
business days thereof, Captec's board of directors fails to recommend
rejection of the tender offer or exchange offer.
For a more detailed description relating to termination of the merger
agreement, see "THE MERGER AGREEMENT -- Termination and Termination Fee" (p.
50).
Termination Fee. Captec must pay to CNLR a termination fee of up to $5.0
million if the merger agreement is terminated by CNLR because:
- Captec's board of directors approves or recommends, or proposes to
approve or recommend, an acquisition proposal other than the merger;
withdraws or modifies its recommendation or approval of the merger, or
causes Captec to enter into any letter of intent or agreement for a
competing acquisition proposal;
- a tender or exchange offer for Captec is commenced and, within 10
business days thereof, Captec's board of directors fails to recommend
rejection of the tender offer or exchange offer; or
- Captec's stockholders fail to approve the merger agreement or the merger
agreement is terminated by CNLR as a result of any of Captec's
representations and warranties being materially untrue or inaccurate, or
Captec's breach of any of its covenants or agreements in the merger
agreement such that its conditions to complete the merger would not be
satisfied and, within nine months thereafter, Captec enters into any
written agreement for a competing acquisition proposal which is
subsequently completed.
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If the merger agreement is terminated under certain other circumstances
Captec and CNLR are obligated to pay to the other the lesser of $1.0 million or
the other party's actual out-of-pocket expenses incurred in connection with the
merger agreement and the transactions contemplated thereby. For a more detailed
description relating to termination of the merger agreement, see "THE MERGER
AGREEMENT -- Termination and Termination Fee" (p. 50).
FINANCING, ACCOUNTING AND TAX MATTERS (P. 57)
Financing. There are no financing contingencies to the completion of the
merger.
Accounting. The merger will be accounted for under the "purchase" method
of accounting in accordance with generally accepted accounting principles. The
aggregate consideration paid by CNLR in connection with the merger will be
allocated to Captec's assets and liabilities based on their fair values.
Federal Income Tax Consequences. The merger has been structured to qualify
as a "reorganization" for federal income tax purposes. Even if your tax basis in
your Captec common stock exceeds the fair market value of the cash, CNLR common
stock and preferred stock you receive in the merger, you will not recognize any
loss on the exchange. If the fair market value of this cash, CNLR common stock
and preferred stock exceeds your tax basis in your Captec common stock, you will
recognize taxable gain, but only to the extent this fair market value is greater
than your tax basis, or only to the extent of the cash you receive, whichever
number is smaller. If the CNLR preferred stock is determined to be "nonqualified
preferred stock," you will recognize gain, but only to the extent the fair
market value of the cash, CNLR common stock, and preferred stock you receive
exceeds your tax basis in your Captec common stock, or to the extent of the cash
and the fair market value of the CNLR preferred stock you receive, whichever is
smaller. CNLR will take the position, and has represented to Captec, that the
CNLR preferred stock is not "nonqualified preferred stock," but its position is
not binding on the Internal Revenue Service or any court having jurisdiction
over such matters.
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FORWARD-LOOKING STATEMENTS
This proxy statement-prospectus, including the documents incorporated
herein by reference, contains "forward-looking statements" which represent
Captec's and CNLR's expectations or beliefs, including, but not limited to,
statements concerning industry performance and Captec's and CNLR's results,
operations, performance, financial condition, plans, growth and strategies,
which include, without limitation:
- statements concerning implementation of CNLR's business plan following
the merger;
- statements concerning CNLR's financial performance following the merger;
- statements concerning CNLR's anticipated dividend policy following the
merger;
- statements concerning the anticipated financial and other benefits of the
merger;
- statements concerning the operating efficiencies or synergies,
competitive positions and growth opportunities expected to be achieved
following the merger;
- statements concerning the market for CNLR common stock and preferred
stock following the merger;
- statements preceded or followed by or that include the words "may,"
"will," "expect," "anticipate," "intend," "could," "estimate," or
"continue" or the negative or other variations thereof or comparable
terminology; and
- the matters discussed in "Risk Factors" beginning on page 15.
Any statements contained in this proxy statement-prospectus or any document
incorporated herein by reference that are not statements of historical fact may
be deemed to be forward-looking statements. These statements by their nature
involve substantial risks and uncertainties, some of which are beyond Captec's
and CNLR's control, and actual results may differ materially depending on a
variety of important factors, many of which are also beyond Captec's and CNLR's
control. You should not place undue reliance on these forward-looking
statements, which speak only as of the date of this proxy statement-prospectus.
Neither Captec nor CNLR undertakes any obligation to update or release any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this proxy statement-prospectus or to reflect the occurrence
of unanticipated events.
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RISK FACTORS
The merger involves certain risks. Also, by voting in favor of the merger,
Captec's stockholders will be choosing to invest in CNLR's capital stock. An
investment in CNLR's capital stock involves certain risks. In addition to the
other information contained or incorporated by reference in this proxy
statement-prospectus, Captec's stockholders should carefully consider the
following risk factors in deciding whether to vote for the merger.
RISKS RELATED TO CNLR'S BUSINESS
Three of CNLR's tenants, HomePlace of America, Inc., d/b/a Waccamaw's
HomePlace, Heilig-Meyers Company and HomeLife Company, have each respectively
filed voluntary petitions for bankruptcy under Chapter 11 of the United States
Bankruptcy Code. As a result, each of these tenants has a right to reject or
affirm its leases with CNLR.
HomePlace has rejected all 6 of its leases with CNLR. In addition,
Heilig-Meyers has rejected 12 of its 17 leases with CNLR and assigned one of its
leases to a new tenant pursuant to Bankruptcy Code procedures. There can be no
assurance that Heilig-Meyers will not reject some or all of the remaining leases
held by it in the future. HomeLife has filed a motion to reject all 5 of its
leases in the bankruptcy proceeding. Regardless of such election by HomeLife,
Sears, Roebuck & Co., as assignor of the leases to HomeLife, will remain liable
under the leases.
The lost revenues resulting from the rejection by any bankrupt tenant of
any of their respective leases with CNLR could have a material adverse affect on
CNLR's liquidity and results of operations, if CNLR is unable to re-lease the
properties at comparable rental rates and in a timely manner.
ABSENCE OF PRIOR PUBLIC MARKET FOR THE CNLR PREFERRED STOCK
Prior to the merger there has been no public market for the CNLR preferred
stock. There is no assurance that an active trading market will develop or be
sustained following the merger or that at any time the CNLR preferred stock may
be resold at or above its stated value of $25.00 per share. The price, if any,
at which the CNLR preferred stock trades on the New York Stock Exchange will
depend upon numerous factors, including market conditions at the time of
completion of the merger and thereafter.
CAPTEC STOCKHOLDERS HAVE FILED THREE LAWSUITS AGAINST CAPTEC IN CONNECTION WITH
THE MERGER
Following the public announcement by Captec and CNLR of the merger, certain
Captec stockholders filed three lawsuits against Captec and its directors
alleging breaches of fiduciary duty in connection with the merger. One of these
lawsuits also named CNLR as a defendant, but CNLR has since been dismissed as a
party to that lawsuit. In the lawsuits, the plaintiffs are seeking a declaration
that the action is properly maintainable as a class action, equitable relief
that would enjoin the proposed merger, and unspecified damages. Such lawsuits
could delay the completion of the merger or result in substantial damage claims
against Captec.
CNLR MAY FACE OPERATIONAL AND STRATEGIC CHALLENGES THAT MAY PREVENT IT FROM
SUCCESSFULLY INTEGRATING CAPTEC WITH CNLR
The merger involves risks related to the integration and management of
acquired properties and operations. Because CNLR currently intends not to retain
any of the existing management of Captec, the integration of CNLR and Captec
will be a complex and time-consuming process and may disrupt CNLR's
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business if not completed in a timely and efficient manner. CNLR may encounter
substantial difficulties, costs and delays involved in integrating its
operations with those of Captec, including:
- perceived adverse changes in business focus;
- potential conflicts in marketing or other important relationships; and
- the diversion of management's attention from other ongoing business
concerns.
Further, the completion of the merger poses risks for the ongoing
operations of CNLR, including that:
- following the merger, CNLR may not achieve the expected cost savings and
operating efficiencies; and
- the Captec portfolio may not perform as well as CNLR anticipates.
If CNLR fails to integrate Captec successfully and/or fails to realize the
intended benefits of the merger, the market price of CNLR common stock
subsequent to the merger could decline from its current market price and the
price at which the CNLR preferred stock trades also may be adversely affected.
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HISTORICAL, PRO FORMA CONSOLIDATED AND
PRO FORMA EQUIVALENT PER SHARE DATA
Summarized below is specified per common share information for Captec and
CNLR on a historical basis, pro forma consolidated basis and pro forma
equivalent basis. The pro forma amounts are based on the purchase method of
accounting.
The data presented below is not necessarily indicative of the results which
would have actually been attained if the merger had been completed in the past
or the results that may be attained in the future. The per share data included
in the following table should be read in conjunction with the Unaudited Pro
Forma Condensed Consolidated Financial Statements of Captec and CNLR included
elsewhere in this proxy statement-prospectus.
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 2001 DECEMBER 31, 2000
------------------ ------------------
BASIC DILUTED BASIC DILUTED
----- ------- ----- -------
Net income per common share:
Captec.................................................. $0.64 $0.64 $1.53 $1.53
CNLR.................................................... $0.72 $0.72 $1.27 $1.27
Captec and CNLR pro forma consolidated.................. $0.72 $0.72 $1.36 $1.36
Captec pro forma equivalent(1)
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 2001 DECEMBER 31, 2000
------------- ------------------
Cash distributions declared per common share:
Captec.................................................... $ 0.76 $ 1.52
CNLR...................................................... $ 0.63 $1.245
Captec and CNLR pro forma consolidated.................... $ 0.63 $1.245
Captec pro forma equivalent(1)
Stockholders' equity (book value) per common share (end of
period):
Captec.................................................... $14.08
CNLR...................................................... $13.02
Captec and CNLR pro forma consolidated.................... $14.18
Captec pro forma equivalent(1)
---------------
(1) Per the merger agreement, consideration of $1.27 in cash, 0.4575 shares of
CNLR common stock and 0.21034679 shares of CNLR preferred stock will be
exchanged for each share of Captec common stock. As a result, disclosure on
an equivalent per common share basis is not meaningful.
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COMPARATIVE PER SHARE MARKET INFORMATION
Captec common stock is listed for quotation on NASDAQ under the symbol
"CRRR." CNLR common stock is listed for quotation on the New York Stock Exchange
under the symbol "NNN." On June 29, 2001, the business day immediately preceding
the public announcement of the execution of the merger agreement by Captec and
CNLR, the closing market prices of Captec common stock and CNLR common stock and
the equivalent price per share of CNLR giving effect to the merger,
respectively, were as follows:
CAPTEC AND CNLR
COMPARATIVE MARKET VALUE
CAPTEC
EQUIVALENT
CAPTEC CNLR PER SHARE PRICE
------ ------ ---------------
June 29, 2001............................................... $13.31 $14.25 $13.05
The Captec equivalent per share price is based on the assumption that
stockholders will receive the liquidation preference of $25.00 on the CNLR
preferred stock and based on the $14.25 per share closing price of the CNLR
common stock on June 29, 2001.
Prior to the merger there has been no public market for the CNLR preferred
stock. Absent a current quoted market price for the CNLR preferred stock, the
liquidation preference value has been used to compute the CNLR equivalent per
share price of the Captec common stock.
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The following sets forth, for the periods indicated, the high and low
prices per share of Captec common stock on NASDAQ and CNLR common stock on the
NYSE and the cash dividends declared per share of Captec common stock and CNLR
common stock. On October 9, 2001, the record date for the special meeting, there
were approximately 75 record holders and 4,060 beneficial holders of Captec
common stock and approximately 1,274 record holders and 21,565 beneficial
holders of CNLR common stock. Prior to the completion of the merger there will
be no issued and outstanding shares of CNLR preferred stock.
CAPTEC CNLR
---------------------------- ----------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------ ------ -------- ------ ------ --------
Calendar 1999
First Quarter..................... $13.50 $12.25 $0.380 $13.94 $11.13 $0.310
Second Quarter.................... 13.81 11.88 0.380 13.81 11.06 0.310
Third Quarter..................... 13.56 10.06 0.380 13.19 10.44 0.310
Fourth Quarter.................... 11.00 6.25 0.380 11.56 9.44 0.310
Calendar 2000
First Quarter..................... $ 8.94 $ 7.38 $0.380 $10.81 $ 9.50 $0.310
Second Quarter.................... 11.06 8.38 0.380 11.50 10.16 0.310
Third Quarter..................... 11.50 10.13 0.380 11.06 10.25 0.310
Fourth Quarter.................... 11.81 10.56 0.380 11.16 9.81 0.315
Calendar 2001
First Quarter..................... $12.56 $11.06 $0.380 $11.81 $10.13 $0.315
Second Quarter.................... 13.85 12.05 0.380 14.25 11.50 0.315
Third Quarter..................... 12.38 11.20 0.380 14.15 11.25 0.315
Fourth Quarter*................... 12.39 12.00 0.380 13.68 12.75 --
---------------
* Through October 9, 2001
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THE SPECIAL MEETING
GENERAL
This proxy statement-prospectus is being furnished to holders of Captec
common stock in connection with the solicitation of proxies by Captec's board of
directors for use at the special meeting to be held on Monday, November 19,
2001, 10:00 a.m., local time, at The Ritz-Carlton Hotel, 300 Town Center Drive,
Fairlane Plaza, Dearborn, Michigan 48126, and at any adjournments or
postponements of the special meeting. This proxy statement-prospectus, the
attached notice of the special meeting and the accompanying proxy card are first
being mailed to stockholders of Captec on or about October 12, 2001.
MATTERS TO BE CONSIDERED
At the special meeting, holders of record of shares of Captec common stock
on October 9, 2001 will consider and vote upon:
- the merger of Captec with and into CNLR pursuant to which CNLR will be
the surviving corporation and the separate corporate existence of Captec
will terminate; and
- such other business as may properly come before the special meeting or
any adjournments or postponements of the special meeting.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS
Captec's board of directors, based, in part, on the unanimous
recommendation of a special committee, has unanimously approved the merger and
the merger agreement, having concluded that the merger and the merger agreement
are fair to, and in the best interests of, Captec and its stockholders. Captec's
board of directors unanimously recommends that stockholders vote for the merger.
RECORD DATE; SHARES ENTITLED TO BE VOTED; QUORUM
Captec's board of directors has fixed the close of business on October 9,
2001 as the record date for determining the holders of shares of Captec common
stock who are entitled to notice of and to vote at the special meeting. As of
the record date, 9,508,108 shares of Captec common stock were issued and
outstanding and held of record by approximately 75 stockholders. The holders of
record on the record date of shares of Captec common stock are entitled to one
vote per share of Captec common stock. Pursuant to Captec's bylaws, the presence
of the holders of shares representing a majority of the outstanding shares of
Captec common stock entitled to be voted, whether in person or by properly
executed proxy, is necessary to constitute a quorum for the transaction of
business at the special meeting. Under Delaware law, abstentions and "broker
non-votes," which are proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owner or other
persons entitled to vote shares as to a matter with respect to which the brokers
or nominees do not have discretionary power to vote, will be treated as present
for purposes of determining the presence of a quorum.
PROXIES; PROXY SOLICITATION
Shares of Captec common stock represented by properly executed proxies
received at or prior to the special meeting that have not been revoked will be
voted at the special meeting in accordance with the instructions indicated on
the proxies. Shares of Captec common stock represented by properly executed
proxies for which no instruction is given will be voted for approval of the
merger. Stockholders are requested to complete, sign, date and promptly return
the enclosed proxy card in the postage-prepaid envelope provided for this
purpose to ensure that their shares are voted. Failure to return your proxy card
or vote at the special meeting will have the same effect as a vote against the
merger.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by:
- filing with Captec's Secretary, at or before the taking of the vote at
the special meeting, a written revocation bearing a later date than the
proxy;
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- executing a later dated proxy relating to the same shares of Captec
common stock and delivering it to Captec's secretary, including by
facsimile, before the taking of the vote at the special meeting; or
- attending the special meeting and voting in person.
Attendance at the special meeting will not, in and of itself, revoke a
proxy. Any written revocation or subsequent proxy should be sent so as to be
delivered to Captec Net Lease Realty, Inc., 24 Frank Lloyd Wright Drive, Lobby
L, 4th Floor, Ann Arbor, Michigan 48106, Attention: Corporate Secretary, or hand
delivered to Captec's secretary or his representative at or before the taking of
the vote at the special meeting.
If the special meeting is postponed or adjourned, at any subsequent
reconvening of the special meeting all proxies will be voted in the same manner
as such proxies would have been voted at the original convening of the special
meeting, except for any proxies that previously have been revoked or withdrawn
effectively, and notwithstanding that they may have been effectively voted on
the same or any other matter at a previous meeting. Proxies voting against the
merger will not be voted for a proposal to adjourn the meeting to permit further
solicitation of proxies.
Captec will bear the cost of soliciting proxies from its stockholders.
Captec will pay Georgeson Shareholder Communications, Inc. a fee of $20,000 plus
reimbursement of out-of-pocket expenses for its services in soliciting the
return of proxies. In addition to solicitation by mail, directors, officers and
employees of Captec may solicit proxies by telephone, facsimile transmission, or
otherwise. Directors, officers and employees of Captec will not be additionally
compensated for any such solicitation, but may be reimbursed for out-of-pocket
expenses incurred. Brokerage firms, fiduciaries and other custodians who forward
soliciting material to the beneficial owners of Captec common stock held of
record by them will be reimbursed for their reasonable expenses incurred in
forwarding such material.
VOTE REQUIRED
Delaware law requires Captec to obtain stockholder approval of the merger
by the affirmative vote of a majority of the outstanding shares of Captec common
stock entitled to be voted on the merger. The affirmative vote of 4,754,055
shares of Captec common stock is required to approve the merger. If the
stockholders approve the merger proposal and the transaction is subsequently
challenged, Captec may be entitled under Delaware law to assert stockholder
approval as a defense to such challenge.
As of July 2, 2001, Patrick L. Beach, Chairman of the Board of Directors,
President and Chief Executive Officer of Captec, and W. Ross Martin, Executive
Vice President, Chief Financial Officer and a director of Captec, in the
aggregate exercised voting power with respect to 727,552 shares of Captec common
stock, representing 7.65% of the issued and outstanding shares of Captec common
stock on such date. Simultaneously with the execution of the merger agreement by
Captec, Messrs. Beach and Martin executed and delivered to CNLR a stockholders
agreement pursuant to which they agreed to vote all of the shares of Captec
common stock beneficially owned by them at the time of the special meeting in
favor of the merger. See "THE MERGER -- Stockholders Agreement" (p. 41).
In addition, as of the record date, Captec's directors and executive
officers (including Messrs. Beach and Martin) in the aggregate exercised voting
power with respect to 922,356 shares of Captec common stock, representing 9.7%
of the issued and outstanding shares of Captec common stock. Captec anticipates
that all directors and officers will vote their shares of Captec common stock in
favor of the merger.
EFFECT OF ABSTENTIONS AND BROKER NON-VOTES
For purposes of determining approval of the proposals to be presented at
the special meeting, abstentions and broker non-votes will be deemed present for
purposes of determining the presence of a quorum and will have the same legal
effect as a vote against the merger and any other business that may properly be
voted on at the special meeting.
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THE MERGER
BACKGROUND
At a regular meeting on May 19, 2000, Captec's board of directors discussed
engaging Prudential Securities Incorporated, then the financial advisor to
Captec, to identify and analyze Captec's strategic options and alternatives to
enhance stockholder value. Captec's board of directors discussed generally that:
- Captec had been and continued to be capital constrained, lacking both the
debt and equity capital necessary to generate meaningful growth;
- given Captec's small size and other market conditions it could not
reasonably be expected that these constraints could be eliminated or
overcome in the foreseeable future;
- Captec's credit facility would be maturing in less than a year and
then-current market conditions indicated that Captec would not be able to
refinance the credit facility on nearly as favorable terms;
- Captec had derived little, if any, benefit from its successful joint
venture investments in terms of improvements in its stock price and
equity multiple; and
- Captec's board of directors continued to be concerned about the immediate
and long-term impact of all of these factors on Captec's ability to
maintain its dividend rate and to realize a share price indicative of a
favorable equity multiple relative to the REIT market in general.
Following this discussion, a resolution was unanimously adopted authorizing
the engagement of Prudential Securities for the purpose of conducting a study of
strategic alternatives.
On June 29, 2000, Captec announced that it had retained Prudential
Securities to study strategic alternatives to maximize Captec's value for
stockholders, including continuation of operations, sale, merger and other
alternatives.
At a September 19, 2000 meeting, Captec's board of directors received a
presentation and written report from Prudential Securities analyzing the various
alternatives available to Captec to maximize stockholder value.
Prudential Securities' report described that its representatives had met
with Captec's management to discuss Captec's strategies, reviewed management's
financial projections for Captec, its properties, joint ventures and other
assets, discussed Captec's competitive position with Prudential Securities REIT
research analysts, analyzed the current status and outlook for the net lease
sector of the REIT market; assessed Captec's standing within the net lease
sector and the REIT market generally, and analyzed recent transactions within
the REIT sector.
Prudential Securities' report stated that:
- Captec faced numerous challenges in the capital and real estate markets
and these challenges would make it difficult to increase stockholder
value;
- Captec traded at an equity multiple discount relative to both the net
lease REIT sector and the overall REIT market;
- Captec's equity multiple discount reflected its small market
capitalization, limited float, constrained capital capacity, externally
advised structure, absence of research sponsorship and, more generally,
the out-of-favor net lease sector;
- to enhance stockholder value, Captec would need to demonstrate
significant, consistent and profitable growth over the foreseeable
future;
- due to the inability of long-term net leases to generate significant
internal growth, Captec would require additional capital to generate
earnings growth through the accretive acquisition of assets;
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- Captec was unable to raise additional capital because:
- issuing common stock would be extremely dilutive at current stock
price and dividend levels;
- issuing preferred stock was not an alternative for a small,
non-investment grade REIT;
- limited remaining debt capacity would make growth through additional
leverage difficult; and
- Captec's financial constraints, coupled with market forces, would make it
increasingly difficult for Captec to enhance stockholder value without a
substantial transaction such as a merger or sale.
Prudential Securities reported that it had studied four strategic
alternatives:
- maintaining Captec as an independent, public REIT;
- merging or combining with another REIT in a stock-for-stock transaction;
- selling all or substantially all of Captec's assets in a single
transaction; and
- liquidating Captec.
The Prudential Securities report concluded that:
- maintaining Captec's existing strategy would fail to maximize stockholder
value;
- a protracted liquidation process is complex and unusual for a public
company, would be costly and subject to substantial risks that are
financially immeasurable, and would not be reasonably likely to result in
any greater value to the stockholders irrespective of those risks; and
- stockholder value would most likely be maximized through an asset sale or
merger, each of which could be pursued though a common process.
Prudential Securities' report also noted the possibility that Captec
management might have interests in certain possible strategic transactions that
could be different from, or in addition to, the interests of Captec's
stockholders generally, and that could create potential conflicts of interest.
Mr. Beach acknowledged that he had advised Prudential Securities that management
could have an interest in pursuing a strategic transaction with Captec. As a
result of these discussions, Captec's board of directors established the special
committee to assist it in conducting a process to solicit expressions of
interest for the potential sale of Captec or its assets, to determine if any
potential transaction would be in the best interests of Captec and its public
stockholders, to negotiate the terms of any potential transaction, to consider
the fairness of the consideration to be received in any potential transaction
and to recommend whether the Captec board of directors should approve any
potential transaction. The special committee initially was comprised of Richard
J. Peters (Chairman), Lee C. Howley, William H. Krul, III and William J.
Chadwick, all of whom are independent directors not employed by or otherwise
affiliated with Captec. Mr. Chadwick subsequently decided not to serve on the
special committee.
Thereafter, the special committee began to negotiate with Prudential
Securities with respect to the possible selection of Prudential Securities as
the special committee's financial advisor. On October 28, 2000, prior to the
completion of those negotiations, Prudential Securities announced that it was
curtailing its investment banking business. That announcement did not clearly
indicate Prudential Securities' intentions with respect to its real estate
financial advisory business, but the special committee became concerned at that
time about the ability of Prudential Securities to serve as its financial
advisor. During November 2000, it became increasingly clear that Prudential
Securities intended to reduce significantly its real estate financial advisory
group. As a result, the special committee determined that it needed to interview
other financial advisors. These events delayed the special committee's efforts
to pursue a possible sale of Captec.
At a meeting on December 6, 2000, the special committee interviewed UBS
Warburg LLC. Following the interview, the special committee requested Mr. Peters
to solicit an engagement proposal from UBS Warburg.
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On January 4, 2001, the special committee met and authorized the retention
of Morris, Nichols, Arsht & Tunnell as its counsel.
On January 9, 2001, the special committee formally retained UBS Warburg.
On January 12, 2001, the special committee met to discuss with UBS Warburg
the procedures for the sale of Captec and to review the confidential information
memorandum to be prepared by UBS Warburg and Captec management.
With the assistance of UBS Warburg, the special committee established a
process for the solicitation of interested buyers that was designed to attract
the broadest array of interested parties by allowing them to submit preliminary,
non-binding indications of interest without conducting any due diligence. It was
expected that this procedure, while enabling the special committee to consider
the greatest number of interested parties, would also result in a significant
number of parties expressing interest and subsequently "dropping out" during the
due diligence phase. The special committee believed that proceeding in this
manner would maximize the likelihood of receiving an acceptable bid that was
fair to Captec's stockholders.
Between late January and late February 2001, UBS Warburg contacted over 50
parties it had identified as potentially having an interest in receiving the
confidential information memorandum concerning Captec. Those parties included
both potential strategic and financial buyers. Parties who received the
confidential information memorandum were requested to submit non-binding
indications of interest by February 16, 2001. Twenty-eight parties received the
confidential information memorandum after signing confidentiality agreements.
In connection with Captec's solicitation of offers, CNLR requested that UBS
Warburg distribute a confidential information memorandum to CNLR in January
2001.
On January 12, 2001, CNLR and Captec entered into a confidentiality
agreement.
On January 23, 2001, Captec publicly announced that the special committee
had retained UBS Warburg as its financial advisor in connection with a possible
sale of Captec.
The special committee established February 16, 2001 as the deadline for the
submission of non-binding indications of interest. Of those 28 parties who
received the confidential information memorandum, seven submitted written,
non-binding indications of interest by February 16, 2001 which are summarized
below:
PRELIMINARY INDICATION OF INTEREST
($/SHARE)
----------------------------------
1................................................. 6.48
2................................................. 12.16 -- 13.74
3................................................. 13.67 -- 14.09
4................................................. 13.00 -- 15.00
5................................................. 5.85
6................................................. 9.00 -- 10.50
7................................................. 10.94 -- 12.51
On February 22, 2001, the special committee met to review the indications
of interest and invited four parties (2, 3, 4 and 7), one of which was CNLR, to
participate in the second round of the sale process, which involved due
diligence, visits to Captec and management meetings.
On February 27, 2001, Captec announced that it had successfully negotiated
and closed an extension to its credit facility, which otherwise would have
expired on February 28, 2001, for up to nine months. As a result of the
extension, interest rates on the credit facility immediately increased from a
range of LIBOR plus 1.50% to LIBOR plus 1.75%, depending upon certain leverage
ratios to a new range of LIBOR plus 2.25% to LIBOR plus 2.50%, increasing an
additional 50 basis points for the last three months of the facility.
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On March 6, 2001, the special committee met to review the status of the
sale process and to review an indication of interest submitted by another
potential bidder which had submitted a non-binding indication of interest of
$12.00 to $13.00 per share after the February 16, 2001 deadline. The special
committee elected to invite this party into the second round of the sale
process.
Through March 2001, four parties that had been invited to participate in
the second round of the sale process visited Captec's offices, met with
management and conducted due diligence.
On March 13, 2001, Gary M. Ralston, President and Chief Operating Officer
of CNLR, and Kevin B. Habicht, Executive Vice President and Chief Financial
Officer of CNLR, Mr. Beach and Mr. Martin, as well as various representatives of
both parties, including their respective financial advisors and CNLR's legal
counsel, conducted a management meeting as part of the second round of the sales
process.
On March 16, 2001, CNLR received a draft merger agreement with instructions
that CNLR's bid would be evaluated on the basis of many factors, including the
nature and extent of CNLR's requested changes to the draft merger agreement. At
or about the same time these materials also were transmitted to the other
interested parties.
At a meeting on March 19, 2001, held to review the status of the sale
process, the special committee was advised by UBS Warburg that, during
management meetings with parties conducting due diligence, Captec Financial
Group, Inc., an affiliate of Captec controlled by Messrs. Beach, Martin and H.
Reid Sherard, a director and Senior Vice President-Sales & Marketing of Captec,
had advised UBS Warburg and prospective bidders that, while it intended to
continue to make interest payments when due, its financial condition would not
permit it to repay the $9.6 million outstanding balance due under the demand
loan with Captec were a demand for payment made. The special committee discussed
with counsel and UBS Warburg the terms of the Financial Group note, including
Financial Group's right under the note to borrow up to $25.0 million from
Captec, Captec's right to demand repayment of the note at any time, the 10.0%
interest rate, and the security for the note. The special committee observed
that the Financial Group note had been in place prior to Captec's initial public
offering in 1997, had been disclosed in Captec's prospectus for its initial
public offering and subsequent SEC filings and that Financial Group had repaid
to Captec approximately $11.5 million of the outstanding principal balance of
the Financial Group note since Captec's initial public offering in November,
1997.
On March 19 and March 20, 2001, legal and financial representatives of CNLR
conducted initial due diligence at Captec's principal offices in Ann Arbor,
Michigan, at which time CNLR representatives were given the opportunity to
inspect Captec's books and records and ask questions of its management and UBS
Warburg.
On March 26, 2001, the special committee met to review the status of the
sales process. The special committee was advised that two of the interested
parties that had been invited into the second round of the sales process had
withdrawn. Another party had submitted a non-binding indication of interest of
$12.50 per share, and the special committee elected to invite that party to
participate in the second round. The special committee then discussed further
the Financial Group note. After reviewing again the terms and background of the
Financial Group note, the special committee was advised that, at the beginning
of the sales process, it had been Financial Group's intention to engage in a
financing transaction that Financial Group expected would permit it to repay the
Financial Group note. Due to adverse changes in the securitization markets in
which Financial Group operates, such a transaction was not currently feasible
and Financial Group had advised Captec that it would not be able to repay the
Financial Group note were a demand for payment made. Representatives of
Financial Group had advised UBS Warburg that, in the context of the sale of
Captec, Financial Group might be willing to negotiate the terms of the repayment
of the Financial Group note with a prospective purchaser. The special committee
discussed the effect of the Financial Group note and Financial Group's financial
condition on the amount interested parties might be willing to pay for Captec.
The special committee then reviewed the terms of Captec's interests in various
joint ventures. UBS Warburg advised the special committee that, given the nature
of these assets, prospective purchasers were ascribing little or no value to the
Financial Group note and Captec's interest in the joint ventures.
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The special committee established April 18, 2001 as the deadline for the
submission of definitive bids. Bidders were requested to submit written
proposals and a markup of the form of merger agreement that had been supplied to
prospective bidders. One bidder submitted a bid letter, without a markup of the
merger agreement, with a price of less than $10.00 per share, consisting mostly
of cash and some preferred stock. The bidder proposed numerous contingencies and
complications that the special committee believed made the completion of the
proposed transaction unlikely. CNLR submitted a bid which would result in
Captec's stockholders receiving a combination of cash, preferred stock and
common stock. Under CNLR's proposal, a portion of the consideration to be
received by Captec's stockholders would have been obtained as a result of the
sale by Captec of interests in certain affiliated ventures and the Financial
Group note to a third party, and the distribution of the proceeds thereof to
Captec's stockholders. CNLR's bid was conditioned upon Captec locating a third
party purchaser for the excluded assets and negotiating the sale of the excluded
assets to that purchaser. CNLR's bid letter assumed the excluded assets would be
sold for $16,639,189 or $1.75 per share of Captec common stock. CNLR's bid
included a markup of the draft merger agreement. No other definitive bids were
submitted.
Pursuant to the first written offer from CNLR, Captec's stockholders would
have received aggregate consideration as a result of the merger equal to $10.50
per share (excluding the value of any proceeds from the sale of the excluded
assets), the composition of which would have been as follows:
- 4,200,000 shares of CNLR common stock, equivalent to $5.35 per share of
Captec common stock (based on CNLR's closing common stock price on April
17, 2001);
- 1,800,000 shares of CNLR Series A Non-Voting Preferred Stock, equivalent
to $4.73 per share of Captec common stock (based on a stated value of
$25.00 per preferred share); and
- $4,015,134 in cash, equivalent to $0.42 per share of Captec common stock.
Based on the foregoing, the aggregate consideration to be received by
Captec's stockholders was $10.50 per share plus whatever proceeds could be
realized from the sale of the excluded assets.
The special committee concluded the CNLR bid was the superior of the two
bids. The special committee noted that CNLR's bid, at its face value, and
assuming that $1.75 per share could be realized from the excluded asset sale,
was nonetheless below the price at which the Captec common stock recently had
traded and discussed whether it was advisable to proceed with the sale process
under these circumstances. The special committee reviewed with UBS Warburg the
strategic issues facing Captec, including the strong likelihood that Captec
would need to reduce the dividend on its common stock if Captec were not sold
because, among other things, Captec's credit facility would expire on August 31,
2001 subject only to a one-time three month extension. Given Captec's prospects
and the current financial market, the special committee determined that Captec's
ability to obtain a new credit facility on reasonably acceptable terms was
doubtful. The special committee discussed that, based upon Captec's relatively
high dividend rate, Captec would be unable to generate funds internally to fund
growth. The special committee discussed the substantial likelihood that if, as a
result of these factors, Captec were to reduce its dividend rate, its stock
price would fall significantly. The special committee also discussed with UBS
Warburg the disparity between the private market value of Captec as indicated by
the results of the sales process and the trading price of Captec common stock.
The special committee noted that, prior to the September 28, 2000 announcement
concerning the sale of Captec, Captec common stock traded in the range of $8.00
to $10.00 per share and that the trading volume in the Captec common stock
subsequent to September 28, 2000 had been light. Based on all of these factors,
the special committee determined that it was advisable to continue to pursue a
transaction with CNLR.
The special committee then discussed the disposition of the excluded
assets. The special committee believed, based on the nature of the excluded
assets and the low valuations ascribed to the them by third parties in the sale
process, that it was highly unlikely that the excluded assets could be sold to a
third party prior to the completion of a transaction with CNLR. The special
committee reviewed with counsel the ability to place the excluded assets into a
liquidating trust or other entity, the ownership interests in
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which would be transferred to Captec's stockholders. Given the nature and size
of the excluded assets and the cost of maintaining such a vehicle, this option
did not appear practicable to the special committee.
UBS Warburg advised the special committee that CNLR had suggested that it
might be willing to loan funds to Mr. Beach to assist him in the purchase of the
excluded assets. The special committee discussed with its advisors that, based
on the results of the sale process, the excluded assets appeared to have a
greater value to Mr. Beach than to any other potential acquiror and, therefore,
Mr. Beach appeared to be the best possible purchaser. On that basis, the special
committee considered whether a sale of the excluded assets was feasible prior to
entering into definitive discussions with CNLR. The special committee asked UBS
Warburg to propose to CNLR a three-way meeting between representatives of the
special committee, Mr. Beach and CNLR for the purpose of attempting to negotiate
the sale of the excluded assets to Mr. Beach on terms acceptable to the special
committee. Mr. Peters was asked to contact Mr. Beach to ask him to participate
in these discussions. The special committee decided not to enter into an
exclusivity arrangement requested by CNLR until resolution of the issue of the
disposition of the excluded assets. The special committee also requested UBS
Warburg to seek to improve the other financial terms of CNLR's offer.
On May 2, 2001, Messrs. Beach and Martin and other Captec representatives,
including UBS Warburg, met with Mr. Ralston and other CNLR representatives in
Denver, Colorado to discuss CNLR's first written offer and the excluded asset
sale. The parties reiterated their interest in pursuing a merger and exchanged
information, including short-term and long-term business objectives. Subsequent
to this meeting, the parties agreed that the excluded assets would be sold to an
entity controlled by Mr. Beach for a purchase price of $7.5 million in cash.
CNLR also agreed to loan the purchaser $6.75 million to be used to pay a portion
of the purchase price of the excluded assets. The loan would be collateralized
in part by the excluded assets and $1.0 million of the merger consideration to
be received by Mr. Beach.
As a result of CNLR's additional due diligence and negotiations with
Captec's senior management and UBS Warburg acting on behalf of the special
committee, CNLR submitted a revised written offer on May 14, 2001. Under the
revised offer, CNLR agreed to increase the number of shares of CNLR common stock
and preferred stock to be included in the merger consideration and the amount of
assets subject to the excluded asset sale was reduced. Pursuant to the revised
written offer, Captec's stockholders would have received aggregate consideration
as a result of the merger equal to $11.46 per share, (excluding the value of any
proceeds from the sale of the excluded assets), and the composition of which
would have been as follows:
- 4,350,000 shares of CNLR common stock, equivalent to $5.72 per share of
Captec common stock (based on CNLR's closing common stock price on May
11, 2001);
- 2,000,000 shares of CNLR preferred stock, equivalent to $5.26 per share
of Captec common stock (based on a stated value of $25.00 per preferred
share); and
- $4,599,000 in cash, equivalent to $.48 per share of Captec common stock.
The revised offer also provided for the sale of the excluded assets for
$7.5 million, or the equivalent of $0.79 per share of Captec common stock, and
further, that such amount would be paid in cash to Captec stockholders in
conjunction with the merger. Including the distribution to Captec stockholders
of the proceeds of the sale of the excluded assets, the total value of the
consideration to be received by Captec's stockholders was $12.25 per share.
On May 15, 2001, the special committee met to receive a report from UBS
Warburg on the negotiations with CNLR. UBS Warburg described to the special
committee the improved financial terms of the offer from CNLR as well as the
terms of the excluded asset sale and the loan CNLR would make in connection with
that sale. The special committee discussed the $21.0 million aggregate book
value of the excluded assets and that parties who participated in the second
round of the sales process had ascribed little or no value to them. The special
committee again discussed the lack of interest by potential purchasers in
Captec's various joint venture interests. The special committee discussed the
possibility of
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transferring the excluded assets to a liquidating trust or other entity as an
alternative to the sale but concluded that this option was not practicable.
The special committee also reviewed a revised non-binding indication of
interest from a party that previously had offered $9.00 to $10.50 per share.
This revised non-binding indication of interest was for between $9.70 and $11.20
per share in cash for each share of Captec common stock. The special committee
discussed the value of this non-binding indication of interest as compared with
the terms of the revised offer from CNLR and that, unlike CNLR, the bidder had
not conducted due diligence. The special committee discussed that other bidders
had withdrawn from the process or reduced their bids during the due diligence
process. The special committee concluded that the opportunity to achieve the
best overall value would be maximized by negotiating exclusively with CNLR.
The special committee thereafter authorized Captec to enter into a
thirty-day exclusivity agreement with CNLR, which subsequently was extended an
additional week.
By letter dated May 21, 2001, the special committee granted CNLR a
thirty-day exclusivity period for the purpose of conducting additional due
diligence and negotiating a definitive agreement.
On May 30, 2001, the CNLR board of directors and representatives of its
financial advisor and legal counsel met in Orlando, Florida to discuss the
status of the merger transaction.
By letter dated May 31, 2001, UBS Warburg received another revision to the
non-binding indication of interest from the party that had previously submitted
a proposal for a transaction at $9.00 and $10.50 per share, and that had
subsequently revised its proposal to $9.70 and $11.20 per share and discussed by
the special committee at its meeting on May 15, 2001. This letter proposed an
alternate structure involving a merger between Captec and two affiliates of the
party submitting the letter, both of which were private companies that owned
triple net lease assets. As described in the letter, Captec's stockholders would
own 49.9% of the merged entity and Captec stockholders would have the option to
receive cash for up to 30.0% of their shares at a price of $12.00 per share or
to retain an equity interest in the merged entity. The letter assigned a stated
value to Captec's common stock of $12.00 per share, based on a number of
assumptions and a specified valuation formula and was submitted without the
benefit of due diligence. The letter specifically provided for a longer due
diligence period than this party's prior proposal. Captec was precluded from
responding to this new proposal under the terms of Captec's exclusivity letter
with CNLR.
By letter dated June 1, 2001, counsel to the special committee informed
CNLR at the request of the special committee and pursuant to the May 21, 2001
exclusivity letter between the parties, of Captec's receipt of a proposal from
another party for a sale transaction.
Throughout June 2001, the parties and their representatives negotiated a
definitive merger agreement and related agreements, including a stockholders
agreement and irrevocable proxy, an asset purchase agreement and a loan
agreement relating to the excluded assets sale.
On June 4, 2001, the special committee met with its financial advisor and
legal counsel to discuss the status of negotiations with CNLR and negotiating
strategy, including whether to attempt to obtain contractual protection for the
value of the CNLR common stock to be issued in the merger.
On June 13, 2001, UBS Warburg conducted due diligence on CNLR including a
management meeting and a tour of certain properties.
On June 18, 2001, Mr. Peters, together with counsel to the special
committee, discussed with Mr. Martin the financial status of Financial Group and
its inability to repay the Financial Group note if payment were demanded. Mr.
Peters and special committee counsel also discussed with Mr. Martin the
consequences of calling the Financial Group note, including that calling the
Financial Group note would cause a default on the Financial Group note, which in
turn would constitute an event of default under Captec's credit facility. Mr.
Peters reviewed with Mr. Martin the nature of the excluded assets and the
expected income and returns to Captec from those assets. Mr. Martin noted in
this conversation that approximately $1.9 million in annual income to Captec
attributable to management agreements with Family Realty, Inc. and Family Realty
II, Inc., which are affiliates of Mr. Beach, is not assured to Captec
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because the contracts are terminable without penalty on 90 days notice at the
option of Mr. Beach. Mr. Martin was asked if it would be reasonable for Captec
to assume that the contracts would be terminated if Captec were not sold, and
Mr. Martin replied that it would not be unreasonable for Captec to make that
assumption. Mr. Martin also reviewed the status of FC Venture I, LLC, the
co-venturers of which had the unilateral ability and had expressed a desire to
begin liquidation of the venture. During this conversation, Mr. Peters sought,
on behalf of the special committee, to increase the amount to be paid for the
excluded assets. Mr. Martin observed that Mr. Beach was pledging his personal
assets, both for the balance of the $7.5 million purchase price and as
additional security for the loan to be made by CNLR, and that he believed Mr.
Beach was unwilling to pay more for these assets. Mr. Peters subsequently
confirmed this position with Mr. Beach.
On June 21, 2001, the special committee met to review the terms of the
merger agreement and asset purchase agreement. The special committee agreed to
extend the exclusivity period with CNLR through June 29, 2001. Thereafter,
Captec's board of directors met to receive from special committee counsel and
UBS Warburg a presentation concerning the contemplated transaction and UBS
Warburg's preliminary analysis of financial aspects of the transaction. During
this presentation, Captec's board of directors reviewed the same strategic
issues facing Captec that the special committee considered at its April 13, 2001
meeting and heard a report from the special committee on its efforts to obtain
an increase in the purchase price for the excluded assets.
During the meeting, Captec's board of directors requested a variety of
materials to review prior to its next meeting. The purpose of this request was
to provide Captec's board of directors information to review and allow them time
to consider the various actions taken and the resulting facts and findings that
arose out of the analysis of strategic alternatives, the process of pursuing a
sale of Captec and the negotiation of the proposed merger transaction.
Following the June 21, 2001 meeting, materials were sent to Captec's board
of directors including:
- a draft chronology of the special committee's activities;
- copies of draft minutes of meetings of the special committee;
- a copy of the September 19, 2000 report on strategic alternatives from
Prudential Securities;
- the December 31, 2000 balance sheet of Financial Group;
- a description of the Financial Group note and the joint venture interests
comprising the excluded assets, including their book value;
- drafts of the transaction documents, together with summaries thereof; and
- draft presentation materials prepared by UBS Warburg.
On June 25, 2001, Captec and CNLR agreed to extend the exclusivity period
through June 29, 2001.
On or about June 23, 2001, the parties were advised that the purchaser of
the excluded assets would be a newly created entity owned solely by Mr. Beach in
which Mr. Martin would have the option, but not the obligation, to invest at a
later time.
On June 28, 2001, Captec's board of directors met to review the relevant
transaction documents and to receive presentations from counsel concerning the
transaction documents and from UBS Warburg concerning its financial analysis.
During a recess, the special committee met and determined to report to Captec's
board of directors that, subject to the resolution of certain pending issues
concerning the merger agreement and the receipt of UBS Warburg's fairness
opinion, it was prepared to recommend to Captec's board of directors that the
transactions be approved. The special committee advised Captec's board of
directors of this when the meeting reconvened, and the meeting was adjourned
until the evening of July 1, 2001.
On June 28, 2001, CNLR's board of directors met to discuss and consider,
and consequently unanimously approved, the merger.
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Throughout the weekend of June 30, 2001, the parties and their respective
legal counsel negotiated the remaining terms of the merger agreement, the asset
purchase agreement and the loan agreement.
On July 1, 2001, the June 28, 2001 meeting of Captec's board of directors
reconvened. Counsel and management reported on the resolution of the issues that
had been open following adjournment on June 28, 2001. UBS Warburg advised that
it was prepared to deliver to the special committee its opinion that the merger
consideration to be received by Captec's stockholders in the merger was fair to
Captec's stockholders from a financial point of view as of July 1, 2001. The
special committee made its unanimous recommendation to Captec's board of
directors that it approve the merger agreement and the asset purchase agreement
for the excluded assets sale. Following the recommendation of the special
committee, Captec's board of directors unanimously approved the merger agreement
and the asset purchase agreement.
The parties executed the definitive agreement and plan of merger, the asset
purchase agreement and the loan agreement on July 1, 2001.
On July 2, 2001, Captec and CNLR each issued press releases concerning the
execution of the merger agreement and management for both CNLR and Captec held
conference calls to review the transaction and answer stockholder questions.
CAPTEC'S REASONS FOR THE MERGER
In making the determination and recommendation described above, the special
committee considered various factors, including:
- Captec's business, current financial condition, results of operations,
future prospects, and the historical trading range and volume of Captec
common stock;
- the September 19, 2000 presentation of Prudential Securities to Captec's
board of directors of Captec's strategic alternatives;
- Captec's inability to raise additional debt or equity capital on an
accretive basis and its deteriorating prospects for being able to obtain
additional capital in the future;
- CNLR's greater ability to raise capital following the merger due to its
investment grade credit rating and significantly larger market
capitalization;
- Captec's relatively small market capitalization;
- Captec's status as an externally advised REIT;
- Captec's high dividend payout ratio, which leaves it with little
internally generated funds for growth;
- Captec's limited growth potential due to its lack of access to additional
capital and the resulting potential adverse effect on the price of the
Captec common stock;
- the expiration of Captec's credit facility in August, 2001, subject to a
one-time, three month extension and the uncertainties related to Captec's
ability to refinance that indebtedness on acceptable terms;
- the likelihood that if Captec were not sold, it would have to
significantly reduce its dividend rate and the expected adverse effect
such a reduction would have on the price of the Captec common stock;
- the greater size, property diversification, and market capitalization of
CNLR which, following the merger, will be the second largest REIT in the
net lease sector;
- CNLR's historical performance, including CNLR's lower dividend payout
ratio and that, over the past 11 consecutive years, CNLR had paid
increasing dividends to its stockholders;
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- the extensive solicitation process conducted by the special committee and
UBS Warburg involving, the public announcement of the process, contacts
with over 50 potentially interested parties, the review of confidential
information by 28 parties, the receipt of nine non-binding indications of
interest, the invitation to six parties to conduct due diligence, the
conduct of due diligence by four parties and the receipt of two
definitive proposals to acquire Captec;
- CNLR's proposal being substantially higher than that of the other party
submitting a definitive proposal;
- that the value of the merger consideration as of July 1, 2001,
represented a premium of 19.4% over the $10.75 price per share of Captec
common stock on September 27, 2000, the date one day prior to the date on
which Captec announced that it would pursue a sale of the company;
- the special committee's belief that, given the extensive sales process,
Captec was unlikely to receive an acquisition proposal that was superior
to CNLR's proposal;
- the fairness opinion of UBS Warburg, dated July 1, 2001, to the effect
that, as of that date, the merger consideration to be received by Captec
stockholders in the merger was fair to Captec's stockholders from a
financial point of view;
- the terms and conditions of the merger agreement, including terms which
enable Captec's board of directors to review and evaluate and, under
stated circumstances, accept a higher proposal, subject to its
obligations to pay a $5.0 million termination fee;
- Captec's right under the merger agreement to continue to pay its
regularly scheduled quarterly dividend until completion of the merger,
including a prorated dividend for the period ending immediately before
the effective time of the merger;
- the other terms and conditions of the merger agreement;
- the availability to Captec's stockholders of appraisal rights pursuant to
Section 262 of the Delaware General Corporation Law;
- the nature of the joint venture interests owned by Captec, the terms and
conditions of, and security for, the Financial Group note and the
financial condition of Financial Group;
- that the transaction with CNLR would result in immediate value to
Captec's stockholders for the excluded assets comprised of various joint
venture interests and the Financial Group note whereas third parties
participating in the sale process had ascribed little or no value to
those assets; and
- the attempt of the special committee to obtain greater consideration for
the excluded assets.
The special committee also identified and considered a number of
potentially negative factors in its deliberations concerning the merger
including the following:
- The value of the merger consideration to be paid to Captec stockholders
in the merger could be less than the price at which the Captec common
stock traded several weeks before the July 2, 2001 announcement of the
execution of the merger agreement;
- The CNLR preferred stock to be issued in the merger will be newly issued,
have no established trading market and may trade at a price less than the
stated value of $25.00 per share or the $24.00 per share value assumed by
UBS Warburg; and
- The per share dividend currently paid on the CNLR common stock is less
than the per share dividend historically paid on the Captec common stock.
Captec's board of directors concluded that, on balance, the potential
benefits of the merger to Captec and its stockholders outweighed the negative
factors associated with the merger.
The discussion of the information and factors considered by Captec's board
of directors is not intended to be exhaustive. In view of the variety of factors
considered in connection with its evaluation of
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the merger, Captec's board of directors did not find it practicable to, and did
not, quantify or otherwise assign relative weight to the specific factors
considered in reaching its determination.
CNLR'S REASONS FOR THE MERGER
The decision of CNLR's board of directors was based on several potential
benefits of the merger, including the following:
- the opportunity presented by the merger for CNLR to acquire a significant
portfolio of high-quality, freestanding retail properties subject to
long-term net leases. Captec currently owns or has interests in 136
properties located in 26 states. CNLR senior management believes that
this portfolio likely could not be replicated through individual
acquisitions;
- Captec's portfolio will provide additional concept and line of trade
diversification to CNLR and is consistent with CNLR's geographic
diversification strategy. The combined portfolio will include
approximately 377 properties in 40 states with total gross leasable area
of approximately 7.0 million square feet;
- CNLR's management anticipates that the transaction will be immediately
accretive to funds from operation (FFO);
- the characteristics of Captec's assets complement those of CNLR's
existing assets, including long-term leases, strong locations and
flexibility of design and adaptation;
- enhancements to CNLR's liquidity and capital markets profile through the
issuance of common and preferred equity and that the larger market
capitalization of CNLR following the merger will, in management's
estimation, likely result in higher trading volumes and enhanced
liquidity;
- anticipated cost savings and reductions in expenses following the merger.
The opportunities for economies of scale and operating efficiencies from
the merger will result in cost savings to CNLR;
- the due diligence review of Captec and its assets conducted by CNLR
management and its advisors, including, among other things, site tours of
a significant number of Captec's properties, and management's assessment
of the quality of Captec's assets; and
- historical and prospective information concerning CNLR's and Captec's
respective businesses, operations and financial performance, including,
among other things, the earnings prospects of CNLR and its debt service
and financial obligations, both before and after the merger.
CNLR's board of directors also identified and considered a number of
potentially negative factors in its deliberations concerning the merger,
including the following:
- the risk that the anticipated benefits of the merger to CNLR and its
stockholders may not be realized as a result of possible changes in the
real estate markets, any inability to operate the Captec portfolio of
properties, any inability to achieve the anticipated cost savings and
reduction in expenses and other potential difficulties in integrating the
two companies and their respective operations;
- the significant cost involved in connection with completing the merger
and the substantial management time and effort required to effect the
merger and integrate the businesses of CNLR and Captec;
- the risk that the merger might not be completed based upon the failure to
satisfy covenants or closing conditions; and
- other applicable risks described in this proxy statement-prospectus under
"RISK FACTORS" (p. 15).
CNLR's board of directors concluded, however, that on balance, the
potential benefits of the merger to CNLR and its stockholders outweighed the
negative factors associated with the merger.
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The discussion of the information and factors considered by CNLR's board of
directors is not intended to be exhaustive. In view of the variety of factors
considered in connection with its evaluation of the merger, CNLR's board of
directors did not find it practicable to, and did not quantify or otherwise
assign relative weight to, the specific factors considered in reaching its
determination.
OPINION OF CAPTEC'S FINANCIAL ADVISOR
The special committee retained UBS Warburg LLC to act as its financial
advisor in connection with the merger. The special committee selected UBS
Warburg to act as its financial advisor based on UBS Warburg's qualifications,
expertise, reputation and its knowledge of Captec's business and affairs. At the
meeting of the special committee on July 1, 2001, UBS Warburg rendered its oral
opinion, subsequently confirmed in writing, that, as of July 1, 2001, and
subject to and based on the considerations in its opinion, the merger
consideration to be received by Captec's stockholders consisting of 0.4575 of a
share of CNLR common stock, 0.21034679 of a share of CNLR preferred stock, and
$1.27 in cash per share of Captec common stock, was fair from a financial point
of view to the holders of shares of Captec common stock.
The full text of UBS Warburg's opinion, dated as of July 1, 2001, which
sets forth, among other things, the assumptions made, procedures followed,
matters considered and limitations on the review undertaken by UBS Warburg, is
attached as Appendix B to this proxy statement-prospectus. We urge you to read
this opinion carefully and in its entirety. This summary is qualified in its
entirety by reference to the full text of the opinion.
UBS Warburg's opinion, which was directed to the special committee,
addresses only the fairness from a financial point of view as of July 1, 2001 of
the consideration to be received by holders of Captec common stock pursuant to
the merger agreement, and does not address any other aspect of the transaction.
UBS Warburg acted as financial advisor to the special committee in connection
with the merger. In that capacity and at the special committee's direction, it
contacted more than 50 parties to solicit indications of interest in acquiring
Captec and held discussions with certain of those parties concerning a possible
transaction. At the direction of the special committee, UBS Warburg did not
solicit indications of interest from third parties with respect to a sale of
only part of Captec (including the excluded assets described below) or of a
liquidation of Captec, nor did UBS Warburg perform a liquidation analysis of all
of Captec's assets.
UBS Warburg's opinion does not address Captec's underlying business
decision to effect the merger or constitute a recommendation to any of Captec's
stockholders as to how they should vote on the merger. UBS Warburg was neither
asked by the special committee to, nor otherwise did it, offer any opinion as to
the material terms of the merger agreement or the form of the merger
consideration. Furthermore, UBS Warburg expressed no opinion as to the prices at
which securities issued pursuant to the merger agreement will trade in the
future. In rendering its opinion, UBS Warburg assumed, with the special
committee's consent, that both Captec and CNLR will comply with all the material
terms of the merger agreement, that all conditions to the merger will be
satisfied, and that the terms of the sale of the excluded assets are the most
beneficial terms from Captec's point of view that reasonably could have been
negotiated under the circumstances.
In arriving at its opinion, UBS Warburg, among other things:
- reviewed certain publicly available business and historical financial
information relating to each of Captec and CNLR;
- reviewed certain internal financial information and other data relating
to Captec's business and financial prospects, including estimates and
financial forecasts prepared by Captec's management, that were provided
to UBS Warburg by Captec and not publicly available; UBS Warburg did not
review CNLR internal financial information and other data relating to
CNLR's business and financial prospects, other than limited data
concerning its properties;
- conducted discussions with members of Captec senior management and CNLR
senior management concerning the businesses and financial prospects of
Captec and CNLR;
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- reviewed publicly available financial and stock market data with respect
to other companies in lines of business UBS Warburg believed to be
generally comparable to Captec's;
- compared the financial terms of the merger with the publicly available
financial terms of certain other transactions which UBS Warburg believed
to be generally relevant;
- reviewed drafts of the merger agreement; and
- conducted such other financial studies, analyses and investigations, and
considered such other information as UBS Warburg deemed necessary or
appropriate.
In connection with its review, at the special committee's direction, UBS
Warburg did not assume any responsibility for independent verification of any of
the information reviewed by it for the purpose of its opinion and, with the
special committee's consent, relied on such information being complete and
accurate in all material respects. In addition, at the special committee's
direction, UBS Warburg did not make any independent evaluation or appraisal of
any of the assets or liabilities, contingent or otherwise, of Captec or CNLR.
With respect to the financial forecasts and estimates referred to above, UBS
Warburg assumed, at the special committee's direction, that they were reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of Captec's management as to the future performance of Captec. In
addition, with the special committee's consent, UBS Warburg assumed that the per
share value of the CNLR preferred stock will be $24.00 upon issuance. UBS
Warburg's opinion was necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available to it as of, the
date of its opinion.
No company, transaction or business used in the analyses described below is
identical to Captec, CNLR or the proposed merger. Accordingly, the analysis of
the results necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics and other factors.
The following is a summary of the material financial analyses performed by
UBS Warburg in connection with its opinion. These summaries of financial
analyses alone do not constitute a complete description of the financial
analyses.
Analysis of Consideration. UBS Warburg reviewed the consideration to be
received by Captec stockholders in the merger. Based on the closing price of
CNLR common stock on the NYSE as of June 29, 2001 of $14.25 per share and the
assumption that the per share value of the CNLR preferred stock would be $24.00
upon issuance, UBS Warburg noted that the merger consideration would be
equivalent to $12.84 per share. This merger consideration consists of (i) 4.35
million shares of CNLR common stock, equivalent to $6.52 per share of Captec
common stock, (ii) 2.0 million shares of CNLR preferred stock, equivalent to
$5.05 per share of Captec common stock; and (iii) $12.1 million in cash,
equivalent to $1.27 per share of Captec common stock.
Historical Stock Price Analysis. UBS Warburg reviewed the performance of
the per share market price and trading volume of Captec common stock for the
period from September 1, 1999 to June 29, 2001. The analysis indicated that
during the 52-week period ended June 29, 2001, the highest closing market price
per share was $13.85, the average closing market price per share was $11.69 and
the lowest closing market price per share was $10.13. Fewer than 600,000 shares
(or 5.3% of total shares outstanding) had traded at or above the implied
transaction price over the preceding twelve months. The implied transaction
price is 19.4% higher than the price of Captec common stock one day prior to the
September 28, 2000 announcement of intent of Captec's board of directors' to
sell Captec.
Non-core Assets Analysis. UBS Warburg performed analyses based on cash
flow projections by Captec's management of Captec's interests in the excluded
assets which are certain non-core assets that are to be sold to CRC Acquisition
LLC, an entity controlled by Mr. Beach, and its subsidiaries and management fee
income from management agreements with Family Realty, Inc. and Family Realty II,
Inc. which are cancellable by Mr. Beach. The excluded assets and the Family
Realty and Family Realty II management agreements and resulting income are
hereinafter referred to collectively as the non-core
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assets. A range of valuation for the non-core assets was calculated as follows
and included consideration of the subordinated and contingent nature of certain
of Captec's interests: a net present value was calculated for FC Venture I, LLC
(in liquidation) assuming a liquidation period of eighteen months at
capitalization rates of 9.75% to 11.0% and discount rates of 11.0% to 13.0%; net
present values were calculated for Captec Franchise Capital Partners L.P. III
and Captec Franchise Capital Partners L.P. IV, assuming liquidation at the end
of year five using capitalization rates of 9.5% to 11.0% and discount rates of
11.0% to 13.0%; net present values for Captec's interest in Family Realty and
Family Realty II were calculated assuming liquidation at the end of year five
using capitalization rates of 9.0% to 10.5% and discount rates of 11.0% to
13.0%; and net present values were calculated for management fee income from
Family Realty and Family Realty II based on management fee income for three
months as the management fee stream is under Mr. Beach's control and is
cancelable with 90 days notice without penalty. A valuation range for the loan
to Captec Financial Group Inc. of $0 to $9.7 million was utilized. This analysis
indicated a valuation range for the non-core assets of $3.4 million to $13.2
million.
Net Asset Valuation Analysis. Using information provided by Captec
management, UBS Warburg calculated the equity net asset value per share for
Captec common stock by subtracting debt and other liabilities from the value of
the gross assets, but did not include transaction costs or time value
considerations. UBS Warburg calculated the value of the gross assets by applying
capitalization rates ranging from 9.75% to 10.25% to Captec's annualized net
operating income. Captec's annualized net operating income excluding income from
non-core assets was based on cash net operating income for its net lease
properties as of the first quarter of 2001.
The resulting gross real estate value was added to the range of value of
the non-core assets as described above, the book value of Captec's other assets,
including cash and cash equivalents, accounts receivables and loans receivable,
less Captec's outstanding debt, and certain other liabilities, to arrive at an
equity net asset value. This analysis indicated an equity net asset value range
of between $104.7 million and $125.0 million, or equivalent equity net asset
value of $11.01 to $13.15 per share of Captec common stock, indicating that,
based upon the closing price of the Captec common stock on June 29, 2001, the
Captec common stock was trading at approximately 101.2% to 120.9% of Captec's
net asset value.
Based on publicly disclosed information and information provided by CNLR,
UBS Warburg also calculated the equity net asset value per share of CNLR common
stock by subtracting debt and other liabilities from the value of gross assets.
UBS Warburg calculated the value of gross assets by applying capitalization
rates from 9.75% to 10.25% to CNLR's annualized net operating income. UBS
Warburg added the book value of CNLR's other assets to the value of CNLR's gross
assets. These other assets, valued at book, included cash and cash equivalents,
mortgages and accrued interest receivables, mortgages and other receivables from
unconsolidated subsidiaries and other receivables. This analysis indicated an
equity net asset value range of between $436.1 million and $471.1 million, or
equivalent net asset value of $14.30 to $15.44 per share of CNLR common stock,
indicating that, based upon the closing price of the CNLR common stock on June
29, 2001, the CNLR common stock was trading at approximately 92.3% to 99.7% of
CNLR's net asset value.
Comparable Companies Analysis. Using Captec management projections and
First Call Corporation consensus estimates, UBS Warburg reviewed and compared
selected publicly available financial information and multiples for Captec to
corresponding publicly available financial information and multiples for the
following real estate companies:
- Agree Realty Corporation
- Capital Automotive REIT
- Commercial Net Lease Realty, Inc.
- Developers Diversified Realty Corp.
- Entertainment Properties Trust
- Lexington Corporate Properties Trust
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- Realty Income Corporation
- US Restaurant Properties, Inc.
UBS Warburg calculated the FFO multiples and other financial information
for Captec at (i) the current market price, based on the closing price for
shares of Captec common stock on NASDAQ on June 29, 2001; (ii) the implied
transaction price, based on the closing price for shares of CNLR common stock on
the NYSE on June 29, 2001 and, with the special committee's consent, the
assumption that the per share value of the CNLR preferred stock would be $24.00
upon issuance; and (iii) the implied transaction price, based on the closing
price for shares of CNLR common stock on the NYSE on June 29, 2001 and, with the
special committee's consent, the assumption that the per share value of the CNLR
preferred stock would be $24.00 upon issuance and adjusted to exclude a range of
value related to the non-core assets and adjusted to exclude income from the
non-core assets. UBS Warburg arrived at a range of comparable company FFO
multiples by dividing each comparable company's share price, using closing share
prices as of June 29, 2001, by consensus 2001 and 2002 FFO per share estimates
from First Call Corporation. First Call Corporation is a Thompson Financial
company that specializes in the compilation and statistical summarization of
equity earnings estimates by institutional research houses. UBS Warburg's
calculations resulted in a selected range of 2001 FFO multiples from 7.6x to
11.1x and a range of 2002 FFO multiples from 7.1x to 10.7x.
In addition, UBS Warburg derived FFO multiples based on projections of 2001
and 2002 FFO per share provided by Captec and other financial information as
follows:
COMPARABLE
COMPANIES CAPTEC
----------- ---------------------------------------------------------------------------
IMPLIED IMPLIED IMPLIED
JUNE 29 IMPLIED TRANSACTION TRANSACTION TRANSACTION
MARKET TRANSACTION PRICE -- PRICE -- PRICE --
HIGH LOW PRICE PRICE ADJUSTED 1(1,2) ADJUSTED 2(1,3) ADJUSTED 3(1,4)
----- --- ------- ----------- --------------- --------------- ---------------
Equity value (in millions)............ 1,029 97 127 122 119 114 109
Enterprise value (in millions)........ 2,577 200 229 225 222 217 212
Estimated FFO multiple of 2001 (x).... 11.1 7.6 8.6 8.3 10.8 10.4 9.9
Estimated FFO multiple of 2002 (x).... 10.7 7.1 8.4 8.1 10.5 10.1 9.6
Last quarter annualized
EBITDA multiple (x)................... 13.0 9.6 9.6 9.4 11.0 10.7 10.5
Implied capitalization rate (%)....... 10.9 8.3 11.1 11.4 9.8 10.0 10.3
----- --- ---- ---- ---- ---- ----
---------------
Notes:
1 Adjusted to exclude income from non-core assets
2 Assumes the non-core assets have value of $3.4 million and calculates implied
transaction price net of this amount for purposes of deriving the valuation
metrics
3 Assumes the non-core assets have value of $8.0 million and calculates implied
transaction price net of this amount for purposes of deriving the valuation
metrics
4 Assumes the non-core assets have value of $13.2 million and calculates implied
transaction price net of this amount for purposes of deriving the valuation
metrics
UBS Warburg also reviewed and compared selected publicly available
financial information and multiples for CNLR to corresponding publicly available
financial information and multiples for the following real estate companies and
projections for Captec provided by management.
- Capital Automotive REIT
- Developers Diversified Realty Corp.
- Entertainment Properties Trust
- Lexington Corporate Properties Trust
- Realty Income Corporation
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- US Restaurant Properties, Inc.
UBS Warburg calculated the FFO multiples and other financial information
for CNLR, the above companies and Captec. UBS Warburg arrived at a range of
comparable company FFO multiples by dividing each comparable company's share
price, using closing share prices as of June 29, 2001, by consensus 2001 and
2002 FFO per share estimates from First Call Corporation for CNLR and the
comparable companies, and 2001 and 2002 FFO per share estimates for Captec
provided by management. UBS Warburg's calculations resulted in a selected range
of 2001 FFO multiples from 7.7x to 11.1x and a range of 2002 FFO multiples from
7.1x to 10.7x compared to 2001 and 2002 FFO multiples of 9.7x and 9.4x,
respectively, for CNLR.
Comparable Transactions Analysis. UBS Warburg reviewed comparable
transactions involving REITs from 1999 to the date of its opinion. Six
comparable transactions with equity values in excess of $50.0 million were
selected. The comparable transactions include the following pending and
completed transactions:
- Bradley Real Estate, Inc. and Heritage Properties Investment Trust, Inc.
- Western Properties Trust and Pan Pacific Retail Properties
- First Washington Realty Trust Inc. and CALPERS
- Westfield America, Inc. and Westfield America Trust
- Franchise Finance Corporation of America and GE Capital Corp.
- United Investors Realty Trust and Equity One, Inc.
For each transaction, UBS Warburg calculated the last quarter annualized
and latest twelve months funds from operations multiple of the target company at
the announcement date of the respective transaction defined as the offer price
of the target company divided by the most recent last quarter annualized or
latest twelve months FFO at the time of the announcement. UBS Warburg observed a
range of last quarter annualized or latest twelve months FFO multiples at the
announcement date from 8.2x to 8.8x compared to an 8.1x last quarter annualized
FFO multiple for Captec, and a range of latest twelve months FFO multiples at
the announcement date from 8.4x to 8.9x compared to an implied 7.8x LTM multiple
for Captec, based on the implied transaction price.
For each transaction, UBS Warburg determined last quarter annualized and
LTM earnings before interest, taxes, depreciation and amortization (EBITDA)
multiples of the target company at the announcement date of the respective
transactions. UBS Warburg observed a range of last quarter annualized EBITDA
multiples from 10.2x to 12.8x compared to a last quarter annualized EBITDA
multiple of 9.4x for Captec, and a range of latest twelve months EBITDA
multiples from 9.9x to 12.4x compared to a latest twelve months EBITDA multiple
of 8.8x for Captec, based on the implied transaction price and on reported
EBITDA for Captec for the first quarter of 2001 and the twelve months then
ended.
UBS Warburg calculated the FFO multiples and other financial information
for Captec at (i) the implied transaction price, based on the closing price of
CNLR common stock on the NYSE on June 29, 2001 and, with the special committee's
consent, the assumption that the per share value of the CNLR preferred stock
will be $24.00 upon issuance; and (ii) the implied transaction price, based on
the closing price of CNLR common stock on the NYSE on June 29, 2001 and, with
the special committee's consent, the assumption that the per share value of the
CNLR preferred stock will be $24.00 upon issuance and
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adjusted to exclude a range of values related to the non-core assets and
adjusted to exclude income from the non-core assets.
CAPTEC
-----------------------------------------------------------------
COMPARABLE IMPLIED IMPLIED IMPLIED
TRANSACTIONS TRANSACTION TRANSACTION TRANSACTION
----------------- TRANSACTION PRICE -- PRICE -- PRICE --
HIGH LOW PRICE ADJUSTED 1(1,2) ADJUSTED 2(1,3) ADJUSTED 3(1,4)
---------- ---- ----------- --------------- --------------- ---------------
LQA EBITDA multiple (x)....... 12.8 10.2 9.4 11.0 10.7 10.5
LTM EBITDA multiple (x)....... 12.4 9.9 8.8 10.5 10.2 10.0
LQA FFO multiple (x).......... 8.8 8.2 8.1 10.5 10.1 9.6
LTM FFO multiple (x).......... 8.9 8.4 7.8 10.2 9.8 9.4
---- ---- --- ---- ---- ----
---------------
Notes:
1 Adjusted to exclude income from non-core assets
2 Assumes the non-core assets have value of $3.4 mm and calculates implied
transaction price net of this amount for purposes of deriving the valuation
metrics
3 Assumes the non-core assets have value of $8.0 mm and calculates implied
transaction price net of this amount for purposes of deriving the valuation
metrics
4 Assumes the non-core assets have value of $13.2 mm and calculates implied
transaction price net of this amount for purposes of deriving the valuation
metrics
Pro Forma Merger Analysis. UBS Warburg analyzed the financial impact of
the merger on, among other things, the estimated FFO per fully diluted share of
CNLR common stock for the year ending December 31, 2002. In doing so, UBS
Warburg combined the projected operating results for Captec, as provided by
management, and CNLR, as projected by Goldman, Sachs & Co. equity research, as
well as other transaction related items. UBS Warburg observed a total projected
post-merger incremental accretion of 5.2% in per share FFO for 2002 assuming no
synergies other than interest savings on Captec's debt.
FFO Payout Analysis. UBS Warburg analyzed Captec's projected FFO and funds
available for distribution payout ratio for 2001 based upon the projections
Captec provided and the current annual dividend rate of $1.52 per share.
Captec's projected 2001 FFO payout ratio is 97.8% and the projected 2001 funds
available for distribution payout ratio is 102.4%. The 2001 estimated FFO payout
ratios for comparable companies ranged from a low of 61.7% to 85.7%. Captec's
projected payout ratio calculation did not consider a possible change in the
interest rate or amortization schedule on Captec's existing credit facility that
matures in August 2001 with a one-time three-month extension option.
Dividend Reduction Analysis. Due to the high projected payout ratio and
pending debt maturity, UBS Warburg analyzed the impact of dividend reductions on
selected real estate companies since 1999. These companies and the dates of
their respective dividend reductions include:
- Associates Estate Realty Co. (February 1999)
- Omega Healthcare Investors, Inc. (January 2000)
- US Restaurant Properties, Inc. (May 2000)
- HRPT Properties Trust (July 2000)
- Prime Retail Inc. (January 2001)
- Omega Healthcare Investors, Inc. (February 2001)
- Malan Realty Investors, Inc. (March 2001)
- Center Trust Inc. (March 2001)
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UBS Warburg tracked decreases in stock prices following announcements of
dividend reductions ranging from 19.4% to 100.0% of prior dividend rates. The
analysis indicates a range of price decrease of 4.4% to 47.3% one week after the
announcement and a range of decrease of 6.2% to 51.3% four weeks after the
announcement.
Market Coupon of Perpetual Preferred Stock Analysis. UBS Warburg reviewed
and compared information concerning perpetual preferred stock of selected real
estate companies, specifically Apartment Investment and Management Company
(AIMCO), Colonial Properties Trust, Health Care REIT, Highwood Properties, Inc.,
Realty Income Corporation and United Dominion, including the credit ratings of
these stocks by Moody's and Standard & Poor's, the price of these preferred
stocks and their yield, expressed as a percentage of the price, with the implied
credit ratings of the CNLR preferred stock to be issued in the merger, based
upon CNLR's senior unsecured debt ratings by Moody's and Standard & Poor's, and
the $25.00 stated value and 9.0% stated dividend rate of the CNLR preferred
stock. UBS Warburg then compared the stated dividend rate of the CNLR preferred
stock to be issued in the merger with the market dividend rate for a stock
having the characteristics of the CNLR preferred stock, as estimated by UBS
Warburg, of 9.375%. UBS Warburg calculated the 9.0% stated dividend rate of the
CNLR preferred stock as 96.0% of the estimated market rate of 9.375%, and
multiplied the $25.00 per share stated value of the CNLR preferred stock by
96.0% (.96), equaling $24.00.
With the consent of the Captec special committee, UBS Warburg assumed for
purposes of its fairness opinion that the value of the CNLR preferred stock
would be $24.00 per share upon issuance.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, UBS Warburg considered the results of all of its
analyses as a whole and did not attribute any particular weight to any analysis
or factor considered by it. UBS Warburg believes that the summary provided and
the analyses described above must be considered as a whole and that selecting
portions of these analyses, without considering all of them, would create an
incomplete view of the process underlying its analyses and opinion. In addition,
UBS Warburg may have given various analyses and factors more or less weight than
other analyses and factors and may have deemed various assumptions more or less
probable than other assumptions, therefore the range of valuations resulting
from any particular analysis described above should not be taken to be UBS
Warburg's view of the actual value of CNLR or Captec.
In performing its analyses, UBS Warburg made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of CNLR and Captec. Any
estimates contained in UBS Warburg's analysis are not necessarily indicative of
future results or actual values, which may be significantly more or less
favorable than those suggested by these estimates. The analyses performed were
prepared solely as a part of UBS Warburg's analysis of the fairness from a
financial point of view as of the date of the merger agreement of the merger
consideration to be received by holders of Captec common stock pursuant to the
merger agreement and were conducted in connection with the delivery by UBS
Warburg of its opinion, dated July 1, 2001, to the special committee. UBS
Warburg's analyses do not purport to be appraisals or to reflect the prices at
which shares of stock might actually trade. The consideration to be paid by CNLR
in the merger was determined through negotiations and was approved by the
special committee. UBS Warburg did not recommend any specific consideration to
Captec or suggest that any given consideration constituted the only appropriate
consideration for the merger.
UBS Warburg's opinion was one of the many factors taken into consideration
by the special committee and Captec's board of directors in making its
determination to approve the merger. UBS Warburg's analyses summarized above
should not be viewed as determinative of the opinion of the special committee or
Captec's board of directors with respect to the value of Captec or of whether
the special committee or Captec's board of directors would have been willing to
agree to a different form of consideration.
UBS Warburg is an internationally recognized investment banking and
advisory firm. UBS Warburg, as part of its investment banking and financial
advisory business, is continuously engaged in the valuation
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of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. In the past, UBS Warburg and its affiliates have provided
financial advisory and financing services to CNLR and its affiliates and have
received customary fees for the rendering of these services. Specifically, in
1997, a UBS Warburg affiliate participated in CNLR's $200.0 million revolving
credit facility. UBS Warburg is no longer a participant in CNLR's credit
facility. In the ordinary course of business, UBS Warburg may from time to time
trade in the securities or indebtedness of Captec and CNLR for its own account,
the accounts of investment funds and other clients under the management of UBS
Warburg and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in these securities or indebtedness.
Captec has agreed to pay UBS Warburg a fee of $500,000 in connection with
the issuance of its opinion, which will be applied to a $2.75 million
transaction fee payable upon completion of the merger. Captec also has agreed to
reimburse UBS Warburg for its expenses incurred in performing its services and
to indemnify UBS Warburg and its affiliates, their respective directors,
officers, agents and employees and each person, if any, controlling UBS Warburg
or any of its affiliates against certain liabilities and expenses, including
certain liabilities under federal securities laws, related to or arising out of
UBS Warburg's engagement and any related transactions.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Captec's board of directors and management may be deemed
to have certain interests in the merger that are in addition to the interests of
Captec and its stockholders. Captec's board of directors was aware of these
interests and considered them in approving the merger agreement and the
transactions contemplated by the merger agreement.
Sale of Certain Assets of Captec to Mr. Beach. Contemporaneously with the
execution of the merger agreement, Captec, CNLR, CRC Acquisition LLC, a Michigan
limited liability company of which Mr. Beach is the sole owner, and two of CRC
Acquisition's wholly-owned subsidiaries executed a July 1, 2001 asset purchase
agreement. Pursuant to the asset purchase agreement, following completion of the
merger, the excluded assets will be sold to CRC Acquisition and its subsidiaries
for $7.5 million. The excluded assets consist of Captec's current equity
interests in certain affiliated business ventures and the Financial Group note.
Pursuant to a July 1, 2001 loan agreement, CNLR has agreed to loan to CRC
Acquisition and its affiliates $6.75 million to be used by CRC Acquisition and
its subsidiaries to fund a portion of the purchase price for the excluded
assets. These assets have a current book value on Captec's financial statements
of approximately $21.0 million. In addition, Financial Group has agreed to
purchase from CNLR within sixty (60) days following completion of the merger
Financial Group's promissory note in the principal amount of approximately $1.5
million, which will be acquired by CNLR in the merger. See "THE MERGER -- Asset
Purchase Agreement" (p. 42) and "--Additional Agreement" (p. 43).
Severance Payments. Mr. Beach and Mr. Martin each have employment
agreements with Captec pursuant to which they receive base annual salaries,
health and life insurance and certain other benefits and are eligible for an
annual bonus depending upon Captec's operating results. Each employment
agreement provides for an initial three-year term that is automatically extended
for an additional year at the end of each year, subject to the right of either
party to terminate at the end of the then applicable term by giving written
notice of termination on or before November 30 of any year. Although these
employment agreements do not terminate pursuant to their respective terms until
December 31, 2003, the parties have agreed to terminate these employment
agreements upon completion of the merger. In consideration of the termination of
these employment agreements, CNLR will pay $916,875 to Mr. Beach and $640,000 to
Mr. Martin representing the amounts which CNLR and Messrs. Beach and Martin have
agreed are due to Messrs. Beach and Mr. Martin upon termination of their
employment agreements. Ronald Max, Captec's Vice President and Chief Investment
Officer, will receive a $25,000 discretionary bonus upon completion of the
merger.
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Deferred Compensation Plan Payments. Captec maintains a deferred
compensation plan pursuant to which directors who are not employees of Captec
can defer receipt of the fees payable to them for their services as directors.
The value of the amounts credited to a director in the deferred plan increases
or decreases based on the market value of the common stock. Upon completion of
the merger, participating directors will receive a cash payment based upon the
value of their deferred compensation plan accounts the amount of which will
depend upon the price of the Captec common stock just prior to the closing of
the merger. Assuming a price for the Captec common stock of $12.50 per share,
the following payments will be made to directors of Captec with respect to their
deferred compensation plan accounts:
Albert T. Adams............................................ $86,746
William J. Chadwick........................................ $79,793
Creed L. Ford III.......................................... $91,204
William H. Krul II......................................... $99,239
Richard J. Peters.......................................... $93,751
Lee C. Howley does not participate in the deferred compensation plan.
Indemnification of Officers and Directors. Pursuant to the merger
agreement, CNLR has agreed to provide certain indemnification to the present and
former officers and directors of Captec and to maintain directors' and officers'
liability insurance for the officers and directors covered by Captec's
directors' and officers' liability insurance for a period of six years following
the effective time of the merger. See "THE MERGER
AGREEMENT -- Covenants -- Indemnification of Directors and Officers" (p. 48).
REGULATORY APPROVAL
Neither Captec nor CNLR is aware of any material approval or other action
by any state, federal or foreign governmental agency that is required prior to
the completion of the merger in order to effect the merger or of any license or
regulatory permit that is material to the businesses of Captec or CNLR and that
is likely to be adversely affected by the completion of the merger.
STOCKHOLDERS AGREEMENT
The following description of the stockholders agreement does not purport to
be complete and is qualified in its entirety by, and is subject to, the more
complete and detailed information set forth in the stockholders agreement, which
is filed as an exhibit to the registration statement of which this proxy-
statement prospectus is a part.
Simultaneously with the execution of the merger agreement, Messrs. Beach
and Martin executed and delivered to CNLR a stockholders agreement which, among
other things, obligates them to vote all of the shares of Captec common stock
beneficially owned by them:
- in favor of the merger agreement, the execution and delivery by Captec of
the merger agreement and the approval of the terms thereof and any
actions required in furtherance thereof;
- against any proposal made by a third party to acquire Captec, directly or
indirectly, pursuant to a tender or exchange offer, merger, share
exchange, consolidation or sale of all or substantially all of Captec's
assets, even if such proposal is more favorable generally to Captec's
stockholders than the merger proposal; and
- against any proposal, action or agreement that would impede, frustrate,
prevent or nullify the merger agreement, or result in a breach of the
merger agreement or result in any of the conditions to the merger not
being fulfilled.
Neither Mr. Beach nor Mr. Martin shall be required to vote for, or provide
a consent with respect to, any action that would reduce the number of the shares
of CNLR common stock or CNLR preferred stock
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or the cash to be received by Mr. Beach or Mr. Martin in respect of their
respective shares of Captec common stock in the merger or take any action that
is otherwise prohibited by Delaware law.
As of July 2, 2001, Messrs. Beach and Martin in the aggregate exercise
voting control over 727,552 shares of Captec common stock, representing 7.65% of
the issued and outstanding shares of Captec common stock on such date.
ASSET PURCHASE AGREEMENT
The following description of the asset purchase agreement does not purport
to be complete and is qualified in its entirety by, and is subject to, the more
complete and detailed information set forth in the asset purchase agreement,
which is filed as an exhibit to the registration statement of which this proxy
statement-prospectus is a part.
Contemporaneously with the execution of the merger agreement, Captec, CNLR,
Mr. Beach and CRC Acquisition and certain wholly-owned subsidiaries of CRC
Acquisition, executed a July 1, 2001 asset purchase agreement pursuant to which,
following completion of the merger, the excluded assets will be sold to CRC
Acquisition and its subsidiaries. The excluded assets consist of all of Captec's
rights and interests:
- in and to its general partner interest in Captec Franchise Capital
Partners, L.P. III, a Delaware limited partnership;
- under the agreement of limited partnership of Captec Franchise Capital
Partners, L.P. III;
- in and to its general partner interest in Captec Franchise Capital
Partners, L.P. IV, a Delaware limited partnership;
- under the agreement of limited partnership of Captec Franchise Capital
Partners, L.P. IV;
- in Family Realty, Inc. and Family Realty II, Inc. (exclusive of Captec's
interest in certain management contracts which will be terminated);
- in FCV No. 1, a Delaware corporation that owns Captec's interests in FC
Ventures, LLC;
- in and to Captec's voting interests in CNLR Development, Inc.; and
- under a promissory note dated July 1, 1995 made in favor of Captec by
Financial Group.
In consideration of the sale of the foregoing assets, CRC Acquisition has
agreed to pay to CNLR in cash at the closing the sum of $750,000 and to execute
and deliver a promissory note in favor of CNLR in the principal amount of $6.75
million pursuant to the terms of a loan agreement between CNLR and CRC
Acquisition.
Prior to completion of the asset purchase and pursuant to Captec's
obligations under the agreements of limited partnership of Captec Franchise
Capital Limited Partners, L.P. III and Captec Franchise Capital Limited
Partners, L.P. IV, respectively, Captec must obtain the consent of a majority of
the limited partnership interests of each respective limited partnership to the
transfer of the applicable general partnership interest. Failure of Captec to
obtain such consent will not be deemed to be a breach by Captec of the asset
purchase agreement, provided CRC Acquisition and Captec each use commercially
reasonable efforts to take, or cause to be taken, all appropriate actions or do,
or cause to be done, all things necessary and proper to obtain such consents. In
the event the appropriate consents are not obtained prior to the completion of
the merger, upon closing of the sale of the other excluded assets in accordance
with the asset purchase agreement, Captec's economic interest in these
partnerships will be transferred to CRC Acquisition. In addition, if the
consents are not obtained prior to completion of the merger, Mr. Beach has
agreed to pledge 10,000 shares of CNLR preferred stock which he will receive in
the merger (which, based upon the stated value of $25.00 per share, represents
an additional $250,000) to secure CRC Acquisition's obligation to continue to
seek approval of the limited partners. One-half of these pledged shares will be
released to Mr. Beach at such time as, with respect to each partnership, limited
partner
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approval is obtained, the partnerships are dissolved or CNLR elects to take
control of the partnership interests, which, as successor in interest to Captec
under the partnership agreements, it shall have the right to do after two years
if such consents have not been received at that time. If CNLR does not elect to
take control of the partnership interests, the pledged shares will be returned
to Mr. Beach.
LOAN AGREEMENT
The following description of the loan agreement does not purport to be
complete and is qualified in its entirety by, and is subject to, the more
complete and detailed information set forth in the loan agreement, which is
filed as an exhibit to the registration statement of which this proxy-statement
prospectus is a part.
CNLR, as lender, has executed the July 1, 2001 loan agreement with CRC
Acquisition and certain of its wholly-subsidiaries, as borrowers. Pursuant to
the loan agreement, CNLR will make a $6.75 million loan to the borrowers which
shall be used by the borrowers solely to purchase the excluded assets pursuant
to the asset purchase agreement. The loan will be evidenced by a secured
promissory note and require the payment of principal and interest at the annual
rate of 9.0% in 59 consecutive equal monthly installments of $85,506.15 with a
final payment of unpaid principal and accrued interest on the loan due 60 months
after the loan closing. The loan is subject to mandatory prepayment based upon
(i) the cash flow from certain of the business ventures included in the excluded
assets and from the sale, liquidation or disposition of any assets or property
of such business ventures, and (ii) the repayment of principal on the Financial
Group note. The loan will be secured by a first priority lien against all
tangible and intangible personal property and assets of each of the borrowers
and $1.0 million of the CNLR common stock and/or preferred stock received by Mr.
Beach in the merger (with a portion of such pledged stock to be released if more
than $2.225 million of loan principal is repaid). The making of the loan is
subject to certain conditions of closing set forth in the loan agreement. The
borrowers also make certain representations and warranties to CNLR and are
subject to certain affirmative and negative covenants set forth in the loan
agreement.
ADDITIONAL AGREEMENT
After the execution of the merger agreement, Financial Group and CNLR
entered into a purchase agreement whereby Financial Group agreed to purchase
from CNLR within sixty (60) days following the consummation of the merger,
Financial Group's October 16, 1996 promissory note in the principal amount of
approximately $1.5 million which will be acquired by CNLR in the merger. In
consideration of Financial Group's agreement to purchase this note, CNLR has
agreed to waive its right under the merger agreement to require that certain
consents and contract terminations be obtained as a condition of closing the
merger.
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THE MERGER AGREEMENT
The following description summarizes the material provisions of the merger
agreement. This description does not purport to be complete, is qualified in its
entirety by, and is subject to, the more complete and detailed information set
forth in the merger agreement which is attached as Appendix A to this proxy
statement-prospectus.
TERMS OF THE MERGER
Subject to the terms and conditions of the merger agreement, Captec will
merge with and into CNLR with CNLR being the surviving corporation and the
separate corporate existence of Captec will terminate. CNLR will continue to
exist following the merger and its internal corporate affairs will be governed
by Maryland law. As a result of the merger, the stockholders of Captec will
become stockholders of CNLR.
The merger will be completed and become effective on the date and at the
time certificates of merger are filed with the Secretary of State of Delaware
and the Maryland Department of Assessments and Taxation, or at such later time
as may be specified in the certificates of merger.
The articles of incorporation and bylaws of CNLR in effect immediately
prior to the effective time of the merger will continue to be the articles of
incorporation and bylaws of CNLR following completion of the merger.
The directors and officers of CNLR immediately prior to the effective time
of the merger will be the directors and officers of CNLR following the merger.
CONVERSION OF SECURITIES
At the effective time of the merger, all shares of Captec common stock
owned by Captec or its subsidiaries as treasury stock and all shares of Captec
common stock owned by CNLR or its subsidiaries will automatically be cancelled
and cease to exist. No CNLR capital stock or other consideration will be
delivered in exchange for any Captec common stock owned by Captec and/or its
subsidiaries or CNLR and/or its subsidiaries.
Each share of Captec common stock issued and outstanding immediately prior
to the effective time, with the exception of Captec treasury stock, CNLR-owned
stock and shares with respect to which appraisal rights have been perfected,
will be automatically converted into the right to receive:
- 0.4575 shares of CNLR common stock;
- 0.21034679 shares of CNLR 9% Series A Non-Voting Preferred Stock; and
- $1.27 in cash.
Cash will be paid in lieu of the issuance of fractional shares of CNLR
common stock and preferred stock.
The exchange ratio with respect to CNLR common stock and preferred stock
used in the above calculation will be adjusted to reflect the effect of any
reclassification, combination, subdivision, stock split, reverse split, stock
dividend, reorganization, recapitalization or other like change with respect to
Captec common stock or CNLR common stock occurring prior to the effective time.
Following the effective time, each holder of an outstanding option to
purchase shares of Captec common stock will be entitled to receive a cash
payment from CNLR in cancellation of such stock option. This cash payment will
equal the amount, if any, by which the value of the merger consideration paid by
CNLR at the effective time exceeds the per-share exercise price of such stock
option, multiplied by the number of shares of Captec common stock subject to
such stock option. For purposes of this calculation, the value of CNLR preferred
stock will be $25.00 per share and the value of CNLR common stock will be the
closing price of such common stock reported on the NYSE on the day immediately
preceding the effective time. Each option to purchase shares of Captec common
stock will be cancelled upon payment.
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EXCHANGE OF STOCK CERTIFICATES
When the merger is completed, CNLR's exchange agent will mail to Captec
stockholders a letter of transmittal and instructions for exchanging Captec
share certificates for CNLR common stock and preferred stock certificates. When
a Captec stockholder delivers the Captec share certificates to the exchange
agent, along with an executed letter of transmittal and any other required
documents, the exchange agent will send to such Captec stockholder the cash and
certificates to which that stockholder is entitled pursuant to the merger
agreement. Cash also will be paid to Captec stockholders in lieu of issuing any
fractional shares of either CNLR common stock or preferred stock.
REPRESENTATIONS AND WARRANTIES
The merger agreement includes various representations and warranties
qualified by specified exceptions and materiality standards, of both Captec and
CNLR related to, among other things:
- corporate organization, valid existence, good standing and requisite
authority to conduct business;
- the absence of any undisclosed ownership of equity, membership,
partnership or similar interest in any other business entity;
- capitalization, validity of capital stock, and the absence of any
undisclosed options, warrants or other similar rights to acquire capital
stock; and
- corporate power and authority to enter into the merger agreement and the
transactions contemplated thereby, and the enforceability of the merger
agreement.
The merger agreement also includes various representations and warranties
of Captec related to, among other things:
- due authorization of the merger agreement and the transactions
contemplated thereby by Captec stockholders and the enforceability of the
merger agreement;
- timely filing of all SEC forms, reports or other documents required to be
filed by Captec with the SEC since January 1, 1999, and the material
conformity of all such documents to the requirements of the Exchange Act
and the rules and regulations promulgated thereunder;
- the fair presentation, in all material respects, of Captec's financial
position and results of operations, and the compliance with generally
accepted accounting principles (GAAP) in the financial statements of
Captec, and the completeness and accuracy, in all material respects, of
the books and records of Captec;
- the absence of any material undisclosed liabilities or indebtedness;
- the completeness and accuracy of the disclosure concerning properties
owned by Captec and all material contracts, leases, agreements or
understandings of Captec, and the absence of any material breach or
default with respect to any material agreement to which Captec is a
party;
- the payment or the creation of reserves for all material taxes, the
filing of all required tax returns and the absence of any ongoing tax
audits or investigation;
- the absence of any undisclosed pending or threatened material litigation
against Captec or any unsatisfied judgments against Captec;
- Captec's liabilities under, and compliance with, applicable laws and
regulations;
- the absence of any undisclosed transactions with affiliates of Captec;
- the completeness and accuracy of the disclosure concerning the
compensation of officers, directors and employees of Captec; and
- the accuracy of information concerning Captec supplied by Captec for use
in this proxy statement.
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The merger agreement also includes various representations and warranties
of CNLR related to, among other things:
- the validity of the CNLR common stock and preferred stock to be issued as
merger consideration;
- timely filing of all SEC forms, reports, or other documents required to
be filed by CNLR with the SEC since January 1, 1999, and the material
conformity of all such documents to the requirements of the Exchange Act
and the rules and regulations promulgated thereunder;
- the fair presentation, in all material respects, of CNLR's financial
condition and results of operations, and the compliance with GAAP in the
financial statements of CNLR, and the completeness and accuracy, in all
material respects, of the books and records of CNLR;
- the absence of any material undisclosed liabilities or indebtedness;
- the completeness and accuracy of the disclosure concerning properties
owned by CNLR and the absence of any material breach or default with
respect to any material agreement to which CNLR is a party;
- the payment or the creation of reserves for all material taxes, the
filing of all required tax returns and the absence of any ongoing tax
audits or investigation;
- the absence of any undisclosed pending or threatened material litigation
against CNLR or unsatisfied judgments against, and of material defaults
by, CNLR; and
- the accuracy in all material respects of this proxy statement-prospectus
and the conformity of the proxy statement to the requirements of the
Securities Exchange Act and the rules promulgated thereunder.
None of these representations and warranties survive completion of the
merger.
COVENANTS
Conduct of Business. The merger agreement requires each of Captec and CNLR
and their respective subsidiaries to carry on its business in the ordinary
course as currently conducted and, to the extent consistent therewith, to use
commercially reasonable best efforts to preserve in tact its current business
organization, keep available the services of its current officers and employees
and preserve its business relationships such that its good will and ongoing
business will be unimpaired at the effective time of the merger.
In addition, Captec and CNLR each have agreed, subject to certain
exceptions, not to:
- issue, sell, pledge or otherwise dispose of any shares of its capital
stock or any securities convertible into or exchangeable for such capital
stock except pursuant to existing stock option plans;
- amend its certificate of incorporation or bylaws;
- make any changes in accounting methods, principles or practices;
- increase its indebtedness in excess of certain amounts;
- sell or dispose of material assets; or
- enter into any agreement with respect to a sale or all or substantially
all of its stock or assets.
Captec also has agreed that, subject to certain exceptions, it will not,
and it will not permit any of its subsidiaries to, do any of the following
without the prior written consent of CNLR:
- declare, set aside or pay any dividends on, or make any other
distributions in respect of its capital stock except distributions
consistent with past practice or the payment, at Captec's option, if
applicable, of a special prorated dividend for the partial quarter ending
on the day immediately prior to the effective time of the merger;
- acquire by merger or consolidation any business or other entity;
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- make any capital expenditures or other expenditures in excess of $100,000
in the aggregate;
- pay, discharge or satisfy any claims, liabilities or obligations outside
of the ordinary course of business in excess of $500,000 in the
aggregate;
- make or rescind any material tax election, settle or compromise any
material tax liability or amend in any material respect any tax return;
- fail to report to CNLR on material operational matters and any proposals
to engage in material transactions;
- fail to maintain in full force and effect insurance coverage;
- adopt any new employee benefit plan or amend any existing employee
benefit plan;
- settle any stockholder derivative or class action claims arising out of
or in connection with the merger; or
- increase in any material respect the compensation or fringe benefits of
any directors, officers or key employees;
CNLR also has agreed that, subject to certain exceptions, it will not, and
it will not permit any of its subsidiaries to, do any of the following without
the prior written consent of Captec:
- declare, set aside or pay any dividends on or make any other
distributions in respect of its capital stock, except distributions
consistent with past practice;
- accelerate the payment, right to payment or vesting of any compensation
or benefits, including any outstanding options to purchase capital stock
of CNLR;
- make or rescind any tax election with respect to CNLR's election as a
REIT; or
- acquire by merger, consolidation of asset or stock purchase any business
or entity in one transaction or a series of related transactions with an
aggregate value in excess of $50.0 million.
No Solicitation. Captec has agreed not to solicit or encourage any
inquiries or proposals or, except as described below, engage in discussions with
any person related to any acquisition proposal. An acquisition proposal for
purposes of the merger agreement is:
- any merger, consolidation, business combination, reorganization,
recapitalization, liquidation, dissolution or similar transaction;
- any direct or indirect acquisition of 50.0% or more of the outstanding
voting equity securities of Captec; or
- any transfer of any of Captec's assets resulting in the transfer of more
than 20.0% of its assets.
Captec also agreed not to engage in any discussions or negotiations with,
or provide materials to, any person relating, or that could reasonably be
expected to lead, to an acquisition proposal. Captec agreed to promptly notify
CNLR of any acquisition proposals or any changes to an existing acquisition
proposal.
Captec may provide information to, or enter into negotiations with, a
person presenting an acquisition proposal, provided such acquisition proposal
was not solicited or encouraged by Captec, if Captec's board of directors
determines in good faith, after consultation with its financial advisors and
outside legal counsel, that:
- such acquisition proposal is likely to result in an offer superior to
that proposed by CNLR;
- Captec shall have provided written notice to CNLR that it has received a
superior proposal and describing the terms of such proposal; and
- Captec enters into a confidentiality agreement with the party submitting
the superior proposal.
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Captec's board of directors is permitted to withhold, withdraw, amend or
modify its recommendation in favor of the merger if a superior proposal is made
and not withdrawn, and CNLR has not, within three business days of receiving
notice of such superior proposal, made an offer that Captec's board of directors
by a majority vote determines in good faith based on advice of a financial
advisor, to be at least as favorable to Captec's stockholders as such superior
proposal. Captec's board of directors may also change its recommendation of the
merger proposal if it determines, after consultation with its outside counsel,
that, in light of such superior proposal, the modification of its recommendation
is required to comply with its fiduciary duties under applicable law.
Indemnification of Directors and Officers. CNLR has agreed that its
amended and restated articles of incorporation and bylaws will contain
provisions with respect to indemnification and exculpation of directors and
officers and these documents will not be amended, repealed or otherwise modified
for a period of six years after the effective time of the merger in any manner
that would adversely affect the rights of any person that was a director or
officer of Captec at or prior to the effective time of the merger, unless such
modification is required by law.
CNLR also has agreed to indemnify the present and former directors and
officers of Captec in connection with any claim, action, suit, proceeding or
investigation, based in whole or in part on the fact that such person is or was
a director or officer of Captec and arising out of actions or omissions
occurring at or prior to the effective time of the merger. CNLR is not obligated
to indemnify any director or officer of Captec for acts or omissions by such
director or officer involving willful or intentional misconduct or recklessness.
For a period of six years after the effective time of the merger, CNLR will
maintain in effect a directors' and officers' liability insurance policy
covering those persons who currently are covered by Captec's directors' and
officers' liability insurance policy with coverage in amount and scope at least
as favorable to such persons as Captec's existing coverage. CNLR will not be
required, in order to maintain such directors' and officers' liability insurance
policy, to pay an annual premium in excess of 140.0% of the aggregate annual
amounts currently paid by Captec to maintain the existing policies and, if
equivalent coverage cannot be obtained, or can be obtained only by paying an
annual premium in excess of 140.0% of such amount, CNLR will be required only to
obtain as much coverage as can be obtained by paying an annual premium equal to
140.0% of such amount.
Listing of CNLR Common Stock and Preferred Stock. CNLR has agreed to cause
the shares of CNLR common stock to be issued in the merger and to use its
reasonable best efforts to cause the shares of CNLR preferred stock to be issued
in the merger, in each case, to be listed on the NYSE on or prior to the closing
date of the merger. CNLR also agreed to use its reasonable best efforts to
maintain the listing of the CNLR preferred stock on the NYSE for so long as such
shares remain outstanding.
Consent Solicitation. In connection with the sale of the excluded assets
following the merger by CNLR to CRC Acquisition, Captec, in its capacity as
general partner of Captec Franchise Capital Partners L.P. III and Captec
Franchise Capital Partners L.P. IV has agreed to prepare and file with the SEC a
consent solicitation for the purpose of transferring the general partnership
interests held by Captec in each of these partnerships to CRC Acquisition. In
connection with this consent solicitation. Captec has agreed to recommend that
the limited partners consent to and approve the transfer of each of the general
partnership interests to CRC Acquisition to the fullest extent permitted by its
fiduciary duties as the general partner of each of the partnerships. Captec also
has agreed to pay CNLR a fee of $250,000 if Captec does not so recommend or if
the consent solicitations do not include the recommendation or if Captec
withdraws, amends or modifies, or proposes or resolves to withdraw, amend or
modify its recommendation, in each case, as a result of Captec's determination
that taking any of such actions is not permitted by Captec's fiduciary duties as
the general partner of the relevant partnership.
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Certain Other Covenants. The merger agreement also contains certain other
agreements of Captec and CNLR, including those requiring the parties to:
- take, or cause to be taken, all actions, and do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to complete and make effective the merger;
- obtain any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made in connection
with the authorization, execution and delivery of the merger agreement
and the completion of the merger;
- make all necessary filings, and thereafter make any other required
submissions required under state and federal securities laws, state and
federal antitrust laws and any other applicable law; and
- execute or deliver any additional instruments necessary to complete the
merger and cooperate with each other in the making of all such filings.
CONDITIONS TO THE MERGER
There are a number of conditions that must be met (or waived by the party
for whose benefit the condition exists) for the merger to be completed.
Conditions to the Obligations of Captec and CNLR. The conditions to the
parties' obligation to complete the merger are that:
- approval of the merger by Captec's stockholders;
- expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976;
- a registration statement for the shares of CNLR common stock and
preferred stock to be issued in the merger, has become effective and
those share have been approved for listing on the NYSE;
- no governmental entity has enacted, issued, promulgated, enforced or
entered any order, executive order, stay, decree, judgment or injunction,
or statute, rule or regulation which has the effect of making the merger
illegal or otherwise prohibiting completion of the merger;
- all necessary conditions set forth in the asset purchase agreement have
been satisfied or waived and delivery into escrow of all documents
necessary to complete the transactions provided for in the asset purchase
agreement has occurred; and
- the shares of CNLR common stock and preferred stock included in the
merger consideration shall have been approved for listing on the NYSE.
Conditions to CNLR's Obligations. The further conditions to CNLR's
obligation to complete the merger are:
- certain representations and warranties of Captec set forth in the merger
agreement are true and correct as of the closing date of the merger;
- Captec has performed in all material respects all obligations required to
be performed by it under the merger agreement;
- CNLR has received a written opinion from its counsel to the effect that
the merger will be treated as a tax free reorganization;
- Captec has obtained all required consents and approvals of third parties;
- CNLR has received the resignations, effective as of the effective time of
the merger, of each officer and director of Captec and its subsidiaries;
- CNLR has received a written opinion from Captec's counsel concerning its
status as a REIT;
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- Captec has caused CNLR Development, Inc. to transfer its general
partnership interests in Captec Ster Texas LP and Captec Texas
Opportunity LP to CNLR;
- certain agreements have been terminated on terms mutually agreeable to
the parties thereto and CNLR;
- the asset purchase agreement and loan agreement are in full force and
effect;
- CNLR has received a letter from Captec's independent auditors confirming
that Captec has distributed all of its earnings and profits for all
taxable years, including the taxable year beginning January 1, 2001;
- Captec has terminated certain benefit plans;
- the promissory note dated as of April, 17, 2001 made by Captec Franchise
Capital Partners, L.P. IV to the order of Captec has been paid in full;
and
- Captec's federal tax return for the year ended December 31, 2000 has been
filed with the IRS and a copy has been provided to CNLR.
Conditions to Captec's Obligations. The further conditions to Captec's
obligations to complete the merger are:
- certain representations and warranties of CNLR set forth in the merger
agreement are true and correct as of the closing date of the merger;
- CNLR has performed in all material respects all obligations required to
be performed by it under the merger agreement;
- Captec has received a written opinion from its counsel that the merger
will be treated as a tax-free reorganization;
- UBS Warburg has not withdrawn, modified or revoked its fairness opinion;
and
- CNLR has paid, or has made arrangements reasonably satisfactory to Captec
to pay, the outstanding amounts due under certain credit agreements.
TERMINATION AND TERMINATION FEE
Termination of the Merger Agreement. Captec and CNLR may, by mutual
written consent, agree to terminate the merger agreement without completing the
merger. The merger agreement may also be terminated:
By either Captec or CNLR:
- if the merger is not approved by Captec's stockholders;
- if the merger is not completed by January 31, 2002;
- if any final, nonappealable order of any governmental entity or court is
in effect that prevents the completion of the merger; or
- if any of the conditions to a party's obligation to complete the merger
become impossible to fulfill and is not waived by the other party.
By Captec:
- if it is not in material breach of its obligations under the merger
agreement and if any of the representations and warranties of CNLR are
materially untrue or inaccurate or CNLR has breached any of its covenants
or agreements in the merger agreement so that CNLR's conditions to
complete the merger would not be satisfied.
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By CNLR:
- if Captec's board of directors approves or recommends, or proposes to
approve or recommend, an acquisition proposal other than the merger;
withdraws or modifies its recommendation or approval of the merger; fails
to issue a press release reaffirming the Captec board of directors
recommendation of the merger after commencement of a tender offer or
exchange offer for more than 50.0% of the Captec common stock within two
business days of CNLR's written request, or causes Captec to enter into
any letter of intent or agreement for a competing acquisition proposal;
- if a tender or exchange offer for Captec is commenced and within 10
business days thereof Captec's board of directors fails to recommend
rejection of the tender offer or exchange offer; or
- if it is not in material breach of its obligations under the merger
agreement and if any of the representations and warranties of Captec are
materially untrue or inaccurate or Captec has breached any of its
covenants or agreements in the merger agreement so that its condition to
complete the merger would not be satisfied.
Termination Fee. Captec must pay to CNLR a termination fee of up to $5.0
million if the merger agreement is terminated by CNLR because:
- Captec's board of directors approves or recommends, or proposes to
approve or recommend, an acquisition proposal other than the merger,
withdraws or modifies its recommendation or approval of the merger, fails
to issue a press release reaffirming the Captec board of directors
recommendation of the merger after commencement of a tender offer or
exchange offer for more than 50.0% of the Captec common stock within two
business days of CNLR's written request, or causes Captec to enter into
any letter of intent or agreement for a competing acquisition proposal;
- a tender or exchange offer for Captec is commenced and, within ten
business days thereof, Captec's board of directors fails to recommend
rejection of the tender offer or exchange offer; or
- Captec's stockholders fail to approve the merger agreement or the merger
agreement is terminated by CNLR as a result of any of Captec's
representations and warranties being materially untrue or inaccurate or
Captec's breach of any of its covenants or agreements in the merger
agreement such that its conditions to complete the merger would not be
satisfied AND, within nine months thereafter, Captec enters into any
written agreement for a competing acquisition proposal which is
subsequently completed.
Alternatively, if the merger agreement is terminated under certain other
circumstances, Captec and CNLR are obligated to pay to the other the lesser of
$1.0 million or the other party's actual out-of-pocket expenses incurred in
connection with the merger agreement and the transactions contemplated thereby.
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DESCRIPTION OF CNLR STOCK
The following summary of the terms of CNLR common stock and preferred stock
is not complete and is qualified by reference to the articles of incorporation
and bylaws of CNLR and applicable Maryland law and, in the case of the CNLR
preferred stock, the form of articles supplementary for such series. The CNLR
articles of incorporation and bylaws are incorporated by reference in this proxy
statement-prospectus. See "WHERE YOU CAN FIND MORE INFORMATION" on page 1. The
form of articles supplementary for establishing the CNLR preferred stock to be
issued in connection with the merger is included as an exhibit to the
registration statement of which this proxy-statement prospectus is a part.
GENERAL
CNLR's authorized capital stock consists of 90,000,000 shares of common
stock, par value $.01 per share, and 15,000,000 shares of preferred stock, par
value $.01 per share, of which up to 2,187,209 shares will be designated as 9%
Series A Non-Voting Preferred Stock. There also is authorized 105,000,000 shares
of excess stock, issuable in exchange for capital stock, as described below
under "-- Restrictions on Ownership and Transfer" (p. 55).
COMMON STOCK
As of October 9, 2001, there were 30,911,510 shares of CNLR common stock
outstanding held of record by approximately 1,274 stockholders.
All issued and outstanding shares of CNLR common stock are duly authorized,
validly issued, fully paid and nonassessable. The holders of CNLR common stock
elect all directors and are entitled to one vote per share on all matters
submitted to a vote of the stockholders. Stockholders are entitled to receive
dividends when, as and if declared by CNLR's board of directors out of funds
legally available for that purpose. Upon CNLR's liquidation, dissolution or
winding up, holders of CNLR common stock are entitled to share pro rata in any
distribution to stockholders subject to such rights and preferences as may be
created by the CNLR's board of directors with respect to any authorized class or
series of preferred stock. Holders of CNLR common stock have no preemptive,
subscription or conversion rights.
The shares of CNLR common stock to be issued in connection with the merger
will be fully paid and nonassessable and will not be subject to preemptive or
other similar rights.
PREFERRED STOCK
Generally. Under the terms of CNLR's articles of incorporation, CNLR's
board of directors may from time to time establish and issue one or more series
of preferred stock without stockholder approval. CNLR board of directors may
also, subject to the express provisions of any other series of preferred stock
then outstanding, alter the designation or classify or reclassify any unissued
CNLR preferred stock by setting or changing the number, designation, preference,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms or conditions of redemption of such series.
The issuance of CNLR preferred stock could adversely affect the voting power,
dividend rights and other rights of holders of CNLR common stock.
The CNLR preferred stock, when issued, will be duly authorized, fully paid
and nonassessable. As of October 9, 2001, no shares of CNLR preferred stock were
issued and outstanding.
The 9% Series A Non-Voting Preferred Stock.
The CNLR preferred stock ranks senior, with respect to distribution and
liquidation rights, to all classes or series of shares of CNLR common stock, and
all equity securities, the terms of which provide that they shall rank junior to
the CNLR preferred stock.
Distributions. Holders of CNLR preferred stock will be entitled to
receive, when and as authorized by CNLR's board of directors, out of funds
legally available for the payment of distributions, cumulative
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preferential cash distributions at the rate of 9.0% of the $25.00 liquidation
preference per year (equivalent to a fixed annual amount of $2.25 per share).
Such distributions accumulate on a daily basis, shall be cumulative from the
effective time of the merger, and shall be payable quarterly in arrears on or
before March 15, June 15, September 15 and December 15 of each year (or, if not
a business day, the next succeeding business day). Distributions will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
No distributions on CNLR preferred stock will be authorized by CNLR's board
of directors, or paid or set apart for payment, if such authorization, payment
or setting apart for payment would violate or breach any agreement of CNLR or is
restricted or prohibited by law. Distributions on CNLR preferred stock will
accrue regardless of whether any of the foregoing restrictions exist, CNLR has
earnings, there are funds legally available for payment thereof and whether or
not authorized.
If any CNLR preferred stock is outstanding, no full distributions will be
authorized and paid (or set apart for payment) on any equity securities of any
other class or series ranking, as to distributions, on a parity with or junior
to CNLR preferred stock, unless full cumulative distributions have been, or
contemporaneously are, authorized and paid, or authorized and a sum sufficient
for the payment thereof set apart for such payment, on CNLR preferred stock for
all past distribution periods and the then current distribution period. When
distributions are not paid in full, or a sum sufficient for such full payment is
not so set apart, upon CNLR preferred stock and any equal ranking securities,
all distributions authorized upon such securities will be authorized pro rata so
that the amount of distributions authorized for CNLR preferred stock and each
such other equal ranking securities will in all cases bear to each other the
same ratio that accumulated distributions for CNLR preferred stock and other
equal ranking securities (which shall not include any accumulation in respect of
unpaid distributions for prior distribution periods if such equal ranking
securities do not have a cumulative distribution) bear to each other.
Further, except as provided above, unless full cumulative distributions on
CNLR preferred stock have been, or contemporaneously are authorized and paid, or
authorized and a sum sufficient for the payment thereof is set apart for
payment, for all past distribution periods and the then current distribution
period, no distributions (other than in CNLR common stock or other equity
securities of CNLR ranking junior to the CNLR preferred stock as to
distributions and upon liquidation) shall be authorized or paid or set aside for
payment, nor shall any other distribution be authorized or made upon CNLR common
stock or junior ranking securities of CNLR, nor shall any CNLR common stock or
any other junior ranking securities be redeemed, purchased or otherwise acquired
for any consideration by CNLR (except by conversion into or exchange for junior
securities).
Voting. Holders of CNLR preferred stock have no voting rights except as
provided by law and described below.
Whenever distributions on any CNLR preferred stock shall be in arrears for
six or more quarterly periods (whether or not consecutive), the holders of CNLR
preferred stock (voting as a single class with all other equity securities upon
which parity voting rights have been conferred and are exercisable) will be
entitled to vote for the election of a total of two (2) additional directors of
CNLR at a special meeting called by CNLR's Secretary upon the written request of
the holders of at least 10.0% of the outstanding CNLR preferred stock or the
holders of at least 10.0% of any other voting parity securities so in arrears
(unless such request is received less than 90 days before the date fixed for the
next annual or special meeting of shareholders) or, if the request for a special
meeting is received by CNLR less than 90 days before the date fixed for the next
annual or special meeting of stockholders, at the next annual meeting of
stockholders, and at each subsequent annual meeting until all distributions
accumulated on CNLR preferred stock for the past distribution periods and the
then current distribution period shall have been authorized and fully paid, or
authorized and a sum sufficient for the payment thereof set aside for payment in
full.
Any director elected by the preferred stockholders in accordance with the
above may be removed at any time with or without cause by the vote of, and shall
not be removed otherwise than by the vote of, the holders of a majority of the
outstanding CNLR preferred stock and all other series of voting parity
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securities voting as a single class. Any vacancy may be filled by written
consent of the directors elected by the preferred stockholders remaining in
office, or if none remains in office, by a vote of the holders of a majority of
the outstanding CNLR preferred stock and all other series of parity voting
securities voting as a single class. The directors elected by the preferred
stockholders shall each be entitled to one vote per director on any matter.
So long as any CNLR preferred stock remains outstanding, CNLR may not,
without the affirmative vote of the holders of at least two-thirds of CNLR
preferred stock outstanding at the time, given in person or by proxy, either in
writing or at a meeting and voting separately as a class:
- authorize or create, or increase the authorized or issued amount of, any
class or series of equity securities ranking senior to CNLR preferred
stock with respect to payment of distributions or the distribution of
assets upon liquidation, or reclassify any authorized equity securities
of CNLR into any such equity securities, or create, authorize or issue
any obligation or security convertible into or evidencing the right to
purchase any such equity securities; or
- amend, alter or repeal the provisions of the articles of incorporation
(including any articles supplementary), whether by merger or
consolidation, so as to materially and adversely affect any right,
preference, privilege or voting power of CNLR preferred stock or the
holders thereof.
Ownership Limit. The restrictions on transferability and ownership
described below in "-- Restrictions on Ownership and Transfer" apply to CNLR
preferred stock at the option of the holders thereof.
Preemptive Rights, Conversion, Redemption. Holders of CNLR preferred stock
do not have any preemptive rights.
CNLR preferred stock is not convertible or redeemable, except that it may
be purchased by CNLR under certain circumstances so as to enable CNLR to
preserve its status as a REIT at the option of the holders thereof under the
Internal Revenue Code, and may be redeemed by CNLR as described below.
On and after December 31, 2006, CNLR, at its option and upon not less than
30 nor more than 60 days written notice, may redeem the CNLR preferred stock, in
whole or part, at any time or from time to time, for cash at a redemption price
of $25.00 per share, plus all accumulated and unpaid distributions thereon to
the date fixed for redemption, subject to the following limitations and subject
to compliance by CNLR with the procedural requirements applicable to the
redemption of CNLR preferred stock:
- if fewer than all of the outstanding CNLR preferred stock is to be
redeemed, the shares to be redeemed will be selected pro rata (as nearly
as may be practicable without creating fractional shares), by lot or by
any other equitable method determined by the CNLR's board of directors;
- the redemption price of CNLR preferred stock (other than the portion
thereof consisting of accumulated and unpaid distributions) is payable
solely out of the sale proceeds of other equity securities of CNLR, which
include any depositary shares, interests, participations or other
ownership interests and any rights (other than debt securities
convertible into or exchangeable for such equity securities) or options
to purchase any of the foregoing; and
- unless full cumulative distributions on all CNLR preferred stock have
been or contemporaneously are authorized and paid, or authorized and a
sum sufficient for the payment thereof set apart, for all past
distribution periods and the then current distribution period, no CNLR
preferred stock will be redeemed unless all outstanding CNLR preferred
stock is simultaneously redeemed, and CNLR shall not purchase or
otherwise acquire directly or indirectly any CNLR preferred stock (except
by exchange for junior securities).
The foregoing shall not, however, prevent the purchase or acquisition of
CNLR preferred stock pursuant to a purchase or exchange offer made on the same
terms to all holders of outstanding CNLR preferred stock.
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Any CNLR preferred stock that has been redeemed will, after such
redemption, have the status of authorized but unissued preferred shares, without
designation as to series until such shares are once more designated as part of a
particular series by CNLR's board of directors.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of CNLR, the holders of any outstanding
CNLR preferred stock will be entitled to receive out of the assets of CNLR
available for distribution to stockholders, after payment or provision for
payment of all debts and other liabilities of CNLR, a liquidation preference in
cash of $25.00 per share, plus an amount equal to any accumulated and unpaid
distributions to the date of payment. If upon any voluntary or involuntary
liquidation, dissolution or winding up of CNLR, the assets of CNLR are
insufficient to make such full payment to the holders of CNLR preferred stock
and the corresponding amounts payable on all shares of other classes or series
of securities CNLR ranking equally with respect to liquidation rights, then the
holders of CNLR preferred stock and all other such classes or series of equity
securities shall share ratably in any such distribution of assets in proportion
to the full liquidating distributions to which they would otherwise be
respectively entitled.
After payment of the full amount of the liquidating distribution to which
they are entitled, the holders of CNLR preferred stock will not be entitled to
any further participation in any distribution of assets by CNLR. Neither a
consolidation or merger of CNLR with or into another entity, nor a merger of
another entity with or into CNLR, nor a statutory share exchange by CNLR, nor a
sale, lease, transfer or conveyance of all or substantially all of CNLR's
property or business shall be considered a liquidation, dissolution or winding
up of CNLR.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
For CNLR to qualify as a REIT, not more than 50.0% in value of its
outstanding capital stock may be owned, directly or indirectly, by any five or
fewer persons (as defined in the Internal Revenue Code to include certain
entities) during the last half of a taxable year. The shares of CNLR capital
stock must be beneficially owned (without reference to any rules of attribution)
by 100 or more persons during at least 335 days of a taxable year of 12 months
or during a proportionate part of a shorter taxable year. Certain other
requirements also must be satisfied.
To ensure that any five or fewer persons do not own more than 50.0% in
value of CNLR's outstanding capital stock, CNLR's articles of incorporation
provide that, subject to certain exceptions, no holder may own, or be deemed to
own by virtue of the attribution provisions of the Internal Revenue Code, more
than 9.8% in value of the outstanding capital stock. CNLR's board of directors
may waive this ownership limit if evidence satisfactory to CNLR and its tax
counsel is presented that such ownership will not then or in the future
jeopardize CNLR's REIT status. As a condition of such waiver, CNLR's board of
directors may require opinions of counsel satisfactory to it and/or an
undertaking from the proposed transferor with respect to preserving CNLR's REIT
status.
This ownership limit will not be automatically removed even if the REIT
provisions of the Internal Revenue Code are changed so as to no longer contain
any ownership concentration limitation or if the ownership concentration
limitation of the Internal Revenue Code is increased. In addition to preserving
CNLR's REIT status, this ownership limit may impede or prevent any person or
group from acquiring control of CNLR.
If the ownership, transfer or acquisition of shares of CNLR common stock,
or change in CNLR's capital structure or other event or transaction would result
in:
- any person owning (applying certain attribution rules) capital stock in
excess of the ownership limit,
- fewer than 100 persons owning CNLR's capital stock;
- CNLR being "closely held" within the meaning of Section 856(h) of the
Internal Revenue Code; or
- CNLR otherwise failing to qualify as a REIT;
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Then the ownership, transfer or acquisition, or change in capital structure (or
other event or transaction that would have such effect) will be void as to the
purported transferee or owner, and the purported transferee or owner will not
have or acquire any rights to the capital stock to the extent required to avoid
such a result. Capital stock owned, transferred or proposed to be transferred in
excess of the ownership limit or which would otherwise jeopardize CNLR's REIT
status will automatically be converted to excess stock. A holder of excess stock
is not entitled to distributions, voting rights or other benefits with respect
to such shares except for the right to payment of the purchase price for the
shares (or, in the case of a devise or gift or similar event which results in
the issuance of excess stock, the fair market value at the time of such devise
or gift or event) and the right to certain distributions upon liquidation. Any
dividend or distribution paid to a proposed transferee or holder of excess stock
shall be repaid to CNLR upon demand. Excess stock shall be subject to repurchase
at CNLR's election. The purchase price of any excess stock shall be equal to the
lesser of:
- the price paid in such purported transaction (or, in the case of a devise
or gift or similar event resulting in the issuance of excess stock, the
fair market value of such CNLR common stock at the time of such devise or
gift or event); or
- the fair market value of CNLR common stock on the date on which CNLR or
its designee determines to exercise its repurchase right.
If the foregoing transfer restrictions are determined to be void or invalid
by virtue of any legal decision, statute, rule or regulation, then the purported
transferee of any excess stock may be deemed, at CNLR's option, to have acted as
an agent on CNLR's behalf in acquiring such excess stock and to hold such excess
stock on the company's behalf.
All certificates representing capital stock will bear a legend referring to
the restrictions described above.
CNLR's articles of incorporation provide that all persons who own, directly
or by virtue of the attribution provisions of the Internal Revenue Code, more
than 5.0% of the outstanding capital stock, or such lower percentage as may be
required pursuant to regulations under the Internal Revenue Code or as may be
requested by CNLR's board of directors, must file a written notice with CNLR no
later than January 31 of each year with respect to the prior year containing:
- the name and address of such owner;
- the number of shares of CNLR capital stock owned by such holder; and
- a description of how such shares are held.
In addition, each stockholder is required to disclose CNLR, upon demand, in
writing such information that CNLR may request in good faith in order to
determine its REIT status or to comply with the requirements of any taxing
authority or governmental agency. The ownership limitations may impede or
prevent any person or group from acquiring control of CNLR.
TRANSFER AGENT
The transfer agent and registrar for CNLR common stock is, and for CNLR
preferred stock will be, First Union National Bank.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following are the material United States federal income tax
consequences of the merger. This discussion is based on the Internal Revenue
Code of 1986, as amended, applicable Treasury Department regulations,
administrative interpretations and court decisions as in effect as of the date
of this proxy statement-prospectus, all of which may change, possibly
retroactively.
This discussion addresses only shares of Captec common stock held as
capital assets. It does not address all aspects of federal income taxation that
may be relevant to a Captec stockholder based upon that stockholder's particular
circumstances or to a Captec stockholder subject to special rules, such as:
- a stockholder who is not a citizen or resident of the United States;
- a foreign corporation, foreign estate or foreign trust;
- a financial institution or insurance company;
- a tax-exempt organization;
- a dealer or broker in securities;
- a stockholder that holds its Captec common stock as part of a hedge,
appreciated financial position, straddle or conversion transaction; or
- a stockholder who acquired Captec common stock pursuant to the exercise
of options or otherwise as compensation.
Tax Opinion. In satisfaction of a condition of its obligation to complete
the merger Captec will receive an opinion of Baker & Hostetler LLP that the
merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code and that
Captec and CNLR will each be a party to that reorganization within the meaning
of Section 368(b) of the Internal Revenue Code.
The opinion of tax counsel regarding the merger will rely, on (1)
representations, warranties and covenants of Captec and CNLR, including those
contained in certificates of officers of Captec and CNLR, and (2) specified
assumptions, including an assumption regarding the completion of the merger in
the manner contemplated by the merger agreement. The opinion of tax counsel will
assume, the absence of changes in existing facts or in law between the date of
this proxy statement-prospectus and the closing date. If any of those
representations, covenants or assumptions are inaccurate, tax counsel may not be
able to provide the required closing date opinion or the tax consequences of the
merger could differ from those described in the opinion that tax counsel has
delivered. Tax counsel's opinion neither binds the IRS nor precludes the IRS or
the courts from adopting a contrary position. Neither Captec nor CNLR intends to
obtain a ruling from the IRS on the tax consequences of the merger.
Federal Income Tax Treatment of the Merger. The merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code, and Captec and CNLR will each be party to
that reorganization within the meaning of Section 368(b) of the Internal Revenue
Code. Neither Captec nor CNLR will recognize any gain or loss for federal income
tax purposes as a result of the merger.
Federal Income Tax Consequences to Captec Stockholders Who Participate in
the Merger. Based on the assumption that the CNLR preferred stock is not
classified as "nonqualified preferred stock" within the meaning of section
351(g)(2) of the Internal Revenue Code, as described below, for federal income
tax purposes:
- a holder of Captec common stock will not recognize any loss upon the
stockholder's exchange of its shares of Captec common stock for shares of
CNLR common stock, CNLR preferred stock, and cash. A holder of Captec
common stock will recognize some capital gain, if any gain is realized,
in an amount equal to the lesser of (i) the amount of gain realized
(i.e., the excess of (a) the amount
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of cash and the fair market value of CNLR common and preferred stock
received over (b) the tax basis of the Captec common stock), and (ii) the
amount of cash received;
- a holder of Captec common stock will have an aggregate tax basis in the
CNLR common stock and CNLR preferred stock received in the merger equal
to the aggregate tax basis of the Captec common stock surrendered by that
stockholder in the merger, decreased by the cash received by the
stockholder and increased by the amount of gain recognized by the
stockholder. The stockholder's basis will be allocated to the shares of
each class of stock received in proportion to the fair market value of
each class; and
- the holding period for shares of CNLR common stock and preferred stock
received in exchange for shares of Captec common stock in the merger will
include the holding period for the shares of Captec common stock
surrendered in the merger.
Classification of CNLR Preferred Stock. The nonrecognition rule described
above will not apply, and additional gain will be recognized upon the exchange
if the CNLR preferred stock is classified as "nonqualified preferred stock"
within the meaning of Section 351(g)(2) of the Internal Revenue Code. In this
case, the gain would be recognized (if any gain is realized) in an amount equal
to the lesser of (i) the amount of gain realized (i.e., the excess of (a) the
amount of cash and the fair market value of CNLR common stock and preferred
stock received over (b) the tax basis of the Captec common stock), and (ii) the
sum of the amount of cash received and the fair market value of CNLR preferred
stock received.
For these purposes, the term "nonqualified preferred stock" means preferred
stock if (1) the holder of the stock has the right to require the issuer or a
related person to redeem or purchase the stock within 20 years of the issuance
of the stock, (2) the issuer or a related person is required to redeem or
purchase the stock within 20 years of the issuance of the stock, (3) the issuer
or a related person has the right to redeem or purchase the stock and, as of the
issue date, it is more likely than not that the right will be exercised within
20 years of the issuance of the stock, or (4) the dividend rate on the stock
varies in whole or in part (directly or indirectly) with reference to interest
rates, commodity prices, or other similar indices. "Preferred stock" is defined
as stock which is limited and preferred as to dividends and does not participate
in corporate growth to any significant extent.
The CNLR preferred stock is not mandatorily redeemable by CNLR or puttable
to CNLR by a stockholder. In addition, the dividend rate on the CNLR preferred
stock does not vary in whole or in part (directly or indirectly) with reference
to interest rates, commodity prices or other similar indices. CNLR has the right
to redeem the CNLR preferred stock after 5 years. The CNLR preferred stock will
constitute "nonqualified preferred stock" if it is more likely than not that
CNLR will exercise the redemption right.
Section 351(g)(2) was added to the Internal Revenue Code in 1997. To date,
there is little guidance concerning the scope of this provision. Neither the
legislative history nor any other direct authority establishes the parameters
for determining whether it is more likely than not that preferred stock like the
CNLR preferred stock will be redeemed.
CNLR has represented that it has no plan or intention to redeem the CNLR
preferred stock. In addition, the CNLR preferred stock has no features that
effectively would require or are intended to compel its redemption. CNLR will
take the position that the CNLR preferred stock is not more likely than not to
be redeemed. There can be no assurance that the IRS will not take a contrary
position.
There is analogous authority in the Section 305 regulations that gives some
indication of the standards that could be adopted by the IRS. The Section 305
regulations set forth a safe harbor under which an issuer's right to redeem
preferred stock is not treated as "more likely than not" to be exercised if (1)
the issuer and the holder are not related, (2) there are no plans, arrangements
or agreements that effectively require or are intended to compel the issuer to
redeem the stock, and (3) exercise of the redemption right would not reduce the
yield of the stock, as determined under principles similar to the original issue
discount rules. If the same safe harbor is adopted for purposes of applying
Section 351(g)(2) of the Internal Revenue Code, the CNLR preferred stock should
not be treated as nonqualified preferred stock.
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The CNLR preferred stock provides for the payment of dividends at a rate
intended to provide a 9.0% cumulative return, compounded on a quarterly basis as
long as the preferred stock is outstanding. The CNLR preferred stock may be
redeemed by CNLR after five years for a fixed amount based on the liquidation
value of the stock. Neither the dividend rate nor the liquidation value
increases over time. Therefore, a redemption of the CNLR preferred stock would
not decrease the yield. However, there can be no assurance that the IRS will
adopt this approach for defining nonqualified preferred stock.
This discussion is intended to provide only a general summary of the
material federal income tax consequences of the merger, and is not a complete
analysis or description of all potential federal income tax consequences of the
merger. This discussion does not address tax consequences that may vary with, or
are contingent on, individual circumstances or any non-income tax or any
foreign, state or local tax consequences of the merger. Captec strongly urges
each stockholder to consult his or her own tax advisor to determine the
particular tax consequences of the merger.
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THE COMPANIES
CAPTEC'S BUSINESS
Captec is an externally advised REIT which 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. Captec generally acquires properties from operators or developers in
locations which have exhibited growth in retail sales and population. Upon
acquiring a property, Captec typically enters into a long term triple net lease
(typically 15 to 20 years plus one or more five year renewal options) with the
lessees. Triple net leases generally impose on the lessee responsibility for all
operating costs and expenses of the property, including the costs of repairs,
maintenance, real property taxes, assessments, utilities and insurance.
Captec believes that the structure of its leases provides steady,
periodically escalating, long term revenue, while reducing operating expenses
and capital costs, and that its underwriting standards reduce the risk of lessee
default under or non-renewal of the leases. Captec's leases typically provide
for minimum rent plus specified fixed periodic rent increases. Other revenues
are derived primarily from interest income on loans to affiliates and fee income
earned from affiliated ventures.
As of June 30, 2001, Captec had a portfolio of 136 properties located in 26
states, with a cost basis of $212.0 million. The properties are leased to 46
operators of 33 distinct national and regional restaurant concepts and 10
operators of 12 national and regional retail concepts.
Captec's executive offices are located at 24 Frank Lloyd Wright Drive,
Lobby L, 4th Floor, Ann Arbor, Michigan 48106. Its telephone number is (734)
994-5505. Additional information concerning Captec is included in the Captec
documents filed with the SEC which are incorporated herein. See "WHERE YOU CAN
FIND MORE INFORMATION" (p. 1).
CNLR'S BUSINESS
CNLR is a fully integrated self-administered equity real estate investment
trust, incorporated in Maryland in 1984. CNLR acquires, owns, manages and
indirectly develops a diversified portfolio of high quality, freestanding
properties leased to major retail businesses generally under full credit, long
term commercial net leases.
CNLR's portfolio emphasizes properties that are located within intensive
commercial corridors near traffic generators such as regional malls, business
developments and major thoroughfares. These properties, which generally have
purchase prices of up to $10.0 million, attract a wide array of established
retail tenants, such as Academy, Barnes & Noble, Bed Bath & Beyond, Best Buy,
Borders, CVS, Eckerd, Food 4 Less, IHOP, Office Depot, OfficeMax, Supervalu, The
Sports Authority, Wal-Mart and 7-Eleven. Consequently, CNLR's management
believes that such properties offer attractive opportunities for stable current
returns and potential capital appreciation. In addition, management believes
that the location and design of properties in this niche provide flexibility in
use and tenant selection and an increased likelihood of advantageous re-lease
terms upon expiration or early termination of the related leases.
CNLR generally acquires properties that are newly constructed or
re-developed as of the time of acquisition. In addition, CNLR generally acquires
properties that are subject to a lease in order to avoid the risks of not
finding a tenant on a timely basis and to provide an immediate revenue stream.
CNLR's leases typically provide that the tenant bears responsibility for
substantially all property costs and expenses associated with ongoing
maintenance and operation, including utilities, property taxes and insurance,
and generally also provide that the tenant is responsible for roof and
structural repairs. Such leases typically do not limit CNLR's recourse against
the tenant and any guarantor in the event of a default and for this reason are
considered "full credit" leases. CNLR's properties are leased on a long term
basis, generally 10 to 20 years, with renewal options for an additional 10 to 20
years.
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As of June 30, 2001, CNLR owned, either directly or through investment
interests, 241 properties, which were 98% leased, located in 36 states. The
average remaining initial lease term of CNLR's properties was approximately 13
years. Leases representing approximately 74% of annualized base rental income
from CNLR's properties, as of June 30, 2001, have initial terms extending until
at least December 31, 2011. Approximately 83% of annualized base rental income
is derived from leases that provide for periodic, contractually fixed increases
in base rent. These leases generally have increases that range from 6% to 12%
after every five years of the lease term.
CNLR's principal office is located at 450 S. Orange Avenue, Suite 900,
Orlando, Florida 32801 and the telephone number is (407) 265-7348. Additional
information concerning CNLR is included in the CNLR documents filed with the SEC
which are incorporated herein. See "WHERE YOU CAN FIND MORE INFORMATION" (p. 1).
CNLR'S MANAGEMENT AND ADDITIONAL INFORMATION
CNLR's board of directors and officers immediately prior to the completion
of the merger will serve as CNLR's board of directors and officers after the
merger.
Certain information regarding the executive compensation, various benefit
plans (including stock option plans), voting securities and the principal
holders thereof, certain relationships and related transactions and other
matters related to CNLR is incorporated by reference or set forth in CNLR's
Annual Report on Form 10-K for the year ended December 31, 2000. Stockholders
desiring copies of these documents may contact CNLR at its address or telephone
number indicated under the section entitled "WHERE YOU CAN FIND MORE
INFORMATION" (p. 1).
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COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of the material differences between the rights
of Captec stockholders and CNLR stockholders. These difference arise from the
differences between the Delaware General Corporation Law and the Maryland
General Corporation Law, Captec's certificate of incorporation and CNLR's
articles of incorporation and Captec's and CNLR's respective bylaws. After
completion of the merger, the rights of Captec stockholders who become CNLR
stockholders will be governed by CNLR's articles of incorporation, CNLR's bylaws
and Maryland law. Captec stockholders are urged to read the full text of CNLR's
articles of incorporation and bylaws, which are set forth as exhibits to the
registration statement filed by CNLR. The following description of the material
provisions of CNLR's articles of incorporation and bylaws is qualified in its
entirety by reference to those documents. See "WHERE YOU CAN FIND MORE
INFORMATION" (p. 1).
BOARD OF DIRECTORS
The Captec board of directors consists of 9 directors, each of whom is
elected annually.
The CNLR board of directors consists of 8 directors, each of whom is
elected annually.
REMOVAL OF DIRECTORS
Delaware law provides that any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors unless the certificate
of incorporation otherwise provides. Captec's certificate of incorporation does
not modify its stockholders' statutory rights with respect to the removal of
directors.
Maryland law provides that any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors unless the articles of
incorporation otherwise provide. CNLR's articles of incorporation do not modify
its stockholders' statutory rights with respect to the removal of directors.
VACANCIES ON THE BOARD
Delaware law provides that vacancies and newly created directorships may be
filled by a majority of the directors then in office or a sole remaining
director (even though less than a quorum) unless otherwise provided in the
certificate of incorporation or bylaws.
Under Maryland law, stockholders may elect a successor to fill a vacancy on
the board of directors which results from the removal of a director unless the
articles of incorporation or bylaws provide otherwise. Otherwise, a majority of
the remaining directors, whether or not sufficient to constitute a quorum, may
fill a vacancy on the board of directors which results from any removal for
cause except an increase in the number of directors, which requires the vote of
a majority of the remaining directors. CNLR's bylaws provide that any vacancy
created as a result of the removal of a director must be filled by the
stockholders at an annual or special meeting.
STOCKHOLDER MEETINGS GENERALLY AND PROVISIONS FOR NOTICES; PROXIES
Under Delaware law, stockholder meetings may be held at any place, as
provided in the certificate of incorporation or bylaws. Written notice of a
stockholders meeting must state the place, date, and time of the meeting and, if
a special meeting, the purpose or purposes for which the meeting is to be held.
Under Captec's bylaws, not less than 10 days nor more than 60 days before the
date of every stockholders meeting, Captec must give to each stockholder
entitled to vote at the meeting, written notice stating the date, time and place
of the meeting and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, by mail, addressed to the stockholder at his
address as it appears in the
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records of the corporation. Notice is deemed to have been given at the time when
it is deposited in the mail.
Under Maryland law, stockholder meetings may be held at any place, as
provided in the bylaws. All meetings must be held in the United States. Written
notice of a stockholders meeting must state the place, date, and time of the
meeting and, if a special meeting, the purpose or purposes for which the meeting
is to be held. Under the CNLR bylaws, not less than 10 days nor more than 90
days before the date of every stockholders' meeting, CNLR must give to each
stockholder entitled to vote at the meeting, written notice stating the date,
time and place of the meeting and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, either personally or by mail,
addressed to the stockholder at his address as it appears in the records of the
corporation. In the case of notice delivered by mail, notice is deemed to have
been given at the time when it is deposited in the mail.
Under Delaware law, stockholder proxies are valid for three years from
their date unless the proxy provides for a longer period.
Under Maryland law, proxies are valid for 11 months from their date, unless
the proxy otherwise provides.
VOTE REQUIRED FOR CERTAIN STOCKHOLDER ACTIONS
Delaware law provides that in all matters other than the election of
directors, the affirmative vote of the majority of the shares present or
represented by proxy at a meeting where a quorum is present and entitled to vote
on the subject matter shall be the act of the stockholders, unless the vote of a
greater number is required by law, or the certificate of incorporation or
bylaws. Captec's certificate of incorporation does not provide for a vote
greater than a majority of the outstanding shares entitled to vote on any
matter.
Maryland law provides that on matters other than the election of directors
and certain extraordinary corporate actions, the affirmative vote of a majority
of all votes cast at a stockholders' meeting at which a quorum is present shall
be the act of the stockholders, unless the vote of a greater number is required
by law or the articles of incorporation. CNLR's articles of incorporation do not
require a vote greater than the number prescribed by statute. An abstention is
not considered a "vote cast" for purposes of the voting requirement, but a
stockholder who abstains in person or by proxy is considered present for
purposes of the quorum requirement.
Under Maryland law, a consolidation, merger, share exchange or transfer
must be approved by the stockholders of the corporation by the affirmative vote
of two-thirds of all the votes entitled to be cast on the matter. CNLR's
articles of incorporation do not modify this requirement.
AMENDMENT OF CHARTER AND BYLAWS
Under Delaware law, the certificate of incorporation may be amended by the
affirmative vote of the majority of the outstanding stock entitled to vote on
the amendment as a class, unless the vote of a greater number is required by the
certificate of incorporation. Captec's certificate of incorporation does not
modify the statutory vote requirement.
Delaware law also provides that the power to amend the bylaws resides in
the stockholders entitled to vote, provided that the corporation may, in its
certificate of incorporation, confer the power to amend the bylaws upon the
directors. The fact that such power has been conferred on the directors does not
divest or limit the power of the stockholders to amend the bylaws. Captec's
certificate of incorporation provides that the board of directors is authorized
to amend the bylaws.
Under Maryland law, CNLR's articles of incorporation may be amended by the
affirmative vote of two-thirds of all the votes of stockholders entitled to be
cast on the matter, unless a different number, not less than a majority, is
specified in the articles of incorporation. The power to amend the bylaws is
vested
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with the stockholders except to the extent the articles of incorporation or the
bylaws vest such power with the corporation's board of directors.
CNLR's articles of incorporation provide that the board of directors is
expressly authorized to make, alter, amend or repeal the bylaws. The CNLR
articles of incorporation do not modify the statutory vote requirement relating
to amendments to the articles of incorporation or bylaws.
STOCKHOLDER ACTIONS WITHOUT A MEETING
Under Delaware law, unless otherwise provided in a corporation's
certificate of incorporation, stockholders may act by written consent signed by
the holders of outstanding shares not having less than the minimum number of
votes necessary to take such action at a meeting. Captec's certificate of
incorporation does not limit its stockholders' right to act by written consent.
Under Maryland law, common stockholders may act without a meeting if a
written consent which describes the action is signed by all the stockholders
entitled to vote on the matter and is filed with the records of the stockholders
meeting. Unless the articles of incorporation provide otherwise, the holders of
any other class of stock that is entitled to vote in the election of directors
may act by the written consent of the holders of the shares necessary to approve
the action if the corporation gives notice of the action to all stockholders
within 10 days after the effective date of the action. CNLR's articles of
incorporation do not modify these provisions.
RIGHT TO CALL SPECIAL MEETINGS OF STOCKHOLDERS
Under Delaware law, the stockholders may not call a special meeting of
stockholders unless such a right is provided for in the corporation's
certificate of incorporation or bylaws. Captec's certificate of incorporation
does not grant stockholders the right to call special meetings.
Under Maryland law, a special meeting may be called by the president, the
board of directors, or any person designated in the articles of incorporation or
bylaws. Special meetings of the stockholders may also be called by the secretary
of the corporation upon the written request of stockholders entitled to cast at
least 25.0% of all the votes entitled to be cast at the meeting. However, the
secretary is not required to call a special meeting notwithstanding a proper
stockholder request if the matter to be considered at the meeting is
substantially the same as a matter considered at a special meeting during the
preceding 12 months. The articles of incorporation or bylaws may increase or
decrease the percentage of votes stockholders must possess to request a special
meeting. Corporations that have elected to be governed by the unsolicited
takeover statute are subject to special rules regarding special meetings of the
stockholders. Neither CNLR's articles of incorporation nor its bylaws modify the
percentage of votes needed for stockholders to require the secretary to call a
special meeting. CNLR has not elected to be governed by the unsolicited takeover
statute.
MERGER
Under Delaware law, a merger may become effective without approval of the
surviving corporation's stockholders under certain circumstances. Where
stockholder approval is required, the merger must be approved by the holders of
a majority of the outstanding shares entitled to vote unless the certificate of
incorporation provides for a higher number. Captec's certificate of
incorporation does not provide for approval of a merger by a vote greater than a
majority of the outstanding shares entitled to vote.
Under Maryland law, a merger may become effective without the approval of
the surviving corporation's stockholders in certain circumstances. Where
stockholder approval is required, the merger must be approved by the
stockholders of the corporation by the affirmative vote of at least two-thirds
of all the votes entitled to be cast on the matter unless a different number,
not less than a majority, is specified in the articles of incorporation. CNLR's
articles of incorporation do not provide for approval of a merger by a vote less
than two-thirds of the outstanding shares entitled to vote.
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RESTRICTIONS ON BUSINESS COMBINATIONS
Delaware Law prohibits transactions between a corporation and an interested
stockholder for three years following the time such stockholder became an
interested stockholder, unless certain conditions are met. Generally, an
interested stockholder is any person (including such person's affiliates and
associates) who owns 15.0% or more of the outstanding voting stock of a
corporation. If the interested stockholder does not get prior approval of the
business combination from the board of directors or the holders of 85.0% of the
voting stock of the corporation, the stockholder cannot engage in a business
combination for three years, unless the business combination is approved by the
directors and the holders of two-thirds of the voting stock of the corporation
not owned by the interested stockholder.
Maryland law prohibits a business combination between a corporation and any
interested stockholder for five years following the most recent date upon which
the stockholder became an interested stockholder, unless the transaction is
approved in advance by the board of directors or otherwise exempted by the
statute. Generally, an interested stockholder is anyone who owns 10.0% or more
of the voting power of the corporation and the affiliates of such person. A
merger of a corporation with an interested stockholder or any other corporation
(whether or not such corporation is an interested stockholder) which is, or
after the merger would be, an affiliate of the interested stockholder that was
an interested stockholder prior to the transaction is considered a "business
combination" unless it does not alter the contract rights of the stock as
expressly set forth in the articles of incorporation, or change or convert in
whole or in part the outstanding shares of stock of the corporation.
CONTROL SHARE ACQUISITION STATUTE
Delaware has no control share acquisition statute comparable to that in
effect in Maryland.
The Maryland General Corporation Law provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast by stockholders in the election of directors, excluding
shares of stock as to which the acquiring person, officers of the corporation,
and directors of the corporation who are employees of the corporation are
entitled to exercise or direct the exercise of the voting power of the shares in
the election of directors. "Control shares" are voting shares of stock which, if
aggregated with all other shares of stock previously acquired by such person,
would entitle the acquirer to exercise voting power in electing directors within
one of the following ranges of voting power: (i) one-tenth or more or less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
of all voting power. Control shares do not include shares that the acquiring
person is entitled to vote as a result of having previously obtained stockholder
approval. A "control share acquisition" means the acquisition, directly or
indirectly, of control shares, subject to certain exceptions.
A person who has made or proposes to make a "control share acquisition,"
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of directors to call a special meeting of
stockholders to be held within 50 days of such demand to consider the voting
rights of the shares.
If voting rights are not approved at the meeting or if the acquirer does
not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares, except those for which voting rights have previously
been approved, for fair value determined, without regard to voting rights, as of
the date of the last control share acquisition or of any meeting of stockholders
at which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders' meeting and the
acquirer becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid in the control share acquisition, and certain
limitations and restrictions generally applicable to the exercise of appraisal
rights do not apply in the context of a control share acquisition.
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The "control share acquisition" statute does not apply to shares acquired
in a merger, consolidation, or share exchange if the corporation is a party to
the transaction or to acquisitions approved or excepted by the charter or the
bylaws of the corporation.
DIVIDENDS
A Delaware corporation may pay dividends out of surplus. If there is no
surplus, dividends may be declared out of net profits for the current or
preceding fiscal year unless the capital of the corporation has been decreased
to an amount less than the aggregate amount of the capital represented by the
issued and outstanding stock having a preference on the distribution of assets.
A Maryland corporation generally may make distributions to its stockholders
unless, after giving effect to the distribution, the corporation would not be
able to pay its debts as they come due in the ordinary course of business or the
corporation's total assets would be less than its total liabilities.
APPRAISAL RIGHTS
Under Delaware law, stockholders of a corporation who do not consent to
certain major corporate transactions may, under varying circumstances, be
entitled to dissenters' or appraisal rights pursuant to which such stockholders
may receive cash in the amount of the fair market value of their shares in lieu
of the consideration which otherwise would have been received in the
transaction. Unless the corporation's certificate of incorporation provides
otherwise, such appraisal rights are not available in certain circumstances,
including without limitation, (a) with respect to the sale, lease, or exchange
of all or substantially all of the assets of a corporation, (b) with respect to
a merger or consolidation by a corporation the shares of which are either listed
on a national securities exchange or are held of record by more than 2,000
holders if such stockholders receive only shares of the surviving corporation or
shares of any other corporation which are either listed on a national securities
exchange or held of record by more than 2,000 holders, plus cash in lieu of
fractional shares, or (c) to stockholders of a corporation surviving a merger if
no vote of the stockholders of the surviving corporation is required to approve
the merger because the merger agreement does not amend the existing certificate
of incorporation, each share of the surviving corporation outstanding prior to
the merger is an identical outstanding or treasury share after the merger, and
the number of shares to be issued in the merger does not exceed 20.0% of the
shares of the surviving corporation outstanding immediately prior to the merger
and if certain other conditions are met.
Under Maryland law, stockholders have the right to demand and to receive
payment of the fair value of their stock in the event of (a) a merger or
consolidation, (b) a share exchange, (c) certain sales of all or substantially
all of the assets of the corporation, (d) an amendment to the articles of
incorporation altering contract rights of outstanding stock, as expressly set
forth in the articles of incorporation, and substantially adversely affecting
the stockholders' rights (unless the right to do so is reserved in the articles
of incorporation), or (e) certain business combinations with interested
stockholders which are subject to or exempted from the Maryland business
combination statute (as discussed above) and in connection with the approval of
voting rights of certain stockholders under the Maryland control share
acquisition statute. Except with respect to certain business combinations and in
connection with appraisal and dissenters' rights existing as a result of the
Maryland control share acquisition statute, the right to demand and receive
payment of fair value does not apply to (a) stock listed on a national
securities exchange or a national market system security designated on an
interdealer quotation system by the National Association of Securities Dealers,
Inc., (b) stock of the successor in a merger (unless the merger alters the
contract rights of the stock or converts the stock in whole or in part into
something other than stock, cash or other interests) or (c) stock of an open-end
investment company registered with the SEC under the Investment Company Act of
1940 and the stock is valued in the transaction at its net asset value. Except
in the case of appraisal and dissenters' rights existing as a result of the
Maryland control share acquisition statute, these rights are available only when
the stockholder (a) files with the corporation a timely, written objection to
the transaction, and (b) does not vote in favor of the transaction. In addition,
the stockholder
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must make a demand on the successor corporation for payment of the stock within
20 days of the acceptance of articles by the Maryland State Department of
Assessments and Taxation.
INDEMNIFICATION
Delaware and Maryland have similar laws respecting the indemnification by a
corporation of its officers, directors, employees, and other agents. The laws of
both states also permit, with certain exceptions, corporations to adopt a
provision in their certificate of incorporation or charter eliminating the
liability of a director to the corporation or its stockholders for monetary
damages for breach of the director's fiduciary duty of care. There are
nonetheless certain differences between the laws of the two states respecting
indemnification and limitation of liability.
The Delaware General Corporation Law provides that indemnification is
mandatory where a director, officer, employee, or agent acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation, or with respect to any criminal action or
proceeding, where there was no reason to believe his or her conduct was
unlawful, or where he or she has been successful on the merits or otherwise in
the defense of any proceeding covered by the indemnification statute.
The Delaware General Corporation Law also generally permits, and Captec's
bylaws require, indemnification for expenses incurred by an "authorized
representative" of a corporation (which includes, but is not limited to,
officers and directors) in connection with any third party proceeding, provided
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal proceeding, had no reasonable cause to believe such
conduct was unlawful. Without court approval, however, no indemnification may be
made in respect of any derivative action in which such person is adjudged
liable. The Delaware General Corporation Law states that the indemnification
provided by statute shall not be deemed exclusive of any rights under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
Captec's certificate of incorporation eliminates the personal liability of
directors to the corporation for breach of fiduciary duty as a director except
for (a) any breach of the director's duty of loyalty to the corporation or its
stockholders; (b) acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law; (c) the payment of unlawful dividends
or unlawful stock repurchases or redemptions; or (d) transactions in which the
director received an improper personal benefit.
In Maryland, expenses may be advanced to a director, or to an officer,
employee, or agent who is not a director to the same extent that they may be
advanced to a director unless limited by the articles of incorporation. Advances
to officers, employees, and agents may be generally authorized in the
corporation's charter or bylaws, by action of the board of directors, or by
contract.
Under Maryland law, unless limited by the articles of incorporation,
indemnification is mandatory if a director or an officer has been successful on
the merits or otherwise in the defense of any proceeding arising from his or her
service as a director unless such indemnification is not otherwise permitted as
described in the following sentence. Indemnification is permissive unless it is
established that (a) the act or omission of the director was material to the
matter giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty, (b) the director actually received
an improper personal benefit in money, property or services, or (c) in the case
of a criminal proceeding, the director had reasonable cause to believe his or
her act or omission was unlawful. In addition to the foregoing, a court of
appropriate jurisdiction may, under certain circumstances, order indemnification
if it determines that the director or officer is fairly and reasonably entitled
to indemnification in view of all the relevant circumstances, whether or not the
director or officer has met the standards of conduct set forth in the preceding
sentence or has been adjudged liable on the basis that a personal benefit was
improperly received in a proceeding charging improper personal benefit to the
director or the officer. If the proceeding was an action by or in the right of
the corporation or involved a determination that the director or officer
received an improper personal benefit, however, no indemnification may be made
if the individual is
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adjudged liable to the corporation, except to the extent of expenses approved by
a court of appropriate jurisdiction.
Maryland law also provides that, where indemnification is permissible, it
must be authorized (a) by a majority vote of a quorum of the board of directors
consisting of directors who are not parties to the proceeding (or if such a
quorum cannot be obtained, the determination may be made by a majority vote of a
committee of the board which consists solely of two or more directors who are
not parties to the proceeding and who were designated to act by a majority of
the full board of directors), (b) by special legal counsel selected by the board
of directors or by a committee of the board of directors (or if the requisite
quorum of the board of directors cannot be obtained and the committee cannot be
established, a majority of the full board of directors, including directors who
are parties, may select the special counsel), or (c) by a vote of the
stockholders other than those stockholders who are directors and a party to the
proceedings.
CNLR articles of incorporation limit the monetary liability of both
officers and directors to the maximum extent permissible under Maryland law. The
exceptions to such a liability limitation in the articles of incorporation of a
Maryland corporation generally are to the extent that (a) it is proved that the
person received an improper benefit or profit in money, property or services,
for the amount of benefit or profit so received, and (b) a judgment or other
final adjudication adverse to the person is entered in a proceeding based on a
finding that the person's action or failure to act was the result of active and
deliberate dishonesty and was material to the cause of action.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
In order to maintain REIT status, each of CNLR's articles of incorporation
and Captec's certificate of incorporation restrict the ownership, transfer or
acquisition of shares of common stock, or any change in capital structure or
other event or transaction that would result in:
- any person owning in excess of 9.8% of its capital stock;
- fewer than 100 persons owning its capital stock;
- it being "closely held" within the meaning of Section 856(h) of the
Internal Revenue Code; or
- it otherwise failing to qualify as a REIT.
In the event any of the foregoing restricted events with respect to the
CNLR capital stock occurs, the ownership, transfer or acquisition, or change in
capital structure (or other event or transaction that would have such effect)
will be void as to the purported transferee or owner, and the purported
transferee or owner will not have or acquire any rights to the capital stock to
the extent required to avoid such a result. Capital stock owned, transferred or
proposed to be transferred in excess of the ownership limit or which would
otherwise jeopardize CNLR's REIT status will automatically be converted to
excess stock. A holder of excess stock is not entitled to distributions, voting
rights or other benefits with respect to such shares except for the right to
payment of the purchase price for the shares (or, in the case of a devise or
gift or similar event which results in the issuance of excess stock, the fair
market value at the time of such devise or gift or event) and the right to
certain distributions upon liquidation. Any dividend or distribution paid to a
proposed transferee or holder of excess stock shall be repaid to CNLR upon
demand. Excess stock shall be subject to repurchase at CNLR's election. The
purchase price of any excess stock shall be equal to the lesser of:
- the price paid in such purported transaction (or, in the case of a devise
or gift or similar event resulting in the issuance of excess stock, the
fair market value of such common stock at the time of such devise or gift
or event); or
- the fair market value of such common stock on the date on which CNLR or
its designee determines to exercise its repurchase right.
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If the foregoing transfer restrictions are determined to be void or invalid
by virtue of any legal decision, statute, rule or regulation, then the purported
transferee of any excess stock may be deemed, at CNLR's option, to have acted as
an agent on CNLR's behalf in acquiring such excess stock and to hold such excess
stock on CNLR's behalf.
In the event of any of the above described restricted events with respect
to Captec capital stock occurs, the ownership, transfer or acquisition, or
change in capital structure (or other event or transaction that would have such
effect) will be void as to the purported transferee or owner, and the purported
transferee or owner will not have or acquire any rights to the capital stock to
the extent required to avoid such a result. Capital stock owned, transferred or
proposed to be transferred in excess of the ownership limit or which would
otherwise jeopardize Captec's REIT status will automatically be transferred to a
charitable trust. The charitable trust will be entitled to distributions, voting
rights or other benefits with respect to such shares except for the right to
payment of the purchase price for the shares (or, in the case of a devise or
gift or similar event which results in the issuance of excess stock, the fair
market value at the time of such devise or gift or event) and the right to
certain distributions upon liquidation. Excess stock shall be subject to
repurchase at Captec's election. The purchase price of any excess stock shall be
equal to the lesser of:
- the price paid for the excess stock by the proposed transferor (or, in
the case of a devise or gift or similar event resulting in the issuance
of excess stock, the fair market value of such common stock at the time
of such devise or gift or event); or
- the price received by the trustee from the sale or other disposition of
the excess stock.
If the foregoing transfer restrictions are determined to be void or invalid
by virtue of any legal decision, statute, rule or regulation, then the purported
transferee of any excess stock may be deemed, at Captec's option, to have acted
as an agent on Captec's behalf in acquiring such excess stock and to hold such
excess stock on Captec's behalf.
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RESTRICTIONS ON RESALES BY AFFILIATES
If the merger is completed, the CNLR common stock and preferred stock to be
issued to Captec stockholders in the merger will have been issued in a
transaction registered under the Securities Act of 1933. CNLR common stock and
preferred stock issued in the merger may be traded freely and without
restriction by those stockholders not deemed to be affiliates (as that term is
defined under the Securities Act) of Captec. Any subsequent transfer of shares
by any affiliate of Captec at the time the merger is submitted for vote of the
stockholders of Captec will, under existing law, require:
- the further registration under the Securities Act of the shares of CNLR
common stock and/or preferred stock to be transferred;
- compliance with Rule 145 under the Securities Act, which permits limited
sales under certain circumstances; or
- the availability of another exemption from registration.
An "affiliate" of Captec is a person who directly, or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with Captec. These restrictions are expected to apply to the directors,
executive officers of Captec and those stockholders beneficially owning, in the
aggregate, 10.0% or more of the issued and outstanding Captec common stock. The
same restrictions apply to certain relatives or spouses of those persons and any
trusts, estates, corporations or other entities in which those persons have a
10.0% or greater beneficial or equity interest. CNLR will give stop transfer
instructions to the transfer agent with respect to the CNLR common stock and
preferred stock to be received by persons subject to these restrictions, and the
certificates for their shares of CNLR common stock and preferred stock will be
appropriately legended.
ADDITIONAL INFORMATION
APPRAISAL RIGHTS
If the merger is completed, stockholders who do not vote "FOR" the merger,
who hold shares of Captec common stock of record on the date of making a written
demand for appraisal as described below and who otherwise comply fully with
Section 262 of the Delaware General Corporation Law, will be entitled to a
judicial determination of the fair value of their Captec common stock in
accordance with the provisions of Section 262 and to receive from CNLR payment
of such fair value in cash, together with a fair rate of interest, if any, as
determined by such court. Stockholders who perfect their appraisal rights will
not be entitled to surrender their shares of Captec common stock for payment in
the manner provided in the merger agreement and described in this proxy
statement-prospectus.
Under Section 262, where a merger agreement is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the special
meeting, not less than 20 calendar days prior to the meeting, a constituent
corporation in the merger must notify each of the stockholders who was such on
the record date for the meeting that such appraisal rights are available and
include in each such notice, a copy of Section 262. This proxy
statement-prospectus constitutes such notice to the holders of record of Captec
common stock.
The following is a summary of the procedures to be followed under Section
262, the full text of which is attached as Appendix C to this proxy
statement-prospectus. Stockholders should read carefully the full text of
Section 262 because failure to follow any Section 262 procedures may result in
the loss of appraisal rights. Stockholders should assume that CNLR will take no
action to perfect any appraisal rights of any stockholder. Any stockholder who
desires to exercise appraisal rights should review carefully Section 262 and is
urged to consult a legal advisor before electing or attempting to exercise
appraisal rights.
Holders of record of shares of Captec common stock who desire to exercise
appraisal rights must not vote in favor of the merger proposal or consent to the
merger in writing or return a signed proxy without indicating any voting
instructions as to the merger and must deliver a separate written demand for
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appraisal of such shares to Captec prior to the taking of the vote on the
merger. A holder of shares of Captec common stock wishing to exercise appraisal
rights must hold of record such shares on the date the written demand for
appraisal is made and must continue to hold such shares through the effective
time of the merger. The demand for appraisal will be sufficient if it reasonably
informs Captec of the identity of the stockholder and that the stockholder
intends to demand an appraisal of the fair value of shares of Captec common
stock.
If the shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, the demand must be executed by or for the record
owner, and if the shares are owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand must be made by or for all owners
of record. An authorized agent, including an agent for one or more joint owners,
may execute the demand for appraisal for a record owner provided the agent
identifies the record owner or owners and expressly discloses in such demand
that the agent is acting as agent for the record owner or owners of such shares.
A record owner, such as a broker, who holds shares of Captec common stock
as a nominee for beneficial owners, some or all of whom desire to demand
appraisal, must exercise appraisal rights on behalf of such beneficial owners
with respect to the shares held for such beneficial owners. In such case, the
written demand for appraisal should set forth the number of shares covered by
such demand. Unless a demand for appraisal specifies a number of shares, the
demand will be presumed to be applicable to all shares outstanding in the name
of such record owner. If a stockholder holds shares of Captec common stock
through a broker which in turn holds the shares through a central securities
depository nominee such as Cede & Co., a demand for appraisal of such shares
must be made by or on behalf of the depository nominee and must identify the
depository nominee as record holder.
BENEFICIAL OWNERS WHO ARE NOT RECORD OWNERS AND WHO INTEND TO EXERCISE
APPRAISAL RIGHTS SHOULD INSTRUCT THE RECORD OWNER TO COMPLY STRICTLY WITH THE
STATUTORY REQUIREMENTS WITH RESPECT TO THE DELIVERY OF WRITTEN DEMAND FOR
APPRAISAL. A DEMAND FOR APPRAISAL SUBMITTED BY A BENEFICIAL OWNER WHO IS NOT THE
RECORD OWNER WILL NOT BE HONORED.
A proxy or vote against the merger will not constitute a demand for
appraisal. Stockholders should not expect to receive any additional notice with
respect to the deadline for demanding appraisal rights.
Any stockholder who elects to exercise appraisal rights must mail or
deliver a written demand for appraisal which must be received by Captec prior to
the taking of the vote on the merger proposal. All demands for appraisal should
be addressed to Captec Net Lease Realty, Inc., 24 Frank Lloyd Wright Drive,
Lobby L, 4th Floor, Ann Arbor, Michigan 48106, Attention: Corporate Secretary.
If the merger is approved, then within ten days after the effective time of
the merger, CNLR will provide notice of the effective time of the merger to all
stockholders who have complied with Section 262.
A stockholder may withdraw a demand for appraisal within 60 days after the
effective time of the merger and accept the terms of the merger. Thereafter, the
approval of CNLR will be needed for such a withdrawal.
Within 120 days after the effective time of the merger, in compliance with
Section 262, any stockholder who has properly demanded an appraisal and who has
not withdrawn the demand and CNLR each has the right to file in the Delaware
Court of Chancery a petition, with a copy served on CNLR in the case of a
petition filed by a dissenting stockholder, demanding a determination of the
fair value of the shares held by all dissenting stockholders. If, within the
120-day period following the effective time of the merger, no petition shall
have been filed as provided above, all rights to appraisal will cease and all
dissenting stockholders who owned shares of Captec common stock will become
entitled to receive for each share of Captec common stock the applicable
consideration, as if such stockholder had initially voted to approve and adopt
the merger proposal. CNLR is not obligated, and does not currently intend, to
file such a petition.
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Any dissenting stockholder is entitled, within the 120-day period following
the effective time of the merger and upon written request to CNLR, to receive
from CNLR a statement setting forth:
- the aggregate number of shares of Captec common stock which have not
voted to adopt and approve the merger proposal and with respect to which
demands for appraisal have been received; and
- the aggregate number of dissenting stockholders.
Such statement must be mailed within ten days after a written request for
such statement has been received by Captec, or within ten days after the
expiration of the period for delivery of demands, as described above, whichever
is later.
Upon the filing of a petition, the Delaware court may order a hearing and
that notice of the time and place fixed for the hearing on the petition be
mailed to CNLR and all dissenting stockholders. Notice will also be published at
least one week before the day of the hearing in a newspaper of general
circulation published in the City of Wilmington, Delaware or in another
publication deemed advisable by the Delaware court. The costs relating to these
notices will be borne by CNLR.
If a hearing on the petition is held, the Delaware court is empowered to
determine which dissenting stockholders have complied with the provisions of
Section 262 and are entitled to an appraisal of their shares. The Delaware court
may require that dissenting stockholders submit their share certificates for
notation thereon of the pendency of the appraisal proceedings and the Delaware
court may dismiss the proceedings as to any dissenting stockholder who does not
comply with such requirement.
Stockholders considering seeking appraisal should consider that the fair
value of their shares determined by the Delaware court under Section 262 could
be more than, the same as, or less than, the consideration payable pursuant to
the merger agreement. CNLR does not anticipate offering more than the
consideration payable pursuant to the merger agreement to any dissenting
stockholder and reserves the right to assert in any appraisal proceedings, that,
for purposes of Section 262, the "fair value" of a share of Captec common stock
is less than the consideration payable pursuant to the merger agreement.
In determining "fair value" the Delaware court is required to take into
account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered and that "[f]air price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court has stated that in making this
determination of fair value the court must consider market value, asset value,
dividends, earnings prospects, the nature of the enterprise and any other facts
which could be ascertained as of the date of the merger which throw any light on
future prospects of the merged corporation. Section 262 provides that fair value
is to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In Cede & Co. v. Technicolor, Inc., the Delaware
Supreme Court stated that such exclusion is a "narrow exclusion [that] does not
encompass known elements of value," but rather applies only to the speculative
elements of value arising from such accomplishment or expectation. In
Weinberger, the Delaware Supreme Court construed Section 262 to mean that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered."
The Delaware court may also:
- determine a fair rate of interest, if any, to be paid to dissenting
stockholders in addition to the fair value of the shares;
- determine the costs of the proceeding (which do not include attorney and
expert fees) and tax such costs against the parties as the Delaware court
deems; and
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- upon application of a dissenting stockholder, order all or a portion of
the expenses incurred by any dissenting stockholder in connection with
the appraisal proceeding, including, without limitation, reasonable
attorney fees, expert fees and expenses, to be charged pro rata against
the value of all shares entitled to appraisal.
No appraisal proceedings in the Delaware court will be dismissed as to any
dissenting stockholder without the approval of the Delaware court, and this
approval may be conditioned upon terms which the Delaware court deems just.
From and after the effective time of the merger, dissenting stockholders
will not be entitled to vote (or consent by written action) any shares subject
to demand for appraisal for any purpose and will not be entitled to receive
payment of any dividends or other distributions payable to stockholders of
record except dividends or distributions declared prior to the effective time of
the merger.
Failure to take any action required to perfect appraisal rights may result
in the loss of such rights. Any stockholder who loses such rights will only be
entitled to receive the consideration offered in the merger.
LEGAL MATTERS
Certain legal matters regarding federal income tax matters relating to the
merger will be passed upon for Captec by Baker & Hostetler LLP. Baker &
Hostetler LLP provides legal services to Captec and various affiliates of
Captec. Albert T. Adams, a director of Captec, is a partner in Baker & Hostetler
LLP. The validity of the CNLR common stock and CNLR preferred stock to be issued
in the merger and certain federal income tax matters relating to the merger will
be passed upon for CNLR by Shaw Pittman LLP.
EXPERTS
The consolidated financial statements and financial schedule of Captec
incorporated in this proxy statement-prospectus by reference to the Annual
Report on Form 10-K for the year ended December 31, 2000 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements and related financial statement
schedules of CNLR as of December 31, 2000 and 1999, and for each of the years in
the three-year period ended December 31, 2000, have been incorporated by
reference herein in reliance upon the report of KPMG LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
Due to the special meeting and anticipated merger, Captec does not
currently expect to hold a 2001 annual meeting of stockholders since Captec will
no longer be a public company if the merger is completed. If the merger is not
completed and the 2001 annual meeting of stockholders is held, stockholder
proposals for inclusion in proxy materials for the 2001 annual meeting must be
received at Captec's offices within a reasonable time before Captec begins to
print and mail its proxy materials, in order to be considered for inclusion in
Captec's proxy statement and form of proxy relating to that meeting. If a
stockholder fails to submit a proposal within a reasonable time, Captec is not
required to provide any information about the nature of the proposal and the
proposal will not be considered at the 2001 annual meeting of the stockholders.
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OTHER MATTERS
Captec's board of directors knows of no other business to be presented at
the special meeting. If other matters properly come before the meeting in
accordance with Captec's bylaws, the persons named as proxies will vote on them
in accordance with their best judgment.
A stockholder has filed with the SEC preliminary proxy material stating the
stockholder's opposition to the merger and seeking proxies from other
stockholders to vote against the merger. This stockholder does not propose any
alternative transaction to the merger. For the reasons set forth in this proxy
statement-prospectus, Captec's board of directors unanimously recommends that
stockholders vote for the merger by using the enclosed proxy card and returning
it to Captec.
74
81
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements are based upon the historical financial statements of Captec and CNLR
and have been prepared to illustrate the effect of the merger and the sale,
immediately following the merger, of the excluded assets acquired by CNLR in
accordance with the terms of the asset purchase agreement. The Unaudited Pro
Forma Condensed Consolidated Balance Sheet as of June 30, 2001 is presented as
if the proposed merger of Captec and CNLR had occurred on June 30, 2001. The
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the six
months ended June 30, 2001 and for the year ended December 31, 2000 are
presented as if the merger had occurred on January 1, 2000.
The Unaudited Pro Forma Condensed Consolidated Financial Statements should
be read in conjunction with the historical financial statements of Captec and
CNLR as of and for the six months ended June 30, 2001 and for the year ended
December 31, 2000 (see "WHERE YOU CAN FIND MORE INFORMATION" (p. 1)).
The merger will be accounted for under the purchase method of accounting.
Under the purchase method of accounting, assets acquired and liabilities assumed
are recorded at their fair values.
The Unaudited Pro Forma Condensed Consolidated Financial Statements have
been prepared based on a number of assumptions, estimates and uncertainties
including, but not limited to, estimates of the fair values of assets acquired
and liabilities assumed and estimated acquisition and closing costs. As a result
of these assumptions, estimates and uncertainties, the accompanying Unaudited
Pro Forma Condensed Consolidated Financial Statements do not purport to predict
the actual financial condition or results of operations that would have been
achieved had the merger occurred on June 30, 2001 or January 1, 2000, nor do
they purport to predict CNLR's consolidated financial condition or results of
operations following the effective time of the merger.
75
82
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2001
(dollars in thousands)
PRO FORMA PRO FORMA
CAPTEC CNLR ADJUSTMENTS(A) NOTES CNLR
-------- -------- -------------- ------- ----------
ASSETS
Cash and cash equivalents.............. $ 2,730 $ 8,099 $ (2,703) (B)
750 (C) $ 8,876
Investment in properties subject to
operating leases, net................ 194,458 505,784 15,326 (D) 715,568
Investment in properties subject to
financing leases, net................ 7,254 111,202 (251) (D) 118,205
Mortgages and other receivables........ -- 115,097 6,750 (C) 121,847
Investment in unconsolidated affiliates
and other investment................. 22,733 6,054 (21,207) (C),(D) 7,580
Unbilled rent, net..................... 7,476 15,512 (7,476) (E) 15,512
Other assets........................... 3,019 9,671 (680) (F)
-- -- 1,000 (G) 13,010
-------- -------- --------- ----------
Total assets................. $237,670 $771,419 $ (8,491) $1,000,598
======== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit payable............... $100,634 $107,800 $(100,634) (B)
16,363 (B) $ 124,163
Notes payable........................ -- 257,432 100,000 (B) 357,432
Accounts payable and other
liabilities....................... 3,147 8,480 -- 11,627
-------- -------- --------- ----------
103,781 373,712 15,729 493,222
Stockholders' equity:
Preferred stock...................... 50,000 (H) 50,000
Common stock......................... 95 305 (95) (I)
44 (J) 349
Paid-in capital...................... 134,711 399,478 (134,711) (I)
59,625 (G),(J) 459,103
Retained earnings (distribution in
excess of earnings)............... (917) (2,076) 917 (I) (2,076)
-------- -------- --------- ----------
Total stockholders' equity... 133,889 397,707 (24,220) 507,376
-------- -------- --------- ----------
Total liabilities and
stockholders' equity....... $237,670 $771,419 $ (8,491) $1,000,598
======== ======== ========= ==========
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed
Consolidated
Financial Statements.
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UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001
(dollars in thousands, except per share data)
PRO FORMA PRO FORMA
CAPTEC CNLR ADJUSTMENTS(A) NOTES CNLR
---------- ----------- -------------- ----- -----------
REVENUES
Rental income from operating leases... $ 10,973 $ 28,836 $ 39,809
Earned income from financing leases... 341 6,335 6,676
Interest income....................... 622 4,271 $ (485) (K)
304 (L) 4,712
Other................................. 731 1,539 (130) (K)
-- -- (536) (M) 1,604
---------- ----------- ------- -----------
Total revenues.............. 12,667 40,981 (847) 52,801
---------- ----------- ------- -----------
EXPENSES
Interest.............................. 4,588 12,346 (729) (N)
196 (O) 16,401
Management fees....................... 236 -- (236) (M) --
General, administrative and other..... 792 3,792 (419) (P) 4,165
Depreciation and amortization......... 1,693 4,414 (144) (Q) 5,963
Non-recurring......................... 263 691 -- (R) 954
---------- ----------- ------- -----------
Total expenses.............. 7,572 21,243 (1,332) 27,483
---------- ----------- ------- -----------
Income before equity in income of
unconsolidated affiliates and gain
on sale of properties............... 5,095 19,738 485 25,318
Equity earnings of unconsolidated
affiliates.......................... 413 (2,209) (413) (K) (2,209)
Gain on sale of properties, net....... 580 4,450 -- 5,030
---------- ----------- ------- -----------
INCOME BEFORE PREFERRED
DISTRIBUTIONS....................... 6,088 21,979 72 28,139
Preferred distributions............... -- -- (2,250) (S) (2,250)
---------- ----------- ------- -----------
INCOME AVAILABLE FOR COMMON SHARES.... $ 6,088 $ 21,979 $(2,178) $ 25,889
---------- ----------- ------- -----------
Net income per common share:
Basic............................ $ 0.64 $ 0.72 (T) $ 0.72
Diluted.......................... $ 0.64 $ 0.72 (T) $ 0.72
Weighted average number of common
shares outstanding:
Basic............................ 9,508,108 30,549,820 (T) 35,766,062
Diluted.......................... 9,508,108 30,625,866 (T) 35,802,411
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed
Consolidated
Financial Statements.
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84
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(dollars in thousands, except per share data)
PRO FORMA PRO FORMA
CAPTEC CNLR ADJUSTMENTS(A) NOTES CNLR
---------- ----------- -------------- ----- -----------
REVENUES
Rental income from operating
leases............................ $ 23,911 $ 59,734 $ 83,645
Earned income from financing
leases............................ 614 13,185 13,799
Interest income..................... 1,263 5,962 $ (975) (K)
608 (L) 6,858
Other............................... 2,202 2,010 (238) (K)
-- -- (1,770) (M) 2,204
---------- ----------- ------- -----------
Total revenues............ 27,990 80,891 (2,375) 106,506
---------- ----------- ------- -----------
EXPENSES
Interest............................ 9,865 26,528 (1,100) (N)
(745) (O) 34,548
General, administrative and other... 1,474 5,247 (781) (P) 5,940
Depreciation and amortization....... 3,441 9,088 (344) (Q) 12,185
Non-recurring....................... 2,442 1,521 (R) 3,963
---------- ----------- ------- -----------
Total expenses............ 17,222 42,384 (2,970) 56,636
---------- ----------- ------- -----------
Income before equity in income of
unconsolidated affiliates,
gain on sale of properties and
other non-recurring............... 10,768 38,507 595 49,870
Equity earnings of unconsolidated
affiliates........................ 561 (3,980) (561) (K) (3,980)
Gain on sale of properties, net..... 2,509 4,091 -- 6,600
Other non-recurring................. 706 -- -- 706
---------- ----------- ------- -----------
NET INCOME BEFORE PREFERRED
DIVIDENDS......................... 14,544 38,618 34 53,196
Preferred dividends................. -- -- (4,500) (S) (4,500)
---------- ----------- ------- -----------
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS...................... $ 14,544 $ 38,618 $(4,466) $ 48,696
========== =========== ======= ===========
Net income per common share:
Basic.......................... $ 1.53 $ 1.27 (T) $ 1.36
Diluted........................ $ 1.53 $ 1.27 (T) $ 1.36
Weighted average number of common
shares outstanding:
Basic.......................... 9,508,108 30,387,371 (T) 35,728,032
Diluted........................ 9,508,108 30,407,507 (T) 35,738,382
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed
Consolidated Financial Statements.
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85
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The following describes the pro forma adjustments to the Pro Forma
Condensed Consolidated Balance Sheet as of June 30, 2001 as if the merger were
completed on June 30, 2001 and the Pro Forma Condensed Consolidated Statement of
Operations for the six months ended June 30, 2001 and for the year ended
December 31, 2000 as if the merger were completed on January 1, 2000.
(A) Represents adjustments to record the merger between CNLR and Captec
based upon the merger acquisition price of $127.1 million based on the market
value of $13.74 per share of CNLR common stock (which is the average per share
price of CNLR common stock three days prior and three days subsequent to the
announcement of the merger). The calculation of the merger acquisition price is
as follows:
Issuance of 4,350,000 shares of $0.01 par value CNLR common
stock ($13.74 per share).................................. $ 59,769
Issuance of 2,000,000 shares of 9.0% series A preferred
stock (liquidation value at $25.00 per share)............. 50,000
Cash consideration.......................................... 12,099
Merger costs *.............................................. 5,233
--------
Total purchase price.............................. $127,101
--------------------
* CNLR's total transaction costs associated with the merger are estimated
at $6.3 million, with $5.2 million to be allocated to the fair value of
net assets acquired (see Note G for transaction cost estimates).
(B) To reflect the sources (uses) of cash required to complete the merger
as follows:
Financing proceeds.......................................... $ 100,000
Borrowings on CNLR line of credit........................... 16,363
Cash consideration (see Note A)............................. (12,099)
Transaction costs (see Note G).............................. (6,333)
Repayment of Captec line of credit.......................... (100,634)
---------
Net cash used..................................... $ (2,703)
(C) To reflect the closing, immediately after the merger, of the sale to
CRC Acquisition LLC of certain assets acquired by CNLR in the merger in
accordance with the terms of the asset purchase agreement and loan agreement,
which agreements were executed contemporaneous with the execution of the merger
agreement.
Note receivable from CRC Acquisition LLC.................... $6,750
Cash received by CNLR....................................... 750
------
Purchase price of assets sold per the Asset Purchase
Agreement................................................. $7,500
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86
(D) Represents the estimated fair value adjustments, increase (decrease),
to Captec's investment in properties subject to operating leases, investment in
properties subject to financing leases and investment in unconsolidated
affiliates and other investments based upon the merger purchase price.
Merger purchase price (see Note A).......................... $ 127,101
---------
Less book basis of Captec's net assets acquired:
Cash and cash equivalents................................. 2,730
Investment in properties subject to operating leases,
net.................................................... 194,458
Investment in properties subject to financing leases,
net.................................................... 7,254
Investment in unconsolidated affiliates and other
investments............................................ 22,733
Other assets (excluding $680,000 of deferred financing
costs (see Note F)).................................... 2,339
Line of credit payable.................................... (100,634)
Accounts payable and other liabilities.................... (3,147)
---------
Sub-total......................................... 125,733
=========
Fair value adjustment (ascribed as follows):................ 1,368
---------
Adjustment to record estimated fair value of Captec's
investment in properties subject to operating leases,
net.................................................... 15,326
Adjustment to record estimated fair value of Captec's
investment in properties subject to financing leases,
net.................................................... (251)
Adjustment to record estimated fair value of Captec's
investment in unconsolidated affiliates and other
investments............................................ (13,707)
---------
$ 1,368
(E) Represents the elimination of Captec's unbilled rent of $7.5 million,
which is the historical impact of the cumulative effects of recognizing rental
revenue on a straight-line basis.
(F) Represents an adjustment to write-off Captec's deferred financing costs
of approximately $680,000 in conjunction with the repayment and termination of
Captec's line of credit described in Note B.
(G) Represents transaction costs estimated as follows:
Merger costs................................................ $5,233
Debt issuance costs......................................... 1,000
Stock issuance costs........................................ 100
------
Total transaction costs (see Note A).............. $6,333
Merger costs of $5.2 million have been included in the merger acquisition
price (see Note A). Debt issuance costs of $1.0 million are capitalized and
amortized into interest expense using the straight-line method, which
approximates the effective interest method, over the life of the notes (5
years). Stock issuance costs of $100,000 are recorded as a reduction in paid-in
capital in stockholders' equity.
(H) Represents the issuance of 2,000,000 shares of 9.0% Series A non-voting
preferred stock, at $25.00 per share. The preferred stock carries a $25.00 per
share liquidation preference and will pay a cumulative quarterly dividend at an
annual rate of 9.0% of the $25.00 liquidation preference per annum, or an annual
amount of $2.25 per share.
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87
(I) Reflects the elimination of Captec's stockholders' equity as follows:
Common stock................................................ $ 95
Paid-in-capital............................................. 134,711
Distributions in excess of earnings......................... (917)
--------
Total stockholders' equity........................ $133,889
(J) Represents the issuance of 4,350,000 shares of $0.01 par value common
stock calculated as follows:
Market value of shares (4,350,000 shares X $13.74 per
share).................................................... $59,769
Less stock issuance costs (see Note G)...................... (100)
-------
Total value of common shares...................... 59,669
Less par value of common shares (4,350,000 shares X $0.01
per share)................................................ 44
-------
Paid-in-capital................................... $59,625
(K) Represents the elimination of income earned from those assets sold in
accordance with the asset purchase agreement (see Note C).
(L) Represents interest income on the note receivable from CRC Acquisition
LLC in accordance with the loan agreement related to the asset purchase
agreement (see Note C). The note earns interest at an annual rate of 9.0%.
(M) To reflect the elimination of certain revenues and expenses related to
the termination of Captec's management and advisory agreements with Captec Net
Lease Realty Advisors, Inc., Family Realty, Inc. and Family Realty II, Inc.
(N) To reverse Captec's historical amortization of deferred financing costs
due to the write-off of deferred financing costs as a result of the merger (see
Note F).
(O) To reflect the adjustment to interest expense due to the pay-off of the
Captec credit facility and additional borrowings under the CNLR credit facility
as well as a new note issuance (and related amortization of issuance costs) to
finance a portion of the merger:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 2000 JUNE 30, 2001
----------------- ----------------
Elimination of Captec interest under credit
facility........................................... $(8,700) $(3,767)
Termination of interest rate contract................ (556)
Interest related to incremental borrowings under CNLR
credit facility.................................... 1,311 363
Anticipated borrowings at 7.0%....................... 7,000 3,500
Amortization of debt issuance costs ($1.0 million
amortized over 5 years utilizing the straight-line
method, which approximates the effective interest
method)............................................ 200 100
------- -------
Total interest expense adjustment.......... $ (745) $ 196
(P) To reflect a reduction of general and administrative expenses as a
result of the merger. The reduction in general and administrative expenses
consists principally of the elimination of salaries and benefits attributable to
Captec employees and directors as required by the merger agreement.
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88
(Q) To adjust depreciation expense related to the adjustment to the
investment in properties subject to operating leases, net:
Fair value of investment in properties subject to operating
leases, net (see Note D).................................. $209,784
Less portion allocated to land.............................. (85,948)
--------
Depreciable basis of properties (building and
improvements)............................................. 123,836
Annual depreciation expense based on an estimated useful
life of 40 years.......................................... $ 3,097
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 2000 JUNE 30, 2001
----------------- ----------------
Captec historical depreciation expense............... $(3,441) $(1,693)
CNLR's calculated depreciation expense............... 3,097 1,549
------- -------
Adjustment to depreciation expense................... $ (344) $ (144)
(R) As a result of the merger, CNLR will issue shares of CNLR common stock
relating to contingent consideration in CNLR's previous acquisition of its
advisor. This contingent consideration of approximately $10.3 million will be
expensed by CNLR at the time of issuance. This cost is a non-recurring item
caused by the merger, but not having a continuing financial impact and,
therefore, it is not presented as a pro forma adjustment.
(S) Adjustment to reflect the dividend on CNLR's issuance of 2,000,000
shares of 9.0% Series A preferred stock. The preferred stock will pay an annual
dividend of $2.25 per share.
(T) Weighted average pro forma basic and diluted shares were determined as
follows:
FOR THE YEAR FOR THE SIX MONTHS
ENDED ENDED
DECEMBER 31, 2000 JUNE 30, 2001
----------------- ------------------
Basic:
Weighted average number of shares outstanding...... 30,278,209 35,766,062
Merger shares issued............................... 4,350,000 --
Contingent shares (CNLR's advisor acquisition)..... 1,099,823 --
---------- ----------
Weighted average number of shares outstanding used
in basic earnings per share..................... 35,728,032 35,766,062
========== ==========
Diluted:
Weighted average number of shares outstanding...... 30,278,209 35,766,062
Merger shares issued............................... 4,350,000 --
Effect of dilutive securities:
Contingent shares (CNLR's advisor acquisition)..... 1,109,807 --
Stock options...................................... 366 36,349
---------- ----------
Weighted average number of shares outstanding used
in diluted earnings per share................... 35,738,382 35,802,411
========== ==========
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
COMMERCIAL NET LEASE REALTY, INC.
AND
CAPTEC NET LEASE REALTY, INC.
DATED AS OF JULY 1, 2001
90
INDEX
PAGE
----
ARTICLE I THE MERGER.................................................. 1
1.1 Effective Time of the Merger................................ 1
1.2 Closing..................................................... 1
1.3 Effects of the Merger....................................... 2
1.4 Directors and Officers...................................... 2
ARTICLE II CONVERSION OF SECURITIES.................................... 2
2.1 Conversion of Capital Stock................................. 2
2.2 Surrender of Certificates................................... 3
2.3 Dissenting Shares........................................... 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 5
3.1 Organization, Standing and Power; Subsidiaries.............. 5
3.2 Capitalization.............................................. 6
3.3 Authority; No Conflict; Required Filings and Consents....... 7
3.4 SEC Filings; Financial Statements; Information Provided..... 8
3.5 No Undisclosed Liabilities; Indebtedness.................... 9
3.6 Absence of Certain Changes or Events........................ 9
3.7 Properties.................................................. 10
3.8 Joint Venture Interests..................................... 10
3.9 Leases...................................................... 11
3.10 Taxes....................................................... 11
3.11 Intellectual Property....................................... 12
3.12 Litigation.................................................. 12
3.13 Environmental Matters....................................... 13
3.14 Employee Benefit Plans...................................... 14
3.15 Compliance With Laws........................................ 16
3.16 Labor Matters............................................... 16
3.17 Insurance................................................... 16
3.18 Opinion of Financial Advisor................................ 16
3.19 Related Party Transactions.................................. 16
3.20 Payments to Employees, Officers or Directors................ 16
3.21 Permits..................................................... 17
3.22 Section 203 of the DGCL Not Applicable; Rights Plan......... 17
3.23 Tax Matters................................................. 17
3.24 Brokers..................................................... 17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER................. 17
4.1 Organization, Standing and Power............................ 18
4.2 Capitalization.............................................. 18
4.3 Authority; No Conflict; Required Filings and Consents....... 19
4.4 SEC Filings; Financial Statements........................... 20
4.5 No Undisclosed Liabilities; Indebtedness.................... 20
4.6 Absence of Certain Changes or Events........................ 21
4.7 Properties.................................................. 21
4.8 Leases...................................................... 22
4.9 Taxes....................................................... 22
4.10 Intellectual Property....................................... 23
i
91
PAGE
----
4.11 Litigation.................................................. 23
4.12 Environmental Matters....................................... 23
4.13 Employee Benefit Plans...................................... 24
4.14 Compliance With Laws........................................ 24
4.15 Permits..................................................... 24
4.16 Labor Matters............................................... 25
4.17 Insurance................................................... 25
4.18 Assets...................................................... 25
4.19 Opinion of Financial Advisor................................ 25
4.20 Tax Matters................................................. 25
4.21 Brokers..................................................... 26
4.22 No Ownership of Company Securities.......................... 26
4.23 Antitakeover Statutes....................................... 26
ARTICLE V CONDUCT OF BUSINESS......................................... 26
5.1 Covenants of the Company.................................... 26
5.2 Covenants of the Buyer...................................... 28
5.3 Confidentiality............................................. 29
ARTICLE VI ADDITIONAL AGREEMENTS....................................... 29
6.1 No Solicitation............................................. 29
6.2 Proxy Statement/Prospectus; Registration Statement.......... 31
6.3 Access to Information....................................... 32
6.4 Stockholders' Meeting....................................... 32
6.5 Legal Conditions to the Merger.............................. 33
6.6 Public Disclosure........................................... 33
6.7 Listing of Buyer Common Stock and Buyer Preferred Stock..... 33
6.8 Company Stock Plans......................................... 33
6.9 Indemnification............................................. 34
6.10 Letter of the Company's Accountants......................... 34
6.11 Notification of Certain Matters............................. 35
6.12 Certain Tax Matters......................................... 35
6.13 Disposition of Certain Joint Ventures and Affiliated Loan... 35
6.14 Company Stockholders' Agreement............................. 35
6.15 Termination of Registration Rights.......................... 35
6.16 Consent Solicitation........................................ 36
6.17 Termination of Agreements................................... 36
ARTICLE VII CONDITIONS TO MERGER........................................ 36
7.1 Conditions to Each Party's Obligation To Effect the 36
Merger......................................................
7.2 Additional Conditions to Obligations of the Buyer........... 37
7.3 Additional Conditions to Obligations of the Company......... 38
ARTICLE
VIII TERMINATION, AMENDMENT AND WAIVER........................... 39
8.1 Termination................................................. 39
8.2 Effect of Termination....................................... 40
8.3 General Fees and Expenses................................... 40
8.4 Certain Fees and Expenses................................... 40
8.5 Amendment................................................... 42
8.6 Extension; Waiver........................................... 42
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92
PAGE
----
ARTICLE IX MISCELLANEOUS............................................... 42
9.1 Nonsurvival of Representations and Warranties............... 42
9.2 Notices..................................................... 42
9.3 Entire Agreement............................................ 43
9.4 No Third Party Beneficiaries................................ 43
9.5 Assignment.................................................. 44
9.6 Severability................................................ 44
9.7 Counterparts and Signature.................................. 44
9.8 Interpretation.............................................. 44
9.9 Governing Law............................................... 44
9.10 Failure or Indulgence Not Waiver; Remedies Cumulative....... 44
9.11 Remedies.................................................... 44
9.12 Submission to Jurisdiction.................................. 45
9.13 WAIVER OF JURY TRIAL........................................ 45
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93
TABLE OF DEFINED TERMS
TERMS CROSS REFERENCE IN AGREEMENT
----- ----------------------------
Acquisition Proposal Section 6.1(a)(i)
Affiliate Section 3.4(c)
Affiliated Loan Section 6.13(a)
Agreement Preamble
Base Amount Section 8.4
Board Section 3.18
Break-Up Expenses Section 8.4
Break-Up Expense Tax Opinion Section 8.4
Break-Up Fee Section 8.4
Break-Up Fee Tax Opinion Section 8.4
Buyer Preamble
Buyer Balance Sheet Section 4.4(b)
Buyer Common Stock Section 2.1(b)
Buyer Disclosure Schedule Article IV
Buyer Employee Plans Section 4.13(a)
Buyer ERISA Affiliate Section 4.13(a)
Buyer Insurance Policies Section 4.17
Buyer Material Adverse Effect Article IV
Buyer Permits Section 4.15
Buyer Preferred Stock Section 2.1(b)
Buyer Properties Section 4.7(a)
Buyer Property Section 4.7(a)
Buyer SEC Reports Section 4.4(a)
Buyer Stock Options Section 4.2(b)
Buyer Stock Plans Section 4.2(b)
Buyer's Knowledge Section 4.2(b)
Cash Consideration Section 2.1(b)
Certificate of Mergers Section 1.1
Certificates Section 2.2(c)
CFG Section 5.1(h)
Claim Section 6.9(b)
Closing Section 1.2
Closing Date Section 1.2
Code Preamble
Common Stock Section 2.1(a)
Company Preamble
Company Acquisition Agreement Section 8.4
Company Balance Sheet Section 3.4(b)
Company Common Stock Section 2.1(a)
Company Disclosure Schedule Article III
Company Lease Section 3.9(a)
Company Leases Section 3.9(a)
Company Loan Agreement Section 7.3(e)
Company Material Adverse Effect Article III
Company Meeting Section 3.4(c)
Company Permits Section 3.21
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TERMS CROSS REFERENCE IN AGREEMENT
----- ----------------------------
Company Properties Section 3.7(a)
Company Property Section 3.7(a)
Company Rent Roll Section 3.9(c)
Company Representative Section 6.1(a)(ii)
Company SEC Reports Section 3.4(a)
Company's Knowledge Section 3.2(b)
Confidentiality Agreement Section 5.3
Consent Solicitation Section 6.16(a)
Constituent Corporations Section 1.3
Contamination Section 3.13(b)(iii)
Delaware Certificate of Merger Section 1.1
Development Sections 3.7(f), 4.7(e)
DGCL Section 1.1
Dissenting Shares Section 2.3
Effective Time Section 1.1
Employee Benefit Plan Section 3.14(a)
Employee Plan Section 3.14(a)
Encumbrances Section 3.7(a)
Environmental Claims Section 3.13(b)(ii)
Environmental Documents Section 3.13(b)(vi)
Environmental Law Section 3.13(b)(i)
EPA Section 3.13(b)(vi)
ERISA Affiliate Section 3.14(a)
ERISA Section 3.14(a)
Exchange Act Section 3.3(c)
Exchange Agent Section 2.2(a)
Exchange Ratio Section 2.1(c)
GAAP Section 3.4(b)
Governmental Entity Section 3.3(c)
GP Transfers Section 6.16(a)
Ground Lease Section 3.9(d)
Ground Lessee Section 3.9(d)
Hazardous Substance Section 3.13(b)(v)
HSR Act Section 3.3(c)
Indebtedness Section 3.5(b)
Indemnified Parties Section 6.9(b)
Indemnified Party Section 6.9(b)
Insurance Policies Section 3.17
IRS Section 3.10(a)
Joint Ventures Section 3.1(c)
JV Purchasers Section 3.3(a)
Maryland Certificate of Merger Section 1.1
Maximum Amount Section 8.4
Merger Preamble
Merger Consideration Section 2.1(b)
MGCL Section 1.1
Notice of Superior Proposal Section 6.1(c)
NYSE Section 2.1(d)
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TERMS CROSS REFERENCE IN AGREEMENT
----- ----------------------------
Option Settlement Amount Section 2.1(d)
Order Section 7.1(e)
Outside Date Section 8.1(b)
Payor Section 8.4
Person Section 2.2(d)
Preferred Stock Section 3.2(a)
Proceeding Section 3.12
Property Restrictions Section 3.7(a)
Proxy Statement Section 3.4(c)
Purchase Agreement Section 3.3(a)
Qualifying Income Section 8.4
Recipient Section 8.4
Registration Statement Section 3.4(c)
REIT Section 3.10(b)
REIT Requirements Section 8.4
Release Section 3.13(b)(iv)
Rights Plan Section 3.22
SEC Section 3.3(c)
Securities Act Section 3.4(a)
Series A Preferred Stock Section 3.2(a)
Share Consideration Section 2.1(b)
Special Committee Section 3.18
Stock Options Section 3.2(b)
Stock Plan Section 3.2(b)
Stockholders' Agreement Preamble
Subsidiary Section 3.1(b)
Superior Proposal Section 6.1(d)
Surviving Corporation Section 1.3
Syndicated Partnerships Section 6.16(a)
Tax Section 3.10(a)
Tax Authority Section 3.10(a)
Tax Return Section 3.10(a)
Tax Returns Section 3.10(a)
Taxes Section 3.10(a)
Transfer Section 6.1(a)(i)
UBSW Section 3.18
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of July 1,
2001, is by and between Commercial Net Lease Realty, Inc., a Maryland
corporation (the "Buyer"), and Captec Net Lease Realty, Inc., a Delaware
corporation (the "Company").
WHEREAS, the Boards of Directors of the Buyer and the Company deem it
advisable and in the best interests of each corporation and its respective
stockholders that the Buyer and the Company combine in order to advance the
long-term business interests of the Buyer and the Company;
WHEREAS, the combination of the Buyer and the Company shall be effected by
the terms of this Agreement through a merger of the Company into the Buyer, as a
result of which the stockholders of the Company will become stockholders of the
Buyer (the "Merger");
WHEREAS, as a condition to the willingness of, and an inducement to, Buyer
to enter into this Agreement, contemporaneously with the execution and delivery
of this Agreement, certain holders of Company Common Stock (as defined herein),
are entering into a Stockholders' Agreement dated as of the date hereof (the
"Stockholders' Agreement") in the form of Exhibit A attached hereto, providing
for certain actions relating to the transactions contemplated by this Agreement;
and
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the Buyer
and the Company agree as follows:
ARTICLE I
THE MERGER
1.1 Effective Time of the Merger. Subject to the provisions of this
Agreement, prior to the Closing (as defined in Section 1.2), (i) the Buyer shall
prepare, and on the Closing Date or as soon as practicable thereafter the Buyer
shall cause to be filed with the Maryland Department of Assessments and
Taxation, a certificate of merger (the "Maryland Certificate of Merger") in such
form as is required by, and executed by the Surviving Corporation (as defined in
Section 1.3) in accordance with, the relevant provisions of the Maryland General
Corporation Law (the "MGCL") and shall make all other filings or recordings
required under the MGCL and (ii) the Company shall prepare, and on the Closing
Date or as soon as practicable thereafter, the Buyer shall cause to be filed
with the Secretary of State of the State of Delaware, a certificate of merger
(the "Delaware Certificate of Merger" and collectively with the Maryland
Certificate of Merger, the "Certificate of Mergers") in such form as is required
by the Company in accordance with the relevant provisions of the General
Corporation Law of the State of Delaware (the "DGCL") and shall make all other
filings or recordings required under the DGCL. The Merger shall become effective
at (i) such time as the Maryland Certificate of Merger has been duly filed with
the Maryland Department of Assessments and Taxation and the Delaware Certificate
of Merger has been duly filed with the Secretary of State of the State of
Delaware or (ii) such other time as is agreed upon by the Buyer and the Company
and specified in the Certificate of Mergers. Such time is hereinafter referred
to as the "Effective Time."
1.2 Closing. The closing of the Merger (the "Closing") shall take place
at 10:00 a.m., New York time, on a date to be specified by the Buyer and the
Company (the "Closing Date"), which shall be no later than the second business
day after satisfaction or waiver of the conditions set forth in Article VII
(other than delivery of items to be delivered at the Closing and other than
satisfaction of those conditions that by their nature are to be satisfied at the
Closing, but subject to the delivery of such items and the satisfaction or
waiver of such conditions at the Closing), at the offices of Shaw Pittman, 2300
N Street, N.W., Washington, DC 20037, unless another date, place or time is
agreed to in writing by the Buyer and the Company.
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1.3 Effects of the Merger. At the Effective Time: (i) the separate
existence of the Company shall cease and the Company shall be merged with and
into the Buyer (the Buyer and the Company are sometimes referred to below as the
"Constituent Corporations" and the Buyer following the Merger is sometimes
referred to below as the "Surviving Corporation"); (ii) the First Amended and
Restated Articles of Incorporation of the Buyer shall be the First Amended and
Restated Articles of Incorporation of the Surviving Corporation; and (iii)
subject to Section 6.9, the Bylaws of the Buyer as in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Corporation. The
Merger shall have the effects set forth in Section 259 of the DGCL and Section
3-114 of the MGCL.
1.4 Directors and Officers. The directors and officers of the Buyer
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each to hold office in accordance with
the First Amended and Restated Articles of Incorporation and Bylaws of the
Surviving Corporation.
ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of the
capital stock of the Company:
(a) Cancellation of Treasury Stock and Buyer-Owned Stock. All shares
of the Company's common stock, $.01 par value per share ("Company Common
Stock" or "Common Stock"), that are owned by the Company as treasury stock
or by any wholly owned Subsidiary (as defined in Section 3.1) of the
Company and any shares of Company Common Stock owned by the Buyer or any
other wholly owned Subsidiary of the Buyer shall be cancelled and shall
cease to exist and no stock of the Buyer or other consideration shall be
delivered in exchange therefor.
(b) Exchange Ratio for Company Common Stock. Subject to Section 2.2,
each share of Company Common Stock (other than shares to be cancelled in
accordance with Section 2.1(a) and other than "Dissenting Shares" (as
defined in Section 2.3 below)) issued and outstanding immediately prior to
the Effective Time shall be automatically converted into the right to
receive .4575 shares Common Stock, par value $.01 per share, of the Buyer
(the "Buyer Common Stock"), .21034679 shares of 9% Series A Non-Voting
Preferred Stock, par value $.01 per share, of the Buyer (the terms of which
are set forth in Exhibit B hereto) (the "Buyer Preferred Stock" and,
collectively with the Buyer Common Stock, the "Share Consideration"), and
$1.27 in cash (the "Cash Consideration" and, together with the Share
Consideration, the "Merger Consideration").
As of the Effective Time, all such shares of Company Common Stock
shall no longer be outstanding and shall automatically be cancelled and
shall cease to exist, and each holder of a certificate representing any
such shares of Company Common Stock shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration
pursuant to this Section 2.1(b) and any cash in lieu of fractional shares
of Buyer Common Stock and Buyer Preferred Stock to be issued or paid in
consideration therefor upon surrender of such certificate in accordance
with Section 2.2, without interest.
(c) Adjustments to Exchange Ratio. The exchange ratios with respect
to the Buyer Common Stock and the Buyer Preferred Stock (the "Exchange
Ratio") shall be adjusted to reflect fully the effect of any
reclassification, combination, subdivision, stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Buyer Common Stock or Company Common Stock),
reorganization, recapitalization or other like change with respect to Buyer
Common Stock or Company Common Stock occurring (or for which a record date
is established) after the date hereof and prior to the Effective Time.
(d) Treatment of Company Stock Options. Following the Effective Time,
each holder of a then-outstanding Company Stock Option (as defined in
Section 3.2(b)) heretofore granted under any
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employee stock option or compensation plan or other arrangement with the
Company shall be entitled (whether or not such Company Stock Option is then
exercisable) to receive in cancellation of such Company Stock Option a cash
payment from the Buyer in an amount equal to the amount, if any, by which
the value of the Merger Consideration at the Effective Time exceeds the
per-share exercise price of such Company Stock Option, multiplied by the
number of shares of Company Common Stock then subject to such Company Stock
Option (the "Option Settlement Amount"), subject to all required tax
withholdings by the Company. For purposes of the preceding sentence, the
value of the Buyer Preferred Stock shall be $25.00 per share and the value
of the Buyer Common Stock shall be the closing price of Buyer Common Stock
as reported on the New York Stock Exchange ("NYSE") on the day immediately
preceding the Effective Time. Each Company Stock Option shall be canceled
upon payment of the Option Settlement Amount therefor.
2.2 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, the Buyer shall designate
and appoint a bank or trust company reasonably acceptable by the Company as
agent for the benefit of the holders of shares of Company Common Stock (the
"Exchange Agent") for the purpose of exchanging certificates representing shares
of Company Common Stock for the Merger Consideration.
(b) Buyer to Provide Merger Consideration. Prior to the Effective Time,
the Buyer will make available to the Exchange Agent, as needed, certificates
representing the Buyer Common Stock and the Buyer Preferred Stock in respect of
the Share Consideration and the Cash Consideration to be paid in respect of
shares of Company Common Stock in accordance with the terms of Section 2.1(a).
(c) Exchange Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of record of a certificate
or certificates (the "Certificates") that represented as of the Effective Time
outstanding shares of Company Common Stock to be exchanged pursuant to Section
2.2(a), a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form and
have such other provisions as Buyer may reasonably specify) and instructions for
use in effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate to the Exchange Agent, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may be
required pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate representing the number
of whole shares of Buyer Common Stock and Buyer Preferred Stock, such holder's
portion of the Cash Consideration and payment in lieu of fractional shares which
such holder has the right to receive pursuant to Sections 2.1(a) and 2.2(h),
after giving effect to any withholding rights described in Section 2.2(j) below,
and the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each such Certificate shall, after the Effective Time, represent
for all purposes only the right to receive the Merger Consideration and the
other amounts, if any, specified in this Agreement.
(d) Transfers of Ownership. If any portion of the Merger Consideration is
to be paid to a Person other than the registered holder of the shares of Company
Common Stock represented by the Certificate or Certificates surrendered in
exchange therefor, it shall be a condition to such payment that the Certificate
or Certificates so surrendered shall be properly endorsed or otherwise be in
proper form for transfer and that the Person requesting such payment shall pay
to the Exchange Agent any transfer or other taxes required as a result of such
payment to a Person other than the registered holder of such shares of Company
Common Stock or establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not payable. For purposes of this Agreement, "Person"
means an individual, a corporation, a limited liability company, a partnership,
an association, a trust or any other entity or organization, including, without
limitation, a government or political subdivision or any agency or
instrumentality thereof.
(e) No Transfers after Effective Time. After the Effective Time, there
shall be no further registration of transfers of shares of Company Common Stock.
If, after the Effective Time, certificates
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representing shares of Company Common Stock are presented to the Surviving
Corporation, they shall be canceled and exchanged for the consideration provided
for, and in accordance with the procedures set forth, in this Section 2.2.
(f) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to the Buyer Common Stock or the Buyer
Preferred Stock, as applicable, constituting all or a portion of the Merger
Consideration shall be paid to the holder of any unsurrendered certificate
representing Company Common Stock until such certificates are surrendered as
provided in this Section 2.2. Subject to the effect of applicable laws,
following such surrender, there shall be paid, without interest, to the record
holder of the certificates representing the Buyer Common Stock or the Buyer
Preferred Stock, as applicable, (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
payable prior to or on the date of such surrender with respect to such whole
shares of Buyer Common Stock or the Buyer Preferred Stock, as applicable, and
not paid, less the amount of any withholding taxes which may be required
thereon, and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to the
date of surrender and a payment date subsequent to the date of surrender payable
with respect to such whole shares of Buyer Common Stock or the Buyer Preferred
Stock, as applicable, less the amount of any withholding taxes which may be
required thereon.
(g) No Further Ownership Rights in Company Common Stock. The Merger
Consideration issued or paid upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash or dividends or other
distributions paid pursuant to Sections 2.2(f) or 2.2(h)) shall be deemed to
have been issued (and paid) in full satisfaction of all rights pertaining to
such shares of Company Common Stock.
(h) No Fractional Shares. No certificate or scrip representing fractional
shares of Buyer Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any other rights of a stockholder of the Buyer.
Notwithstanding any other provision of this Agreement, each holder of shares of
Company Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of Buyer Common Stock or Buyer
Preferred Stock (after taking into account all Certificates delivered by such
holder) shall receive, in lieu thereof, cash (rounding up to the nearest whole
cent and without interest) in an amount equal to such fractional part of a share
of (i) Buyer Common Stock multiplied by the closing price of Buyer Common Stock
as reported on the NYSE on the day immediately preceding the Effective Time or
(ii) Buyer Preferred Stock multiplied by $25.00.
(i) No Liability. To the extent permitted by law, none of the Buyer, the
Company, the Surviving Corporation or the Exchange Agent shall be liable to any
holder of shares of Company Stock (or dividends or distributions with respect
thereto) for any amount paid to a public official pursuant to applicable
abandoned property, escheat or similar laws. Any amounts remaining unclaimed by
holders of shares of Company Stock immediately prior to such time as such
amounts would otherwise escheat to or become property of any governmental entity
shall, to the extent permitted by law, become the property of the Buyer free and
clear of any claim or interest of any Person previously entitled thereto. Any
portion of the Merger Consideration made available to the Exchange Agent
pursuant to Section 2.2(b) that remains unclaimed by the holders of shares of
Company Stock six months after the Effective Time shall be returned to the
Buyer, upon demand, and any such holder who has not exchanged his shares of
Company Stock for the Merger Consideration in accordance with this Section
2.2(c) prior to that time shall thereafter look only to the Buyer for his claim
for Buyer Common Stock, Buyer Preferred Stock, any cash in lieu of fractional
shares of Buyer Common Stock or Buyer Preferred Stock or, as applicable, and any
dividends or distributions with respect to Buyer Common Stock or Buyer Preferred
Stock, as applicable, and the Cash Consideration.
(j) Withholding Rights. Each of the Buyer and the Surviving Corporation
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as it is required to deduct and withhold with respect to
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the making of such payment under the Code, or any other applicable provision of
law. To the extent that amounts are so withheld by the Surviving Corporation or
the Buyer, as the case may be, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Company Common Stock in respect of which such deduction and withholding was made
by the Surviving Corporation or the Buyer, as the case may be.
(k) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will issue or pay in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration and any cash in lieu of fractional shares, and unpaid
dividends and distributions on shares of Buyer Common Stock and Buyer Preferred
Stock deliverable in respect thereof pursuant to this Agreement.
2.3 Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock that were not voted in favor of the
Company Voting Proposal and as to which there has been compliance with all of
the relevant provisions of Section 262 of the DGCL (the "Dissenting Shares"),
shall not be converted into the right to receive the Merger Consideration except
as provided in Section 262 of the DGCL in the event of a withdrawal of a demand
for appraisal.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that the statements
contained in this Article III are true and correct, except as set forth herein
or in the disclosure schedule delivered by the Company to the Buyer on or before
the date of this Agreement (the "Company Disclosure Schedule"). The Company
Disclosure Schedule is arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article III and the disclosure in any
paragraph shall qualify other paragraphs in this Article III.
As used herein, "Company Material Adverse Effect" shall mean any change,
effect or circumstance that is materially adverse to the financial condition,
business or operations of the Company and its Subsidiaries (as defined below)
taken as a whole (other than changes that result from economic factors affecting
the economy as a whole or changes that are the result of factors generally
affecting the specific industry or markets in which the Company operates and
competes); provided, that (i) Company Material Adverse Effect shall not include
(A) any adverse change, effect or circumstance arising out of or resulting from
actions contemplated by the parties in connection with this Agreement or that is
attributable to the announcement or performance of this Agreement or the
transactions contemplated by this Agreement or (B) any adverse change in the
Company's stock price and (ii) any failure of the Company to meet the financial
projections of any analyst shall not, in and of itself, be taken into account in
determining whether there has been a Company Material Adverse Effect.
3.1 Organization, Standing and Power; Subsidiaries.
(a) Each of the Company and its Subsidiaries (as defined below) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, has all requisite power and authority to own,
lease and operate its properties and assets and to carry on its business as now
being conducted, and is duly qualified or licensed to do business and is in good
standing as a foreign entity in each jurisdiction in which the failure to be so
qualified or licensed, individually or in the aggregate, would have a Company
Material Adverse Effect.
(b) Except as set forth in the Company SEC Reports (as defined in Section
3.4) filed prior to the date of this Agreement, neither the Company nor any of
its Subsidiaries directly or indirectly owns any equity, membership, partnership
or similar interest in, or any interest convertible into or exchangeable or
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exercisable for any equity, membership, partnership or similar interest in, any
corporation, partnership, joint venture, limited liability company or other
business association or entity, whether incorporated or unincorporated. As used
in this Agreement, the word "Subsidiary" means, with respect to a party, any
corporation, partnership, joint venture, limited liability company or other
business association or entity, whether incorporated or unincorporated, of which
(i) such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by such
party and/or one or more of its Subsidiaries do not have a majority of the
voting interest in such partnership), (ii) such party and/or one or more of its
Subsidiaries holds voting power to elect a majority of the board of directors or
other governing body performing similar functions, or (iii) such party and/or
one or more of its Subsidiaries, directly or indirectly, owns or controls more
than 50% of the equity, membership, partnership or similar interests but
"Subsidiary" shall not include the Joint Ventures (as defined below).
(c) Section 3.1(c) of the Company Disclosure Schedule lists the joint
ventures of the Company (the "Joint Ventures").
(d) The Company has made available to the Buyer complete and accurate
copies of: (i) the Restated Certificate of Incorporation and Bylaws of the
Company; (ii) the charter, bylaws or other organization documents of each
Subsidiary of the Company; and (iii) the agreements governing the Joint
Ventures.
3.2 Capitalization.
(a) The authorized capital stock of the Company consists of 40,000,000
shares of Company Common Stock and 10,000,000 shares of preferred stock (the
"Preferred Stock"), $.01 par value per share, of which 500,000 shares are
designated as Series 1999-A Cumulative Preferred Stock and 50,000 have been
designated as "Series A Preferred Stock". As of the close of business on the
date of this Agreement, (i) 9,508,108 shares of Company Common Stock were issued
and outstanding, (ii) no shares of Company Common Stock were held in the
treasury of the Company or by Subsidiaries of the Company, and (iii) no shares
of Preferred Stock were issued and outstanding.
(b) Section 3.2(b) of the Company Disclosure Schedule lists the number of
shares of Common Stock reserved for future issuance pursuant to stock options
granted and outstanding as of the date of this Agreement (such outstanding
options, the "Stock Options") and the Captec Net Lease Realty, Inc. Long-Term
Incentive Plan under which such options were granted (the "Stock Plan"). Except
as set forth in this Section 3.2, as reserved for future grants under Stock Plan
and Stock Options (i) there are no equity securities of any class of the Company
or any of its Subsidiaries (other than equity securities of any such Subsidiary
that are directly or indirectly owned by the Company), or any security
exchangeable into or exercisable for such equity securities, issued, reserved
for issuance or outstanding and (ii) there are no options, warrants, equity
securities, calls, rights, commitments or agreements of any character to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound obligating the Company or any of its Subsidiaries
to issue, transfer, deliver or sell, or cause to be issued, transferred,
delivered or sold, additional shares of capital stock of the Company or any of
its Subsidiaries or any security or rights convertible into or exchangeable or
exercisable for any such shares. Neither the Company nor any of its Subsidiaries
has outstanding any stock appreciation rights, phantom stock, performance based
rights or similar rights or obligations. To the Company's Knowledge, except as
set forth in the Company Stockholders' Agreement, there are no agreements or
understandings with respect to the voting (including voting trusts and proxies)
or sale or transfer (including agreements imposing transfer restrictions) of any
shares of capital stock of the Company or any of its Subsidiaries. As used in
this Agreement, the term "Company's Knowledge" shall mean the actual knowledge,
after reasonable investigation, of the Company's President and Chief Executive
Officer or its Executive Vice President and Chief Financial Officer.
(c) All outstanding shares of Common Stock are, and all shares of Common
Stock subject to issuance as specified in Section 3.2(b) above, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable, will be, duly authorized, validly issued, fully paid and nonassessable
and not subject to or issued in violation of any purchase option, call option,
right of first refusal, preemptive right, subscription right or any similar
right under any provision of the DGCL, the
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Company's Restated Certificate of Incorporation or Bylaws or any agreement to
which the Company is a party or is otherwise bound. There are no obligations,
contingent or otherwise, of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of the Common Stock or the
capital stock of the Company or any of its Subsidiaries or to provide funds to,
or make any material investment (in the form of a loan, capital contribution or
otherwise) in, the Company or any Subsidiary of the Company or any other entity,
other than guarantees of bank obligations of Subsidiaries of the Company entered
into in the ordinary course of business.
(d) All of the outstanding shares of capital stock of each of the Company's
Subsidiaries are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights and all such shares are owned, of record and
beneficially, by the Company or another Subsidiary of the Company free and clear
of all security interests, liens, claims, pledges, agreements, limitations in
the Company's voting rights, charges or other encumbrances of any nature.
3.3 Authority; No Conflict; Required Filings and Consents.
(a) The Company has all requisite corporate power and authority to enter
into this Agreement and the Asset Purchase Agreement of even date herewith (the
"Purchase Agreement") among the Company, the Buyer, CRC Asset Acquisition LLC
and two of its wholly-owned subsidiaries (the "JV Purchasers") and Patrick L.
Beach and, subject to the adoption of this Agreement by the Company's
stockholders under the DGCL, to consummate the transactions contemplated by this
Agreement and the Purchase Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement by the Company have been duly authorized by all necessary corporate
action on the part of the Company, subject only to the adoption of this
Agreement by the Company's stockholders under the DGCL. This Agreement has been
duly executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms subject only
to the adoption of this Agreement by the Company's stockholders under the DGCL.
(b) The execution and delivery of this Agreement by the Company does not,
and the consummation of the transactions contemplated by this Agreement will
not, (i) conflict with, or result in any violation or breach of, any provision
of the Restated Certificate of Incorporation or Bylaws of the Company or the
charter, Bylaws, or other organizational document of any of its Subsidiaries,
(ii) conflict with, or result in any violation or breach of, or constitute (with
or without notice or lapse of time, or both) a default (or give rise to a right
of termination, cancellation or acceleration of any obligation or loss of any
material benefit) under, or require a consent or waiver under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract or other agreement, instrument or obligation to which the Company or
any of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, (iii) subject to compliance with the
requirements specified in clauses (i), (ii), (iii), (iv) and (v) of Section
3.3(c), conflict with or violate any permit, concession, franchise, license,
judgment, injunction, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or any of its or their
properties or assets; or (iv) require the Company under the terms of any
material agreement, contract, arrangement or understanding to which it is a
party or by which it or its assets are bound, to obtain the consent or approval
of, or provide notice to, any other party to any such agreement, contract,
arrangement or understanding, except in the case of clauses (ii), (iii) and (iv)
of this Section 3.3(b) for any such conflicts, violations, breaches, defaults,
terminations, cancellations, accelerations, losses, failure to obtain consent or
approval or failure to notify which, individually or in the aggregate, would not
have a Company Material Adverse Effect.
(c) No consent, approval, license, permit, order or authorization of, or
registration, declaration, notice or filing with, any court, arbitrational
tribunal, administrative agency or commission or other governmental or
regulatory authority or agency (a "Governmental Entity") is required by or with
respect to the Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement, except for (i) pre-merger notification under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing of the Delaware Certificate of Merger with the Delaware
Secretary of State, the Maryland
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Certificate of Merger with the Maryland Department of Assessments and Taxation
and appropriate corresponding documents with the Secretaries of State of other
states in which the Company is qualified as a foreign corporation to transact
business, (iii) the filing of the Proxy Statement (as defined below) with the
NASDAQ and the Securities and Exchange Commission (the "SEC") in accordance with
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (iv) the
filing of such reports or schedules under Section 13 of the Exchange Act as may
be required in connection with this Agreement and the transactions contemplated
hereby and thereby, (v) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws, and (vi) any consent, approval, license, permit, order,
authorization, registration, declaration, notice or filing, which, if not
obtained or made, would, individually or in the aggregate, not have a Company
Material Adverse Effect.
(d) The affirmative vote for adoption of this Agreement by the holders of a
majority of the outstanding shares of Company Common Stock on the record date
for the Company Meeting (as defined below) is the only vote of the holders of
any class or series of the Company's capital stock or other securities necessary
to approve the Company Voting Proposal (as defined below). There are no bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of the Company may vote. To the Company's
Knowledge, as of the date hereof, Patrick Beach and W. Ross Martin own, in the
aggregate, approximately 727,552 shares of Company Common Stock.
3.4 SEC Filings; Financial Statements; Information Provided.
(a) All forms, reports and other documents required to be filed by the
Company with the SEC since January 1, 1999 (including those that the Company may
file after the date hereof until the Closing) are referred to herein as the
"Company SEC Reports." The Company SEC Reports (i) were or will be filed on a
timely basis and (ii) were or will be prepared in compliance in all material
respects with the applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the Exchange Act, as the case may be,
applicable to such Company SEC Reports. None of the Company SEC Reports when
filed, after giving effect to any amendments and supplements thereto filed prior
to the date hereof, contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(b) Each of the consolidated financial statements (including, in each case,
any related notes and schedules) contained or to be contained in the Company SEC
Reports (i) complied or will comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, (ii) were or will be prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited statements, as permitted by
the SEC on Form 10-Q under the Exchange Act or for normal year-end adjustments)
and (iii) fairly presented or will fairly present the financial position of
Company as of the dates thereof and the results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments. The
unaudited balance sheet of the Company as of March 31, 2001 is referred to
herein as the "Company Balance Sheet."
(c) The information to be supplied by the Company for inclusion in the
registration statement on Form S-4 pursuant to which the Buyer Common Stock and
Buyer Preferred Stock issued in connection with the Merger will be registered
under the Securities Act (the "Registration Statement"), shall not at the time
the Registration Statement is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated in the Registration Statement or necessary in order to make the
statements in the Registration Statement not misleading. The information to be
supplied by the Company for inclusion in the proxy statement/prospectus (the
"Proxy Statement") to be sent to the stockholders of the Company in connection
with the meeting of the Company's
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stockholders to consider the adoption of this Agreement and the Merger (the
"Company Meeting") shall not, on the date the Proxy Statement is first mailed to
stockholders of the Company, at the time of the Company Meeting and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Proxy Statement not false or misleading; or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Meeting which has become false or misleading. If at any time prior to the
Effective Time any event relating to the Company or any Affiliate (as defined
below) of the Company, officers or directors should be discovered by the Company
which should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, the Company shall promptly inform the Buyer.
As used in this Agreement, the term "Affiliate" shall have the same meaning as
such term is defined in Rule 405 promulgated under the Securities Act.
3.5 No Undisclosed Liabilities; Indebtedness.
(a) Except (i) as disclosed in the Company SEC Reports filed prior to the
date of this Agreement, (ii) for normal or recurring liabilities incurred since
the date of the Company Balance Sheet in the ordinary course of business, and
(iii) fees and expenses incident to the consummation of the transactions
contemplated hereby, the Company and its Subsidiaries do not have any
liabilities, either accrued, contingent or otherwise, that are required to be
reflected in financial statements in accordance with GAAP and that, individually
or in the aggregate, have had or will have a Company Material Adverse Effect.
(b) Section 3.5(b) of the Company Disclosure Schedule sets forth a complete
and accurate list of all loan or credit agreements, notes, bonds, mortgages,
indentures and other agreements and instruments pursuant to which any
indebtedness of the Company or any of its Subsidiaries in an aggregate principal
amount in excess of $500,000 is outstanding or may be incurred and the
respective principal amounts outstanding thereunder as of the date of this
Agreement. For purposes of Sections 3.5(b) and 4.5(b) of this Agreement,
"indebtedness" means, with respect to any person, without duplication, (A) all
obligations of such person for borrowed money, or with respect to deposits or
advances of any kind to such person, (B) all obligations of such person
evidenced by bonds, debentures, notes or similar instruments, (C) all
obligations of such person upon which interest charges are customarily paid, (D)
all obligations of such person under conditional sale or other title retention
agreements relating to property purchased by such person, (E) all obligations of
such person issued or assumed as the deferred purchase price of property or
services (excluding obligations of such person or creditors for raw materials,
inventory, services and supplies incurred in the ordinary course of such
person's business), (F) all capitalized lease obligations of such person, (G)
all obligations of such person under interest rate or currency hedging
transactions (valued at the termination value thereof), (H) all letters of
credit issued for the account of such person and (I) all guarantees and
arrangements having the economic effect of a guarantee of such person of any
indebtedness of any other person.
3.6 Absence of Certain Changes or Events.
(a) Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement, there has not been, after the date of the Company Balance
Sheet and prior to the date of this Agreement, any event, change or development
in the business, financial condition or operations of the Company and its
Subsidiaries, taken as a whole, which, individually or in the aggregate, has had
a Company Material Adverse Effect.
(b) During the period from March 31, 2001 to the date hereof, (i) there has
not been any change by the Company in its accounting methods, principles or
practices, any revaluation by the Company of any of its assets, including,
writing down the value of inventory or writing off notes or accounts receivable
and (ii) there has not been any action or event, and neither the Company nor any
of its Subsidiaries has agreed in writing or otherwise to take any action, that
would have required the consent of the Buyer pursuant to Section 5.1 had such
action or event occurred or been taken after the date hereof and prior to the
Effective Time.
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3.7 Properties.
(a) The Company or a Subsidiary of the Company owns good and marketable fee
simple title (or leasehold estate) to each of the real properties identified in
Section 3.7(a) of the Company Disclosure Schedule (collectively, the "Company
Properties" and each, a "Company Property"), which are all of the real
properties owned by them as of the date hereof. Except (i) as set forth in the
existing title reports identified in clause (v) below, (ii) for the Company
Leases, and (iii) for any easements granted in the ordinary course of business
since the date of such title reports, none of which has a Company Material
Adverse Effect, no other Person has any real property ownership interest in any
of the Company Properties. The Company Properties are not subject to any rights
of way, written agreements, laws, ordinances and regulations affecting building
use or occupancy, or reservations of an interest in title (collectively,
"Property Restrictions") or liens (including liens for Taxes), mortgages or
deeds of trust, claims against title, charges which are liens, security
interests or other encumbrances on title (the "Encumbrances"), except for (iv)
Property Restrictions imposed or promulgated by law or any Governmental Entity
with respect to real property, including zoning regulations, which, individually
or in the aggregate, would not have a Company Material Adverse Effect, (v)
Property Restrictions and Encumbrances disclosed on existing title reports or
existing surveys and easements granted in the ordinary course of business since
the date of such reports, none of which would adversely effect the tenant's
obligation to pay rent under the applicable Company Lease (as defined below) and
(vi) mechanics', carriers', workmen's and repairmen's liens and other
Encumbrances and Property Restrictions, if any, which, individually or in the
aggregate, would not have a Company Material Adverse Effect.
(b) Valid policies of title insurance have been issued or irrevocably
committed to be issued insuring the Company's or the applicable Company
Subsidiary's fee simple title (or leasehold estate) to each of the Company
Properties (or leasehold estate) owned by it in amounts at least equal to the
purchase price thereof paid by Company or its Subsidiary in the case of Company
Properties owned by the Company or any of its Subsidiaries, subject only to the
matters and exceptions disclosed in such policies. Such policies are, at the
date hereof, in full force and effect.
(c) There has been no physical damage to any Company Properties which,
individually or in the aggregate, would have a Company Material Adverse Effect
after giving effect to any applicable insurance.
(d) Neither Company nor any of the Company Subsidiaries nor, to the
Company's Knowledge, any tenant under a Company Lease has received any notice
with respect to any Company Property to the effect that any condemnation or
rezoning proceedings are pending or threatened which, individually or in the
aggregate, would have a Company Material Adverse Effect. All work to be
performed, payments to be made and actions to be taken by the Company or the
Company Subsidiaries prior to the date hereof pursuant to any agreement entered
into with a Governmental Entity in connection with a site approval, zoning
reclassification or other similar action (e.g., local improvement district, road
improvement district, environmental mitigation) material to Company and the
Company Subsidiaries taken as a whole have been performed, paid or taken, as the
case may be, and to the Company's Knowledge, no planned or proposed work,
payments or actions that may be required after the date hereof pursuant to such
agreements are material to Company and the Company Subsidiaries taken as a
whole.
(e) All of the Company's Properties are managed by Captec Net Lease Realty
Advisors Inc. or Captec Financial Group Inc.
(f) No Company Property is currently under development or subject to any
agreement with respect to development, and neither the Company nor any
Subsidiary shall enter into any such agreement between the date hereof and the
Effective Time without the prior written approval of Buyer. For purposes of this
Section 3.7(f), "development" shall not include capital improvements made in the
ordinary course of business to existing Company Properties and repairs made to
existing Company Properties.
3.8 Joint Venture Interests. The Company owns the interests in the Joint
Ventures listed in Section 3.1(c) of the Company Disclosure Schedule free and
clear of all security interests, liens, claims, pledges, agreements, charges or
other encumbrances of any nature.
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3.9 Leases.
(a) Section 3.9(a) of the Company Disclosure Schedule sets forth a true and
complete list of the leases to which any Company Property is subject (each, a
"Company Lease" and together, the "Company Leases"). Prior to the date hereof,
true and correct copies of the Company Leases have been made available to the
Buyer.
(b) Each of the Company Leases is a valid and subsisting lease with respect
to the Company Property to which it relates and, to the Company's Knowledge, no
event of monetary default has occurred under any Company Lease and no event of
non-monetary default has occurred under any Company Lease that, in either case,
individually or in the aggregate, would have a Company Material Adverse Effect.
(c) Schedule 3.9(c) sets forth a copy of the rent roll of the Company (the
"Company Rent Roll") that lists each Company Lease in effect as of the dates set
forth therein, and that is true, correct and complete except for omissions or
discrepancies that, either individually or in the aggregate, would not
reasonably be expected to have a Company Material Adverse Effect.
(d) With regard to any Company Properties where the Company or any
Subsidiary of the Company (the "Ground Lessee") holds a leasehold estate (a
"Ground Lease"): (i) the Ground Lease is a valid and subsisting lease and, to
the Company's Knowledge, the Ground Lessee is not in default under any terms
thereunder; and (ii) to the extent required under the Ground Lease, the Company
will use its commercially reasonable efforts to obtain consent from the Lessor
under the Ground Lease to the transaction contemplated hereby.
3.10 Taxes.
(a) Each of the Company and the Subsidiaries of the Company and any
consolidated, combined, unitary or aggregate group for tax purposes of which the
Company or any Subsidiary of the Company is or has been a member has filed all
Tax Returns (as defined below) required to be filed by it (after giving effect
to any filed extension properly granted by a Tax Authority (as defined below)
having authority to do so) and has timely paid all Taxes (as defined below)
shown on such Tax Returns as required to be paid by it except (i) Taxes that are
being contested in good faith by appropriate proceedings and for which the
Company or the applicable Company Subsidiary shall have set aside on its books
adequate reserves or (ii) where the failure to file such Tax Returns or pay such
Taxes would not have a Company Material Adverse Effect. Each such Tax Return is
complete and accurate except where any failure to be complete and accurate would
not have a Company Material Adverse Effect. The most recent audited financial
statements contained in the Company SEC Reports reflect an adequate reserve for
all Taxes payable by the Company and its Subsidiaries for all taxable periods
and portions thereof through the date of such financial statements except where
any failure would not have a Company Material Adverse Effect. Since the date of
the Company Balance Sheet, the Company has incurred no liability for Taxes under
Sections 857(b), 857(f), 860(c) or 4981 of the Code, including without
limitation any Tax arising from a prohibited transaction described in Section
857(b)(6) of the Code, and neither the Company nor any Subsidiary of the Company
has incurred any material liability for Taxes other than in the ordinary course
of business. To the Company's Knowledge, no material deficiencies for any Taxes
have been proposed, asserted or assessed against the Company or any Subsidiary
of the Company, and no requests for waivers of the time to assess any such Taxes
are pending and no extensions of time to assess any such Taxes are in effect.
All Taxes required to be withheld, collected and paid over to any Tax Authority
by the Company and any Subsidiary of the Company have been timely withheld,
collected and paid over to the proper Tax Authority except where failure to do
so would not have a Company Material Adverse Effect. There are no material
pending actions or proceedings by any Taxing Authority for assessment or
collection of any Tax. Complete copies of all federal, state and local income or
franchise Tax Returns that have been filed by the Company and each Subsidiary of
the Company for all taxable years beginning on or after January 1, 1998, any
extensions filed with any Tax Authority that are currently in effect and all
written communications with a Taxing Authority relating thereto, have been or
will hereafter promptly be made available to the Buyer. The Company has not
received notice of any claim by a Taxing Authority in a jurisdiction where the
Company or any Subsidiary of the Company does not file Tax Returns that it is
subject to taxation by
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the jurisdiction except where the failure to file such Tax Return or to be
subject to taxation would not have a Company Material Adverse Effect. Neither
the Company, nor any Subsidiary of the Company is obligated to make after the
Closing any payment that would not be deductible pursuant to Section 162(m) of
the Code except where the lack of such deduction would not have a Company
Material Adverse Effect. Neither the Company nor any Subsidiary of the Company
is party to, nor has any liability under (including liability with respect to
any predecessor entity), any indemnification, allocation or sharing agreement
with respect to Taxes. As used in this Agreement, "Tax" or "Taxes" shall include
all federal, state, local and foreign income, property, sales, use, occupancy,
transfer, recording, withholding, franchise, employment, excise and other taxes,
tariffs or governmental charges of any nature whatsoever, together with
penalties, interest or additions to tax with respect thereto. As used in this
Agreement, "Tax Return" or "Tax Returns" shall include all original and amended
returns and reports (including elections, claims, declarations, disclosures,
schedules, computations and information returns) required to be supplied to a
Tax Authority in any jurisdiction. As used in this Agreement, "Tax Authority"
shall mean the Internal Revenue Service (the "IRS") and any other domestic or
foreign bureau, department, entity, agency or other Governmental Entity
responsible for the administration of any Tax.
(b) The Company (i) for all taxable years commencing with its initial
taxable year through December 31, 2000 has been operated so as to qualify as a
real estate investment trust (a "REIT") within the meaning of Section 856 of the
Code and has been so qualified as a REIT for such years, (ii) and will continue
to operate to the Closing, in such a manner as to qualify as a REIT for the
taxable year beginning January 1, 2001 determined as if the taxable year of the
REIT ended as of the Closing and (iii) has not taken or omitted to take any
action which would result in a challenge to its status as a REIT, and no such
challenge is pending or to the Company's Knowledge threatened. Each Subsidiary
of the Company which is a partnership or limited liability company (i) has been
since its formation and continues to be treated for federal income tax purposes
as a partnership or disregarded as a separate entity, as the case may be, and
has not been treated for federal income tax purposes as a corporation or an
association taxable as a corporation and (ii) has not since the later of its
formation or the acquisition by the Company of a direct or indirect interest
therein owned any assets (including, without limitation, securities) that would
cause the Company to violate Section 856(c)(4) of the Code. The nature of the
assets of the Company and the Subsidiaries of the Company is such that the sale
of all of the assets owned by them would not cause the Company to be
disqualified as a REIT under Code Section 856(c)(2) or 856(c)(3) or otherwise.
Each Subsidiary of the Company that is a corporation either (i) has been since
its formation a qualified REIT subsidiary under Section 856(i) of the Code or
(ii) has been since January 1, 2001, a taxable REIT subsidiary under Section
856(1) of the Code.
3.11 Intellectual Property. The Company and the Subsidiaries of the
Company own, or are licensees of or otherwise possess legally enforceable rights
to use, all material patents, trademarks, trade names, domain names, service
marks and copyrights, any applications for and registrations of such patents,
trademarks, trade names, domain names, service marks and copyrights, and all
processes, formulae, methods, schematics, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material that are used or necessary to conduct the business of
the Company and the Subsidiaries of the Company as currently conducted, or would
be used or necessary as such business is planned to be conducted, except where
the failure to own, be so licensed or otherwise possess, individually or in the
aggregate, would not have a Company Material Adverse Effect.
3.12 Litigation. There is no action, suit, proceeding, claim, arbitration
or investigation (a "Proceeding") pending or, to the Company's Knowledge,
threatened against the Company or any of the Subsidiaries which, individually or
in the aggregate, will have a Company Material Adverse Effect. There are no
judgments, orders or decrees outstanding against the Company which, individually
or in the aggregate, would have a Company Material Adverse Effect.
Notwithstanding the foregoing, (i) Schedule 3.12 to the Company's Disclosure
Schedule sets forth each and every material uninsured claim, equal employment
opportunity claim and claim relating to sexual harassment and/or discrimination
pending or, to the Knowledge of the Company, threatened as of the date hereof,
in each case with a brief
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summary of such claim or threatened claim and (ii) no claim has been made under
any directors' and officers' liability insurance policy at any time by the
Company or any Subsidiary.
3.13 Environmental Matters.
(a) Except for such matters which, individually or in the aggregate, have
not had, and will not have, a Company Material Adverse Effect:
(i) the Company and each of its Subsidiaries are currently and, at all
times during the Company's and each of its Subsidiaries' ownership or
operation of their businesses and properties, have been, in material
compliance with all applicable Environmental Laws;
(ii) no Environmental Claims have been asserted or assessed against
the Company, any of its Subsidiaries or, to the Company's Knowledge, any
tenant under any of the Company Leases with regard to any of the Company
Properties, and, to the Company's Knowledge, no Environmental Claims are
pending or threatened against the Company, any of its Subsidiaries or any
tenants under any of the Company Leases with regard to any of the Company
Properties:
(iii) there has not been, and is not now present, any Contamination at
any property currently owned, leased or operated by the Company and its
Subsidiaries (including soils, groundwater, surface water in, on or under
such properties), and no such property is in the National Priorities List
or, to the Company's Knowledge, any other list, schedule, log, inventory or
record, however defined, maintained by any federal, state or local
Governmental Entity with respect to sites from which there is or has been a
Release of a Hazardous Substance;
(iv) there was no Contamination at any property formerly owned,
leased or operated by the Company or any of its Subsidiaries during, or to
the Company's Knowledge, prior to the period of ownership or operation by
the Company or any of its Subsidiaries (including soils, groundwater,
surface water in, on or under such properties), and no such property is on
the National Priorities List or, to the Company's Knowledge, any other
list, schedule, log, inventory or record, however defined, maintained by
any federal, state or local Governmental Entity with respect to sites from
which there is or has been a Release of a Hazardous Substance;
(v) neither the Company nor any of its Subsidiaries nor, to the
Company's Knowledge, any tenant of any Company Property is subject to any
orders, decrees, injunctions or other arrangements with any Governmental
Entity or is subject to any indemnity or other agreement with any third
party relating to liability under any Environmental Law or relating to
Hazardous Substances that obligates or may obligate the Company or any of
its Subsidiaries to pay money; and
(vi) the Company has made available to the Buyer, prior to the
execution and delivery of this Agreement, complete copies of any and all
Environmental Documents pertaining to the Company Properties.
(b) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Environmental Law" means any law, statute, regulation, order,
decree, permit, authorization, code, ordinance, rule, policy, opinion,
consent decree, judicial order, administrative order, agency requirement,
or common law of any jurisdiction relating to: (A) the environment, human
health or safety associated with the environment, or natural resources; (B)
the handling, use, presence, disposal, release or threatened release of any
Hazardous Substance; or (C) noise, odor, wetlands, pollution, Contamination
or any injury or threat of injury to persons or property.
(ii) "Environmental Claims" means: (A) any claim, demand, action or
proceeding brought or instigated by any Governmental Entity or other third
party in connection with any Environmental Law (including without
limitation civil, criminal and/or administrative proceedings), whether or
not seeking costs, damages, penalties or expenses; and (B) third party
claims, actions, demands or proceedings, based on negligence, trespass,
strict liability, nuisance, toxic tort or detriment to human
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health or welfare due to any Release of a Hazardous Substance, and whether
or not seeking costs, damages, penalties or expenses.
(iii) "Contamination" means the presence of, or Release on, under,
from or to the environment of any Hazardous Substance, except the routine
storage and use of Hazardous Substances from time to time in the ordinary
course of business, in compliance with Environmental Laws and with good
commercial practice.
(iv) "Release" means mean the spilling, leaking, disposing,
discharging, emitting, depositing, injecting, leaching, escaping or any
other release or threatened release and whether intentional or
unintentional, of any Hazardous Substance.
(v) "Hazardous Substance" means: (A) any hazardous substance,
pollutant or contaminant, as such terms are defined under the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42
U.S.C. Sections 9601 et seq., or analogous state Environmental Law; (B) any
petroleum or petroleum product or by-product, asbestos or
asbestos-containing material, urea-formaldehyde, lead-containing paint or
plumbing, polychlorinated biphenyls, radioactive materials or radon; and
(C) any other substance which is the subject of regulatory action by any
Governmental Entity pursuant to any Environmental Law.
(vi) "Environmental Documents" means: (A) any and all documents
received by the Company or its Subsidiaries from the United States
Environmental Protection Agency ("EPA") or any other Governmental Entity
concerning the environmental condition of any property owned, leased or
operated at any time by the Company or any Subsidiary of the Company, or
the effect of the Company's business operations or the business operations
of any Subsidiary of the Company on the environmental condition of such
property; and (B) any and all documents submitted by the Company or any
Subsidiary of the Company during the past five years to the EPA or any
state, county or municipal environmental or health agency concerning the
environmental condition of any property owned, leased or operated at any
time by the Company or any Subsidiary of the Company, or the effect of the
Company's business operations or the business operations of any Subsidiary
of the Company on the environmental condition of such property.
3.14 Employee Benefit Plans.
(a) For purposes of this Agreement, the following terms shall have the
following meanings: (i) "Employee Benefit Plan" means any "employee pension
benefit plan" (as defined in Section 3(2) of ERISA), any "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA), and any other written or
oral plan, agreement or arrangement involving direct or indirect compensation,
including insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock or stock
appreciation plan or other forms of incentive compensation or post-retirement
compensation; (ii) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended; (iii) "ERISA Affiliate" means any entity which is, or at any
applicable time was, a member of (A) a controlled group of corporations (as
defined in Section 414(b) of the Code), (B) a group of trades or businesses
under common control (as defined in Section 414(c) of the Code), or (C) an
affiliated service group (as defined under Section 414(m) of the Code or the
regulations under Section 414(o) of the Code), any of which includes or included
the Company or a Subsidiary thereof, and (D) "Employee Plan" means any Employee
Benefit Plan maintained, or contributed to, by the Company, any Subsidiary of
the Company or any ERISA Affiliate. Each Employee Plan is identified on Schedule
3.14(a) of the Company's Disclosure Schedule. With respect to each Employee
Plan, true, correct and complete copies of all of the following documents, if
applicable, have been delivered or made available to Buyer: (i) all plan
documents and amendments thereto; (ii) written descriptions of any unwritten
plans or policies; (iii) all trust agreements, annuity contracts, insurance
policies and other documents relating to the funding or payment of benefits
under the Employee Plan; (iv) all service contracts and agreements; (v) the
three (3) most recent Forms 5500 and any financial statements attached thereto;
(vi) the most recent actuarial and valuation report; (vii) the most recent IRS
determination letter and all requests for rulings or determinations concerning
such Employee Plan
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requested from the IRS subsequent to the date of that letter; (viii) the most
recent IRS opinion letter; (ix) the most recent summary plan description,
summary of material modifications, and summary annual report, and/or written
interpretation of the Employee Plan provided to employees; (x) copies of the
nondiscrimination (including section 415) testing for the last three (3) years,
and (xi) all other documents, forms or other instruments relating to Employee
Plans reasonably requested by Buyer. There has been no "reportable event" within
the meaning of Section 4043 of ERISA with respect to any Employee Plan for which
the notice requirement has not been waived and which has not been fully and
accurately reported in a timely fashion, as required, or which, whether or not
reported, would constitute grounds for the Pension Benefit Guarantee Corporation
to institute termination proceedings with respect to any Employee Plan.
(b) Each Employee Plan has been administered in all material respects in
accordance with its terms and all applicable laws, including, without
limitation, the Code and ERISA, and each of the Company, its Subsidiaries and
any ERISA Affiliates has in all material respects met its obligations with
respect to such Employee Plan and has made all required contributions thereto
(or reserved such contributions on the Company Balance Sheet), in each case
except as would not cause a Company Material Adverse Effect.
(c) With respect to the Employee Plans, there are no funded benefit
obligations for which contributions have not been made or properly accrued and
there are no unfunded benefit obligations which have not been accounted for by
reserves, or otherwise properly footnoted in accordance with GAAP, on the
financial statements of the Company, in each case except as would not cause a
Company Material Adverse Effect. No Employee Plan is maintained by the Company
that provides health coverage to former employees of the Company, except as is
required under Section 4980B of the Code. The Company has no liability with
respect to any Employee Plan maintained by an ERISA Affiliate.
(d) Each of the Employee Plans that is intended to be qualified under
Section 401(a) of the Code has received determination letters from the IRS to
the effect that such Employee Plan is qualified and the plans and trusts related
thereto are exempt from federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, and no such determination letter has been revoked
and, to the Company's Knowledge, revocation has not been threatened. No lawsuit
or other action has been brought or, to the Company's Knowledge, threatened with
respect to any Employee Plan (excluding claims for benefits brought in the
ordinary course of plan activities) and no audit, examination or other action
has been brought or, to the Company's Knowledge, threatened with respect to any
Employee Plan by any Governmental Entity. The Company has incurred no tax
liability under Sections 4971 through 4980B and 4980D of the Code or civil
liability under Sections 502(i) or (l) of ERISA.
(e) Neither the Company, any Subsidiary nor any ERISA Affiliate has (i)
ever maintained an Employee Plan which was ever subject to Section 412 of the
Code or Title IV of ERISA or (ii) ever been obligated to contribute to a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA). No Employee
Plan is funded by, associated with or related to a "voluntary employee's
beneficiary association" within the meaning of Section 501(c)(9) of the Code.
(f) Neither the Company nor any of its Subsidiaries is a party to any oral
or written (i) agreement with any stockholders, director, executive officer or
other key employee of the Company or any of its Subsidiaries (A) the benefits of
which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company or any of its Subsidiaries of
the nature of any of the transactions contemplated by this Agreement, or (B)
providing any term of employment or compensation guarantee or (ii) agreement,
plan or arrangement under which any person may receive payments from the Company
or any of its Subsidiaries that may be subject to the tax imposed by Section
4999 of the Code or included in the determination of such person's "parachute
payment" under Section 280G of the Code.
(g) There has been no amendment to, written interpretation of or
announcement by the Company or any ERISA Affiliate relating to, or change in
employee participation or coverage under, any Employee Plan that would result in
a material increase in the expense of maintaining such Employee Plan above the
level of the expense incurred in respect thereof for the fiscal year of the
Company ended prior to the date
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hereof. Neither the Company nor any ERISA Affiliate has any plan or commitment,
whether legally binding or not, to create any additional Employee Plan, or to
modify or change any existing Employee Plan that would affect any employee or
terminated employee of the Company, any of its Subsidiaries, or any ERISA
Affiliate.
3.15 Compliance With Laws. The Company and each of its Subsidiaries has
complied with, is not in violation of, and has not received any notice alleging
any violation with respect to, any applicable provisions of any statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its properties or assets, except for failures to comply or
violations which, individually or in the aggregate, have not had and are not
reasonably likely to have a Company Material Adverse Effect.
3.16 Labor Matters. Neither the Company nor any of its Subsidiaries is a
party to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization.
3.17 Insurance. (a) Each insurance policy maintained by the Company (the
"Insurance Policies") is in full force and effect and is valid, outstanding and
enforceable, and all premiums due thereon have been paid in full, (b) to the
Company's Knowledge, none of the Insurance Policies will terminate or lapse by
reason of the transactions contemplated by this Agreement, (c) the Company, and
its Subsidiaries have complied in all material respects with the provisions of
each Insurance Policy under which it is the insured party, (d) no insurer under
any Insurance Policy has canceled or generally disclaimed liability under any
such policy or indicated any intent to do so or not to renew any such policy,
and (e) all material claims under the Insurance Policies have been filed in a
timely fashion, in each case except as is not reasonably likely to have a
Company Material Adverse Effect.
3.18 Opinion of Financial Advisor. UBS Warburg LLC ("UBSW"), financial
advisor to the Special Committee of the Board of Directors of the Company (the
"Special Committee"), has delivered to the Special Committee and the Board of
Directors of the Company (the "Board") an opinion to the effect that the Merger
Consideration is fair to the holders of the Company Common Stock from a
financial point of view.
3.19 Related Party Transactions. Schedule 3.19 to the Company Disclosure
Schedule sets forth a list of all material arrangements, agreements and
contracts entered into by the Company or any Subsidiary of the Company that are
in effect and which are with (a) any investment banker or financial advisor, in
each case, relating to any obligation to make, or which could result in the
making of, any payment (except pursuant to indemnification obligations) or (b)
any Person who is an officer, director or Affiliate of the Company or any
Subsidiary of the Company, any relative of any of the foregoing or any entity of
which any of the foregoing is an Affiliate. Such documents, copies of all of
which have previously been delivered or made available to the Buyer, are listed
in Schedule 3.19 to the Company Disclosure Schedule.
3.20 Payments to Employees, Officers or Directors. Schedule 3.20 to the
Company Disclosure Schedule contains a true and complete list of all
arrangements, agreements or plans pursuant to which cash and non-cash payments
which will become payable to any employee, officer or director of the Company or
any Subsidiary of the Company as a result of the Merger or a termination of
service subsequent to the consummation of the Merger and the aggregate amount of
cash payments that will become payable as a result thereof. Except as described
in Schedule 3.20 to the Company Disclosure Schedule, or as otherwise provided
for in this Agreement, there is no employment or severance contract, or other
agreement requiring payments, cancellation of indebtedness or other obligation
to be made on a change of control or otherwise as a result of the consummation
of any of the transactions contemplated by this Agreement or as a result of a
termination of service subsequent to the consummation of any of the transactions
contemplated by this Agreement, with respect to any employee, officer or
director of the Company or any Subsidiary of the Company. Except as described in
Schedule 3.20 of the Company Disclosure Schedule, there is no agreement or
arrangement with any employee, officer or other service provider under which the
Company or any Subsidiary of the Company has agreed to pay any tax that might be
owed under Section 4999 of the Code with respect to payments to such
individuals.
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3.21 Permits. The Company and each of its Subsidiaries have all permits,
licenses and franchises from Governmental Entities required to conduct their
businesses as now being conducted or as presently contemplated to be conducted,
except for such permits, licenses and franchises the absence of which,
individually or in the aggregate, have not resulted in and will not result in a
Company Material Adverse Effect (the "Company Permits"). The Company and its
Subsidiaries are in compliance with the terms of the Company Permits, except
where the failure to so comply, individually or in the aggregate, is not
reasonably likely to have a Company Material Adverse Effect. There is no pending
threat of modification or cancellation of any Company Permit that, individually
or in the aggregate, would have a Company Material Adverse Effect. To the
Company's Knowledge and except to the extent caused by the lack of one or more
approvals, notifications, reports or other filings set forth in paragraph 3.3(c)
of this Agreement, no Company Permit will cease to be effective as a result of
the consummation of transactions contemplated by this Agreement.
3.22 Section 203 of the DGCL Not Applicable; Rights Plan. Assuming the
accuracy of the representations contained in Section 4.23 below, the Board has
taken all actions necessary so that the restrictions contained in Section 203 of
the DGCL applicable to a "business combination" (as defined in Section 203) will
not apply to the execution, delivery or performance of this Agreement or the
consummation of the Merger. The Board has taken all action necessary so that the
Company's entering into this Agreement and completing the Merger will not
trigger the adverse consequences of the Stockholder Rights Agreement between the
Company and Norwest Bank Minnesota, N.A., as rights agent, dated as of September
17, 1999 (the "Rights Plan").
3.23 Tax Matters. To the Company's Knowledge, after consulting with its
independent auditors and outside legal counsel, neither the Company nor any of
its Affiliates has taken or agreed to take any action which would prevent the
Merger from constituting a transaction qualifying as a reorganization under
Section 368(a) of the Code.
3.24 Brokers. No agent, broker, investment banker, financial advisor or
other firm or person is or will be entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with any of the
transactions contemplated by this Agreement, except UBSW, whose fees and expense
will be paid by the Company. The Company has delivered to the Buyer a complete
and accurate copy of the agreement pursuant to which UBSW is entitled to any
fees and expenses in connection with any of the transactions contemplated by
this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Company that the statements
contained in this Article IV are true and correct, except as set forth herein or
in the disclosure schedule delivered by the Buyer to the Company on or before
the date of this Agreement (the "Buyer Disclosure Schedule"). The Buyer
Disclosure Schedule is arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article IV and the disclosure in any
paragraph shall qualify other paragraphs in this Article IV.
As used herein, "Buyer Material Adverse Effect" shall mean any change,
effect or circumstance that is materially adverse to the financial condition,
business or operations of the Buyer and its Subsidiaries taken as a whole (other
than changes that result from economic factors affecting the economy as a whole
or changes that are the result of factors generally affecting the specific
industry or markets in which the Buyer operates and competes); provided, that
(i) Buyer Material Adverse Effect shall not include (A) any adverse change,
effect or circumstance arising out of or resulting from actions contemplated by
the parties in connection with this Agreement or that is attributable to the
announcement or performance of this Agreement or the transactions contemplated
by this Agreement or (B) any adverse change in the Buyer's stock price and (ii)
any failure of the Buyer to meet the financial projections of any analyst shall
not, in
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and of itself, be taken into account in determining whether there has been a
Buyer Material Adverse Effect.
4.1 Organization, Standing and Power.
(a) Each of the Buyer and the Buyer's other Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified, individually or in
the aggregate, would have a Buyer Material Adverse Effect.
(b) Except as set forth in the Buyer SEC Reports (as defined in Section
4.4) filed prior to the date of this Agreement, neither the Buyer nor any of its
Subsidiaries directly or indirectly owns any equity, membership, partnership or
similar interest in, or any interest convertible into or exchangeable or
exercisable for any equity, membership, partnership or similar interest in, any
corporation, partnership, joint venture, limited liability company or other
business association or entity, whether incorporated or unincorporated.
(c) The Buyer has delivered to the Company complete and accurate copies of
the First Amended and Restated Articles of Incorporation and Bylaws of Buyer.
4.2 Capitalization.
(a) The authorized capital stock of the Buyer consists of 90,000,000 shares
of Buyer Common Stock and 15,000,000 shares of preferred stock, $.01 par value
per share. As of the close of business on the date of this Agreement, (i)
30,548,174.807 shares of Buyer Common Stock were issued and outstanding, (ii) no
shares of Buyer Common Stock were held in the treasury of the Buyer or by
Subsidiaries of the Buyer, and (iii) no shares of preferred stock were issued
and outstanding.
(b) Section 4.2(b) of Buyer Disclosure Schedule lists the number of shares
of Buyer Common Stock reserved for future issuance pursuant to stock options
granted and outstanding as of the date of this Agreement (such outstanding
options, the "Buyer Stock Options") and the plans under which such options were
granted (collectively, the "Buyer Stock Plans"). Except (x) as set forth in this
Section 4.2, and (y) as reserved for future grants under Buyer Stock Plans and
Buyer Stock Options (i) there are no equity securities of any class of the Buyer
or any of its Subsidiaries (other than equity securities of any such Subsidiary
that are directly or indirectly owned by the Buyer), or any security
exchangeable into or exercisable for such equity securities, issued, reserved
for issuance or outstanding and (ii) there are no options, warrants, equity
securities, calls, rights, commitments or agreements of any character to which
the Buyer or any of its Subsidiaries is a party or by which the Buyer or any of
its Subsidiaries is bound obligating the Buyer or any of its Subsidiaries to
issue, transfer, deliver or sell, or cause to be issued, transferred, delivered
or sold, additional shares of capital stock of the Buyer or any of its
Subsidiaries or any security or rights convertible into or exchangeable or
exercisable for any such shares. Neither the Buyer nor any of its Subsidiaries
has outstanding any stock appreciation rights, phantom stock, performance based
rights or similar rights or obligations. To the Buyer's Knowledge there are no
agreements or understandings with respect to the voting (including voting trusts
and proxies) or sale or transfer (including agreements imposing transfer
restrictions) of any shares of capital stock of the Buyer or any of its
Subsidiaries. As used in this Agreement, the term "Buyer's Knowledge" shall mean
the actual knowledge, after reasonable investigation of the Chairman, Chief
Executive Officer, President, Chief Operating Officer or Chief Financial
Officer.
(c) All outstanding shares of Buyer Common Stock are, and all shares of
Buyer Common Stock subject to issuance as specified in Section 4.2(b) above,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be, and all shares of the Share Consideration
to be issued pursuant to Section 2.1(c) above, in connection with the Merger,
when issued in accordance with this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable and not subject to or issued in violation
of any purchase option, call option, right of first refusal,
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preemptive right, subscription right or any similar right under any provision of
the MGCL, the Buyer's First Amended and Restated Articles of Incorporation or
Bylaws or any agreement to which the Buyer is a party or is otherwise bound.
There are no obligations, contingent or otherwise, of the Buyer or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of the Buyer
Common Stock or the capital stock of the Buyer or any of its Subsidiaries or to
provide funds to or make any material investment (in the form of a loan, capital
contribution or otherwise) in the Buyer or any Subsidiary of the Buyer or any
other entity, other than guarantees of bank obligations of Subsidiaries of the
Buyer entered into in the ordinary course of business.
(d) All of the outstanding shares of capital stock of each of the Buyer's
Subsidiaries are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights and all such shares (other than directors' qualifying
shares in the case of non-U.S. Subsidiaries, all of which the Buyer has the
power to cause to be transferred for no or nominal consideration to the Buyer or
the Buyer's designee) are owned, of record and beneficially, by the Buyer or
another Subsidiary of the Buyer free and clear of all security interests, liens,
claims, pledges, agreements, limitations in the Buyer's voting rights, charges
or other encumbrances of any nature.
4.3 Authority; No Conflict; Required Filings and Consents.
(a) The Buyer has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated by this Agreement
and the Purchase Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement by the Buyer has
been duly authorized by all necessary corporate action on the part of the Buyer.
This Agreement has been duly executed and delivered by the Buyer and constitutes
the valid and binding obligation of the Buyer, enforceable in accordance with
its terms.
(b) The execution and delivery of this Agreement by the Buyer does not, and
the consummation of the transactions contemplated by this Agreement will not,
(i) conflict with, or result in any violation or breach of, any provision of the
First Amended and Restated Articles of Incorporation or Bylaws of the Buyer or
the charter, Bylaws or other organizational document of any other Subsidiary of
the Buyer, (ii) conflict with, or result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default (or give
rise to a right of termination, cancellation or acceleration of any obligation
or loss of any material benefit) under, or require a consent or waiver under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract or other agreement, instrument or obligation
to which the Buyer or any of its Subsidiaries is a party or by which any of them
or any of their properties or assets may be bound, or (iii) subject to
compliance with the requirements specified in clause (i), (ii), (iii), (iv),
(v), and (vi) of Section 4.3(c), conflict with or violate any permit,
concession, franchise, license, judgment, injunction, order, decree, statute,
law, ordinance, rule or regulation applicable to the Buyer or any of its
Subsidiaries or any of its or their properties or assets, except in the case of
clauses (ii) and (iii) for any such conflicts, violations, breaches, defaults,
terminations, cancellations, accelerations or losses which, individually or in
the aggregate, would not have a Buyer Material Adverse Effect.
(c) No consent, approval, license, permit, order or authorization of, or
registration, declaration, notice or filing with, any Governmental Entity is
required by or with respect to the Buyer or any of its Subsidiaries in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated by this Agreement, except for (i) pre-merger
notification under the HSR Act, (ii) the filing of the Delaware Certificate of
Merger with the Delaware Secretary of State, the Maryland Certificate of Merger
with the Maryland Department of Assessments and Taxation and appropriate
corresponding merger documents with the Secretaries of State of other states in
which the Company is qualified as a foreign corporation to transact business,
(iii) the filing of the Registration Statement with the SEC in accordance with
the Securities Act, (iv) the filings of such reports or schedules under Section
13 of the Exchange Act as may be required in connection with this Agreement and
the transactions contemplated hereby, (v) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws, (vi) approval for listing
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the shares of Buyer Common Stock and the Buyer Preferred Stock on the NYSE,
subject to official notification of issuance and (vii) any consent, approval,
license, permit, order, authorization, registration, declaration, notice or
filing, which, if not so obtained or made, would, individually or in the
aggregate, not have a Buyer Material Adverse Effect.
4.4 SEC Filings; Financial Statements.
(a) All forms, reports and other documents required to be filed by the
Buyer with the SEC since January 1, 1999 (including those that the Buyer may
file after the date hereof until the Closing) are referred to herein as the
"Buyer SEC Reports." The Buyer SEC Reports (i) were or will be filed on a timely
basis and (ii) were or will be prepared in compliance in all material respects
with the applicable requirements of the Securities Act and the Exchange Act, as
the case may be, and the rules and regulations of the SEC thereunder applicable
to such Buyer SEC Reports. As of their respective dates, the Buyer SEC Reports,
after giving effect to any amendments and supplements thereto filed prior to the
date hereof, complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, applicable to such Buyer
SEC Reports. None of the Buyer SEC Reports when filed, after giving effect to
any amendments and supplements thereto filed prior to the date hereof, contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) Each of the consolidated financial statements (including, in each case,
any related notes and schedules) contained or to be contained in the Buyer SEC
Reports (i) complied or will comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, (ii) were or will be prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case of
unaudited statements, as permitted by the SEC on Form 10-Q under the Exchange
Act or for normal year-end adjustments), and (iii) fairly presented or will
fairly present the consolidated financial position of the Buyer as of the dates
thereof and the results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments. The unaudited balance
sheet of the Buyer as of March 31, 2001 is referred to herein as the "Buyer
Balance Sheet."
(c) The information to be supplied by the Buyer for inclusion in the
Registration Statement shall not at the time the Registration Statement is
declared effective by the SEC contain any untrue statement of a material fact or
omit to state any material fact required to be stated in the Registration
Statement or necessary in order to make the statements in the Registration
Statement not misleading. The information to be supplied by the Buyer for
inclusion in the Proxy Statement shall not, on the date the Proxy Statement is
first mailed to stockholders of the Company, at the time of the Company Meeting
and at the Effective Time, contain any statement which, at such time and in
light of the circumstances under which it shall be made, is false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements made in the Proxy Statement not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Meeting which has become false or misleading. If at any
time prior to the Effective Time any event relating to the Buyer or any of its
Affiliates, officers or directors should be discovered by the Buyer which should
be set forth in an amendment to the Registration Statement or a supplement to
the Proxy Statement, the Buyer shall promptly inform the Company.
4.5 No Undisclosed Liabilities; Indebtedness.
(a) Except (i) as disclosed in the Buyer SEC Reports filed prior to the
date of this Agreement, (ii) for normal or recurring liabilities incurred since
the date of the Buyer Balance Sheet in the ordinary course of business
consistent with past practices, and (iii) fees and expenses incident to the
consummation of the transactions contemplated hereby, the Buyer and its
Subsidiaries do not have any liabilities, either accrued, contingent or
otherwise, that are required to be reflected in financial statements in
accordance
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with GAAP and that, individually or in the aggregate, have had or will have a
Buyer Material Adverse Effect.
(b) Section 4.5(b) of the Buyer Disclosure Schedule sets forth a complete
and accurate list of all loan or credit agreements, notes, bonds, mortgages,
indentures and other agreements and instruments pursuant to which any
indebtedness (as defined in Section 3.5(b) above) of the Buyer or any of its
Subsidiaries in an aggregate principal amount in excess of $5,000,000 is
outstanding or may be incurred and the respective principal amounts outstanding
thereunder as of the date of this Agreement.
4.6 Absence of Certain Changes or Events.
(a) Except as disclosed in the Buyer SEC Reports filed prior to the date of
this Agreement, there has not been, after the date of the Buyer Balance Sheet
and prior to the date of this Agreement, any event, change or development in the
business financial condition or operations of the Buyer and its Subsidiaries,
taken as a whole, which, individually or in the aggregate, has had a Buyer
Material Adverse Effect.
(b) During the period from March 31, 2001 to the date hereof, (i) there has
not been any change by the Buyer in its accounting methods, principles or
practices, any revaluation by the Buyer of any of its assets, including, writing
down the value of inventory or writing off of notes or accounts receivable, and
(ii) there has not been any action or event, and neither the Buyer nor any of
its Subsidiaries has agreed in writing or otherwise to take any action, that
would have required the consent of the Company pursuant to Section 5.2 had such
action or event occurred or been taken after the date hereof and prior to the
Effective Time.
4.7 Properties.
(a) The Buyer or a Subsidiary of the Buyer owns good and marketable fee
simple title (or leasehold estate) to each of the real properties identified in
Section 4.7(a) of the Buyer Disclosure Schedule (collectively, the "Buyer
Properties" and each, a "Buyer Property"), which are all of the real properties
owned by them as of the date hereof. Except (i) as set forth in the existing
title reports identified in clause (v) below, (ii) for the Buyer Leases, and
(iii) for any easements granted in the ordinary course of business since the
date of such title reports, none of which has a Buyer Material Adverse Effect,
no other Person has any real property ownership interest in any of the Buyer
Properties. The Buyer Properties are not subject to any Property Restrictions or
Encumbrances, except for (iv) Property Restrictions imposed or promulgated by
law or any Governmental Entity with respect to real property, including zoning
regulations, which, individually or in the aggregate, would not have a Buyer
Material Adverse Effect, (v) Property Restrictions and Encumbrances disclosed on
existing title reports or existing surveys, and (vi) mechanics', carriers',
workmen's and repairmen's liens and other Encumbrances and Property
Restrictions, if any, which, individually or in the aggregate, would not have a
Buyer Material Adverse Effect.
(b) Valid policies of title insurance have been issued insuring the Buyer
or the applicable Buyer Subsidiary's fee simple title (or leasehold estate) to
each of the Buyer Properties owned by it in amounts at least equal to the
purchase price thereof paid by Buyer or its Subsidiary in the case of Buyer
Properties owned by the Buyer or its Subsidiaries subject only to the matters
disclosed above. Such policies are, at the date hereof, in full force and
effect.
(c) There has been no physical damage to any Buyer Properties which,
individually or in the aggregate, would have a Buyer Material Adverse Effect
after giving effect to any applicable insurance.
(d) Neither Buyer nor any of the Buyer Subsidiaries has received any notice
with respect to any Buyer Property to the effect that any condemnation or
rezoning proceedings are pending or threatened which, individually or in the
aggregate, would have a Buyer Material Adverse Effect. All work to be performed,
payments to be made and actions to be taken by the Buyer or the Buyer
Subsidiaries prior to the date hereof pursuant to any agreement entered into
with a Governmental Entity in connection with a site approval, zoning
reclassification or other similar action (e.g., local improvement district, road
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improvement district, environmental mitigation) material to Buyer and the Buyer
Subsidiaries taken as a whole have been performed, paid or taken, as the case
may be, and to the Buyer's Knowledge, no planned or proposed work, payments or
actions that may be required after the date hereof pursuant to such agreements
are material to Buyer and the Buyer Subsidiaries taken as a whole.
(e) No Buyer Property is currently under development or subject to any
agreement with respect to development, and neither the Buyer nor any Subsidiary
of the Buyer, other than in the ordinary course of business, shall enter into
any such agreement between the date hereof and the Effective Time without the
prior written approval of the Company. For purposes of this Section 4.7(e),
"development" shall not include capital improvements made in the ordinary course
of business to existing Buyer Properties and repairs made to existing Buyer
Properties.
4.8 Leases. Each lease to which any Buyer Property is subject is a valid
and subsisting lease and, to the Buyer's Knowledge, no event of default has
occurred under any such lease that, individually or in the aggregate, would have
a Buyer Material Adverse Effect.
4.9 Taxes.
(a) Each of the Buyer and the Subsidiaries of the Buyer and any
consolidated, combined, unitary or aggregate group for tax purposes of which the
Buyer or any Subsidiary of the Buyer is or has been a member has timely filed
all Tax Returns required to be filed by it (after giving effect to any timely
filed extension properly granted by a Tax Authority having authority to do so)
and has timely paid (or the Buyer has timely paid on its behalf) all Taxes shown
on such Tax Returns as required to be paid by it except (i) Taxes that are being
contested in good faith by appropriate proceedings and for which the Buyer or
the applicable Buyer Subsidiary shall have set aside on its books adequate
reserves or (ii) where the failure to file such Tax Returns or pay such Taxes
would not have a Buyer Material Adverse Effect. Each such Tax Return is complete
and accurate except where any failure to be complete and accurate would not have
a Buyer Material Adverse Effect. The most recent audited financial statements
contained in the Buyer SEC Reports reflect an adequate reserve for all Taxes
payable by the Buyer and its Subsidiaries for all taxable periods and portions
thereof through the date of such financial statements except where any failure
would not have a Buyer Material Adverse Effect. Since the Buyer Balance Sheet
Date, the Buyer has incurred no liability for Taxes under Sections 857(b),
857(f), 860(c) or 4981 of the Code, including without limitation any Tax arising
from a prohibited transaction described in Section 857(b)(6) of the Code, and
neither the Buyer nor any Subsidiary of the Buyer has incurred any material
liability for Taxes other than in the ordinary course of business. No material
deficiencies for any Taxes have been proposed, asserted or assessed against the
Buyer or any Subsidiary of the Buyer, and no requests for waivers of the time to
assess any such Taxes are pending and no extensions of time to assess any such
Taxes are in effect. All Taxes required to be withheld, collected and paid over
to any Tax Authority by the Buyer and any Subsidiary of the Buyer have been
timely withheld, collected and paid over to the proper Tax Authority except
where failure to do so would not have a Buyer Material Adverse Effect. There are
no material pending actions or proceedings by any Taxing Authority for
assessment or collection of any Tax. Complete copies of all federal, state and
local income or franchise Tax Returns that have been filed by the Buyer and each
Subsidiary of the Buyer for all taxable years beginning on or after January 1,
1998, all extensions filed with any Tax Authority that are currently in effect
and all written communications with a Taxing Authority relating thereto, have
been or will hereafter promptly be delivered to the Buyer and the
representatives of the Buyer. No claim has been made by a Taxing Authority in a
jurisdiction where the Buyer or any Subsidiary of the Buyer does not file Tax
Returns that it is or may be subject to taxation by the jurisdiction except
where the failure to file such Tax Return would not have a Buyer Material
Adverse Effect. Neither the Buyer, nor any Subsidiary of the Buyer is obligated
to make after the Closing any payment that would not be deductible pursuant to
Section 162(m) of the Code except where the lack of such deduction would not
have a Buyer Material Adverse Effect. Neither the Buyer nor any Subsidiary of
the Buyer is party to, nor has any liability under (including liability with
respect to any predecessor entity), any indemnification, allocation or sharing
agreement with respect to Taxes.
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(b) The Buyer (i) for all taxable years commencing with its initial taxable
year through December 31, 2000 has been operated so as to qualify as a REIT
within the meaning of Section 856 of the Code and has been so qualified as a
REIT for such years, (ii) and will continue to operate to the Closing, in such a
manner as to qualify as a REIT for the taxable year beginning January 1, 2001
determined as if the taxable year of the REIT ended as of the Closing and (iii)
has not taken or omitted to take any action which would result in a challenge to
its status as a REIT, and no such challenge is pending or, to the Buyer's
Knowledge, threatened. Each Subsidiary of the Buyer which is a partnership or
limited liability company (i) has been since its formation and continues to be
treated for federal income tax purposes as a partnership or disregarded as a
separate entity, as the case may be, and has not been treated for federal income
tax purposes as a corporation or an association taxable as a corporation and
(ii) has not since the later of its formation or the acquisition by the Buyer of
a direct or indirect interest therein owned any assets (including, without
limitation, securities) that would cause the Buyer to violate Section 856(c)(4)
of the Code. The nature of the assets of the Buyer and its Subsidiaries is such
that the sale of all of the assets owned by them would not cause the Buyer to be
disqualified as a REIT under Code Section 856(c)(2) or 856(c)(3) or otherwise.
Each Subsidiary of the Buyer that is a corporation either (i) has been since its
formation a qualified REIT subsidiary under Section 856(i) of the Code or (ii)
has been since January 1, 2001, a taxable REIT subsidiary under Section 856(1)
of the Code.
4.10 Intellectual Property. The Buyer and its Subsidiaries own, or are
licensees or otherwise possess legally enforceable rights to use, all material
patents, trademarks, trade names, domain names, service marks and copyrights,
any applications for and registrations of such patents, trademarks, trade names,
domain names, service marks and copyrights, and all processes, formulae,
methods, schematics, technology, know-how, computer software programs or
applications and tangible or intangible proprietary information or material that
are used or necessary to conduct the business of the Buyer and its Subsidiaries
as currently conducted, or would be used or necessary as such business is
planned to be conducted, except where the failure to own, be so licensed or
otherwise possess, individually or in the aggregate, would not have a Buyer
Material Adverse Effect.
4.11 Litigation. There is no Proceeding pending or, to the Buyer's
Knowledge, threatened against the Buyer or any of its Subsidiaries which,
individually or in the aggregate, is reasonably likely to have a Buyer Material
Adverse Effect. There are no judgments, orders or decrees outstanding against
the Buyer which, individually or in the aggregate, would have a Buyer Material
Adverse Effect.
4.12 Environmental Matters. Except for such matters which, individually
or in the aggregate, have not had, and will not have, a Buyer Material Adverse
Effect:
(a) the Buyer and each of its Subsidiaries are currently and, at all
times during the Buyer's and each of the Subsidiaries' ownership or
operation of their businesses and properties, have been, in material
compliance with all applicable Environmental Laws;
(b) no Environmental Claims have been asserted or assessed against the
Buyer, any of its Subsidiaries or, to the Buyer's Knowledge, any tenant
under any Buyer Lease with regard to a Buyer Property and, to the Buyer's
Knowledge, no Environmental Claims are pending or threatened against the
Buyer, any of its Subsidiaries, or any tenant under any Buyer Lease with
regard to a Buyer Property;
(c) there has not been, and is not now present, any Contamination at
any property currently owned, leased or operated by the Buyer and its
Subsidiaries (including soils, groundwater, surface water, buildings or
other structures on such properties), and no such property is in the
National Priorities List or, to the Buyer's Knowledge, any other list,
schedule, log, inventory or record, however defined, maintained by any
federal, state or local Governmental Entity with respect to sites from
which there is or has been a Release of a Hazardous Substance;
(d) there was no Contamination at any property formerly owned, leased
or operated by the Buyer or any of its Subsidiaries during or, to Buyer's
Knowledge, prior to or during the period of ownership or operation by the
Buyer or any of its Subsidiaries (including soils, groundwater, surface
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water, buildings or other structures on such properties), and no such
property is in the National Priorities List or, to the Buyer's Knowledge,
any other list, schedule, log, inventory or record, however defined,
maintained by any federal, state or local governmental agency with respect
to sites from which there is or has been a Release of a Hazardous
Substance; and
(e) neither the Buyer nor any of its Subsidiaries nor, to the Buyer's
Knowledge, any tenant of any Buyer Property, is subject to any orders,
decrees, injunctions or other arrangements with any Governmental Entity or
is subject to any indemnity or other agreement with any third party
relating to liability under any Environmental Law or relating to Hazardous
Substances.
4.13 Employee Benefit Plans.
(a) Each Employee Benefit Plan maintained, or contributed to, by the Buyer,
any Subsidiary of the Buyer or any ERISA Affiliate of the Buyer (a "Buyer ERISA
Affiliate") (such plans together, the "Buyer Employee Plans") has been
administered in all material respects in accordance with its terms and each of
the Buyer, the Buyer's Subsidiaries and the Buyer ERISA Affiliates has in all
material respects met its obligations with respect to such Buyer Employee Plan
and has made all required contributions thereto (or reserved such contributions
on the Buyer Balance Sheet), in each case except as would not cause a Buyer
Material Adverse Effect.
(b) With respect to the Buyer Employee Plans, there are no funded benefit
obligations for which contributions have not been made or properly accrued and
there are no unfunded benefit obligations which have not been accounted for by
reserves, or otherwise properly footnoted in accordance with GAAP, on the
financial statements of the Buyer, in each case except as would not cause a
Buyer Material Adverse Effect.
(c) Each of the Buyer Employee Plans that is intended to be qualified under
Section 401(a) of the Code has received determination letters from the IRS to
the effect that such Buyer Employee Plans is qualified and the plans and trusts
related thereto are exempt from federal income taxes under Sections 401(a) and
501(a), respectively, of the Code, and no such determination letter has been
revoked and, to Buyer's Knowledge, revocation has not been threatened.
(d) Neither the Buyer, any Subsidiary of the Buyer nor any Buyer ERISA
Affiliate has (i) ever maintained a Buyer Employee Plan which was ever subject
to Section 412 of the Code or Title IV of ERISA or (ii) ever been obligated to
contribute to a "multiemployer plan" (as defined in Section 4001(a)(3) of
ERISA). No Buyer Employee Plan is funded by, associated with or related to a
"voluntary employee's beneficiary association" within the meaning of Section
501(c)(9) of the Code.
(e) Neither the Buyer nor any of its Subsidiaries is a party to any oral or
written (i) agreement with any stockholders, director, executive officer or
other key employee of the Buyer or any of its Subsidiaries (A) the benefits of
which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Buyer or any of its Subsidiaries of
the nature of any of the transactions contemplated by this Agreement, or (B)
providing any term of employment or compensation guarantee or (ii) agreement,
plan or arrangement under which any person may receive payments from the Buyer
or any of its Subsidiaries that may be subject to the tax imposed by Section
4999 of the Code or included in the determination of such person's "parachute
payment" under Section 280G of the Code.
4.14 Compliance With Laws. The Buyer and each of its Subsidiaries has
complied with, is not in violation of, and has not received any notice alleging
any violation with respect to, any applicable provisions of any statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its properties or assets, except for failures to comply or
violations which, individually or in the aggregate, have not had and are not
reasonably likely to have a Buyer Material Adverse Effect.
4.15 Permits. The Buyer and each of its Subsidiaries have all permits,
licenses and franchises from Governmental Entities required to conduct their
businesses as now being conducted or as presently contemplated to be conducted,
except for such permits, licenses and franchises the absence of which,
individually or in the aggregate, have not resulted in and will not result in a
Buyer Material Adverse Effect
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(the "Buyer Permits"). The Buyer and its Subsidiaries are in compliance with the
terms of the Buyer Permits, except where the failure to so comply, individually
or in the aggregate, is not reasonably likely to have a Buyer Material Adverse
Effect. There is no pending threat of modification or cancellation of any Buyer
Permit that, individually or in the aggregate, would have a Buyer Material
Adverse Effect. To the Buyer's Knowledge and except to the extent caused by the
lack of one or more approvals, notifications, reports or other filings set forth
in Section 4.3(c) of this Agreement, no Buyer Permit will cease to be effective
as a result of the consummation of transactions contemplated by this Agreement.
4.16 Labor Matters. Neither the Buyer nor any of its Subsidiaries is a
party to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization.
4.17 Insurance. (a) Each insurance policy maintained by the Buyer (the
"Buyer Insurance Policies") is in full force and effect and is valid,
outstanding and enforceable, and all premiums due thereon have been paid in
full, (b) to the Buyer's Knowledge, none of the Buyer Insurance Policies will
terminate or lapse by reason of the transactions contemplated by this Agreement,
(c) the Buyer and its Subsidiaries have complied in all material respects with
the provisions of each Buyer Insurance Policy under which it is the insured
party, (d) no insurer under any Buyer Insurance Policy has canceled or generally
disclaimed liability under any such policy or indicated any intent to do so or
not to renew any such policy, and (e) all material claims under the Buyer
Insurance Policies have been filed in a timely fashion, in each case except as
is not reasonably likely to have a Buyer Material Adverse Effect.
4.18 Assets. All of the tangible assets used by the Buyer in the conduct
of its business that are owned, are owned free and clear of all Encumbrances
except for (i) Encumbrances which are disclosed in the Buyer SEC Reports filed
prior to the date of this Agreement, and (ii) other Encumbrances which,
individually and in the aggregate, will not have a Buyer Material Adverse
Effect.
4.19 Opinion of Financial Advisor. First Union Securities, Inc., the
financial advisor to the Buyer, has delivered to the Buyer an opinion to the
effect that the Merger Consideration payable in the Merger is fair to the Buyer
from a financial point of view.
4.20 Tax Matters.
(a) To the Buyer's Knowledge, after consulting with its independent
auditors and outside legal counsel, neither the Buyer nor any of its affiliates
has taken or agreed to take any action which would prevent the Merger from
constituting a transaction qualifying as a reorganization under Section 368(a)
of the Code.
(b) The Buyer Preferred Stock will not be "nonqualified preferred stock"
within the meaning of section 351(g) of the Code because: (i) the holder of such
stock will not have the right to require the Buyer or a related person to
purchase such stock; (ii) neither the Buyer nor a related person will be
required to redeem or purchase such stock; (iii) as of the Closing, it will not
be more likely than not that the Buyer or a related person will exercise its
right to redeem or purchase the stock; and (iv) the dividend rate on such stock
will not vary in whole or in part (directly or indirectly) with reference to
interest rates, commodity prices, or other similar indices.
(c) The Buyer has no plan or intention, and as of the issue date will have
no plan or intention, to redeem the Buyer Preferred Stock.
(d) The redemption price of the Buyer Preferred Stock (other than the
portion thereof consisting of accumulated and unpaid distributions) is payable
solely out of the sale proceeds of other equity securities. The Buyer has no
plan or intention, and as of the issue date will have no plan or intention, to
issue any equity securities to provide the Buyer with proceeds that may be used
to redeem the Buyer Preferred Stock. The Buyer has determined, as of the date
hereof, and will determine as of the issue date, that the cost to issue such
equity securities, including the projected yield payable with respect to such
equity securities, would exceed the cost to the Buyer of permitting the Buyer
Preferred Stock to remain outstanding.
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(e) The Buyer Preferred Stock has no features that effectively require or
are intended to compel their redemption, and there are no agreements or
arrangements, and as of the issue date there will be no agreements or
arrangements, that effectively require or are intended to compel the redemption
of the Buyer Preferred Stock.
(f) The exercise of the Buyer's right to redeem the Buyer Preferred Stock
would not reduce the yield of the shares, as determined under principles similar
to the principles of section 1272(a) of the Code and the regulations under
sections 1271 through 1275 of the Code.
(g) The Buyer will not take a reporting position reflecting the Buyer
Preferred Stock as "nonqualified preferred stock."
4.21 Brokers. No agent, broker, investment banker, financial advisor or
other firm or person is or will be entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with any of the
transactions contemplated by this Agreement, except First Union Securities,
Inc., whose fees and expense will be paid by the Buyer. The Buyer has delivered
to the Company a complete and accurate copy of all agreements pursuant to which
First Union Securities, Inc. is entitled to any fees and expenses in connection
with any of the transactions contemplated by this Agreement.
4.22 No Ownership of Company Securities. Neither the Buyer nor any
Subsidiary of the Buyer owns or has ever owned any shares of Company Common
Stock or any other securities of the Company.
4.23 Antitakeover Statutes. No state takeover, moratorium, business
combination or similar statute or regulation applicable to the Buyer limits or
restricts in any way the power or authority of the Buyer to enter into this
Agreement or to perform its obligations hereunder.
ARTICLE V
CONDUCT OF BUSINESS
5.1 Covenants of the Company. Except as provided herein or as consented
to in writing by the Buyer, which consent shall not be unreasonably withheld,
conditioned, or delayed from and after the date of this Agreement until the
earlier of the termination of this Agreement in accordance with its terms or the
Effective Time, the Company (i) shall, and shall cause each of its Subsidiaries
to, in all material respects, carry on its business in the ordinary course, use
commercially reasonable efforts, as determined in good faith by the Company, to
maintain and preserve their respective business organizations, assets, employees
and advantageous business relationships and (ii) shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, do any of the following:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, securities or other property) in respect
of, any of its capital stock (other than (A) dividends and distributions by
a direct or indirect wholly owned Subsidiary of the Company to its parent,
(B) dividends the Company reasonably believes may be necessary to maintain
the Company's status as a REIT, (C) dividends and distributions consistent
with past practice, (D) dividends and distributions necessary for
PricewaterhouseCoopers to deliver the letter described in Section 7.2(j),
and (E) a dividend on the Company Common Stock as described in Exhibit C
hereto; (ii) split, combine or reclassify any of its capital stock; or
(iii) purchase, redeem or otherwise acquire any shares of its capital stock
or any rights, warrants or options to acquire any such shares;
(b) issue, sell, pledge or otherwise dispose of any shares of its
capital stock, or any securities convertible into or exchangeable for, or
any rights, warrants or options to acquire, any such shares, (other than
the issuance of options or shares under the Rights Plan not otherwise in
violation of this Agreement or the Stock Plan or shares of Common Stock
upon the exercise of Stock Options outstanding on the date of this
Agreement);
(c) amend its Restated Certificate of Incorporation or Bylaws;
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(d) acquire by merging or consolidating with, or by purchasing all or
a substantial portion of the assets or any stock of, or by any other
manner, any business or any corporation, partnership, joint venture,
limited liability company, association or other business organization or
division thereof;
(e) except (i) in the ordinary course of business, including without
limitation pursuant to any outstanding credit, loan or equipment financing
arrangement or any refinancing thereof, (ii) for loans not required to be
repaid as a result of the consummation of the transactions contemplated
hereby, (iii) additional loans up to $5,000,000 in the aggregate and (iv)
pursuant to Section 6.13, sell, lease, pledge, or otherwise dispose of or
encumber any Company Properties or assets of the Company or of any of its
Subsidiaries;
(f) except (i) in the ordinary course of business consistent with past
practice, (ii) as otherwise permitted by Section 5.1 or (iii) pursuant to
Section 6.13, sell or dispose of any assets material to the Company and its
Subsidiaries, taken as a whole;
(g) except as otherwise permitted by this Agreement, enter into an
agreement with respect to a sale of all or substantially all of the stock
or assets of the Company, whether by merger, consolidation, liquidation,
business combination, or asset or stock sale;
(h) (i) other than (A) such indebtedness which is reflected in the
Company's financial statements included in any Company SEC Reports and (B)
borrowings under any credit, loan or equipment financing arrangement, incur
any indebtedness for borrowed money or guarantee any such indebtedness of
another person, (ii) issue or sell any debt securities or rights to acquire
any debt securities of the Company or any of its Subsidiaries, (iii) make
any loans, advances (other than advances to employees of the Company or any
Subsidiary of the Company in the ordinary course of business) or capital
contributions to, or investment in, any other Person, other than the
Company or any of its Subsidiaries or the Joint Ventures as may be required
by the agreements governing the Joint Ventures or (iv) increase the
outstanding amounts of the loan to Captec Financial Group, Inc. ("CFG") or
make any new loans to Patrick L. Beach or any of his controlled affiliates
(other than loans or advances as described in (h)(iii) above);
(i) other than as set forth in the Company Disclosure Schedule, make
any capital expenditures or other expenditures with respect to property,
plant or equipment in excess of $100,000 in the aggregate for the Company
and its Subsidiaries;
(j) make any changes in accounting methods, principles or practices,
except insofar as may be required by a change in GAAP or pursuant to
written instructions, comments or orders from the SEC;
(k) pay, discharge or satisfy any claims, liabilities or obligations,
other than (i) the payment, discharge or satisfaction, in the ordinary
course of business or in accordance with their terms as in effect on the
date of this Agreement, of claims, liabilities or obligations reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) included in the SEC Reports
filed prior to the date of this Agreement (to the extent so reflected or
reserved against) or incurred since the date of such financial statements
in the ordinary course of business consistent with past practice, or (ii)
involving the payment of any amount less than $500,000 in the aggregate;
(l) except as required to comply with applicable law or agreements,
plans or arrangements or in the ordinary course of business, (i) increase
in any material respect the compensation or fringe benefits of, or pay any
bonus to, any director, officer or key employee earning more than $50,000
per annum, (ii) accelerate the payment, right to payment or vesting of any
compensation or benefits, including any outstanding options or (iii) enter
into any employment, severance or other arrangement with any of its
officers, directors or employees earning more than $50,000 per annum;
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(m) except as the Company reasonably believes is required by law, make
or rescind any material Tax election, settle or compromise any material Tax
liability or amend in any material respect any Tax return;
(n) fail to confer on a regular basis as reasonably requested by the
Buyer with one or more representatives of the Buyer to report on material
operational matters and any proposals to engage in material transactions;
(o) fail to maintain in full force and effect insurance coverage
substantially similar to insurance coverage maintained on the date hereof;
(p) except pursuant to Section 6.13, enter into any commitment with
any officer, director or Affiliate of the Company or any of its
Subsidiaries or any material commitment with any consultant;
(q) adopt any new Employee Benefit Plan or amend any existing Employee
Plan or rights;
(r) settle any stockholder derivative or class action claims arising
out of or in connection with any of the transactions contemplated by this
Agreement;
(s) accept a promissory note in payment of the exercise price payable
under any option to purchase shares of Company Common Stock; or
(t) authorize any of, or commit or agree, in writing or otherwise, to
take any of, the foregoing actions or any action which would materially
impair or prevent the satisfaction or occurrence of any conditions Article
VI hereof.
5.2 Covenants of the Buyer. Except as provided herein or as consented to
in writing by the Company, which consent shall not be unreasonably withheld,
delayed or conditioned, from and after the date of this Agreement until the
earlier of the termination of this Agreement in accordance with its terms or the
Effective Time, the Buyer (i) shall, and shall cause each of its Subsidiaries
to, in all material respects, carry on its business in the ordinary course, use
commercially reasonable efforts, as determined in good faith by the Buyer, to
maintain and preserve its and each Subsidiary's business organization, assets,
employees and advantageous business relationships; and (ii) shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly, do any of the
following:
(a)(i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, securities or other property) in respect
of, any of its capital stock (other than (A) dividends and distributions by
a direct or indirect wholly owned Subsidiary of the Buyer to its parent,
(B) dividends the Buyer reasonably believes may be necessary to maintain
the Buyer's status as a REIT and (C) dividends and distributions consistent
with past practice); (ii) split, combine or reclassify any of its capital
stock; or (iii) purchase, redeem or otherwise acquire any shares of its
capital stock or any rights, warrants or options to acquire any such
shares;
(b) issue, sell, pledge or otherwise dispose of any shares of its
capital stock, or any securities convertible into or exchangeable for, or
any rights, warrants or options to acquire, any such shares, (other than
the issuance of options or shares under the Buyer Stock Plans, shares of
Buyer Common Stock upon the exercise of Buyer Stock Options outstanding on
the date of this Agreement or shares of Buyer Common Stock pursuant to the
Buyer's employee stock purchase plan), which individually or in the
aggregate would result in a Buyer Material Adverse Effect;
(c) amend its First Amended and Restated Articles of Incorporation or
Bylaws;
(d) acquire by merging or consolidating with, or by purchasing all or
a substantial portion of the assets or any stock of, or by any other
manner, any business or any corporation, partnership, joint venture,
limited liability company, association or other business organization or
division thereof one transaction or a series of related transactions having
a value in excess of $50,000,000 in the aggregate;
(e) except in the ordinary course of business, sell or dispose of any
assets material to the Buyer and its Subsidiaries, taken as a whole;
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(f) enter into an agreement with respect to a sale of all or
substantially all of the stock or assets of the Buyer, whether by merger,
consolidation, liquidation, business combination, or asset or stock sale;
(g) make any changes in accounting methods, principles or practices,
except insofar as may have been required by a change in GAAP or pursuant to
written instructions, comments or orders from the SEC;
(h) except as required to comply with applicable law or agreements,
plans or arrangements or in the ordinary course of business, accelerate the
payment, right to payment or vesting of any compensation or benefits,
including any outstanding options;
(i) except as the Buyer reasonably believes is required by law, make
or rescind any Tax election with respect to the Buyer's status as a REIT;
(j) other than (A) such indebtedness which is reflected in the Buyer's
financial statements included in any Buyer SEC Reports and (B) borrowings
under any credit, loan or equipment financing arrangement, incur any
indebtedness for borrowed money or guarantee any such indebtedness of any
other Person, (i) issue or sell any debt securities or rights to acquire
any debt securities of the Buyer or any of its Subsidiaries to the extent
such issuance or sale would cause the Buyer to exceed the ratio requirement
set forth in Section 6.2(a) of the Sixth Amended and Restated Credit
Agreement among the Buyer, First Union National Bank, as agent, and the
Banks listed therein, dated as of October 26, 2000, as in effect on the
date hereof, or (ii) make any loans, advances (other than advances to
employees of the Buyer in the ordinary course of business) or capital
contributions to, or investments in, any other Person other than the Buyer
or any of its direct or indirect wholly-owned Subsidiaries which, in the
case of either clause (i) or (ii) above, would result in a Buyer Material
Adverse Effect; or
(k) authorize any of, or commit or agree, in writing or otherwise, to
take any of, the foregoing actions or any action which would materially
impair or prevent the occurrence of any conditions Article VII hereof.
5.3 Confidentiality. The parties acknowledge that the Buyer and the
Company have previously executed a Confidentiality Agreement, dated as of
January 12, 2001 (the "Confidentiality Agreement"), which Confidentiality
Agreement will continue in full force and effect in accordance with its terms,
except as expressly modified herein.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 No Solicitation.
(a) On and after the date hereof and prior to the Effective Time of the
Merger, the Company agrees that it:
(i) shall not invite, initiate, solicit or encourage, directly or
indirectly, any inquiries, proposals, discussions or negotiations or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to any
direct or indirect (A) merger, consolidation, business combination,
reorganization, recapitalization, liquidation, dissolution or similar
transaction, (B) sale, acquisition, tender offer, exchange offer (or the
filing of a registration statement under the Securities Act in connection
with such an exchange offer), share exchange or other transaction or series
of related transactions that, if consummated, would result in the issuance
of securities representing, or the sale, exchange or transfer of, 50% or
more of the outstanding voting equity securities of the Company, except an
underwritten public offering of the Company's Common Stock for cash, or (C)
sale, lease, exchange, mortgage, pledge, transfer or other disposition
("Transfer") of any the Company's assets in one transaction or a series of
related
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transactions that, if consummated, would result in the Transfer of more
than 20% of the assets of the Company, other than the Merger (any such
proposal or offer being hereinafter referred to as an "Acquisition
Proposal"), or engage in any discussions or negotiations with or provide
any confidential or non-public information or data to, or afford access to
properties, books or records to, any Person relating to, or that may
reasonably be expected to lead to, an Acquisition Proposal, or enter into
any letter of intent, agreement in principle or agreement relating to an
Acquisition Proposal, or propose publicly to agree to do any of the
foregoing, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal (including, without limitation, by
amending or granting any waiver under, the Rights Plan);
(ii) shall not permit any officer, director, employee, Affiliate,
agent, investment banker, financial advisor, attorney, accountant, broker,
finder, consultant or other agent or representative of the Company (each, a
"Company Representative") to engage in any of the activities described in
Section 6.1(a)(i);
(iii) will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any Persons conducted
heretofore with respect to any of the foregoing (including, without
limitation, any Acquisition Proposal) and will take commercially reasonable
actions to inform each Company Representative, and each of the Persons
referred to in Section 6.1(b), of the obligations undertaken in this
Section 6.1 and to cause each Company Representative to comply with such
obligations; and
(iv) will (A) notify the Buyer orally or in writing promptly (but in
any event within 24 hours), after receipt by the Company or any Company
Representative of (1) an Acquisition Proposal or any amendment or change in
any previously received Acquisition Proposal, (2) any request for
confidential or nonpublic information or data relating to, or for access to
the properties, books or records of the Company by any Person that has
made, or to such party's knowledge may be considering making, an
Acquisition Proposal, or (3) any oral or written expression that any such
activities, discussions or negotiations are sought to be initiated or
continued with it, and, as applicable, include in such notice the identity
of the Person making such Acquisition Proposal, indication or request, the
material terms of such Acquisition Proposal, indication or request and, if
in writing, shall promptly deliver to the Buyer copies of any proposals,
indications of interest, indication or request along with all other related
documentation and correspondence; and (B) will keep the Buyer informed of
the status and material terms of (including all changes to the status or
material terms of) any such Acquisition Proposal, indication or request.
(b) Notwithstanding Section 6.1(a), the Board shall not be prohibited from
furnishing information to or entering into discussions or negotiations with, any
Person that makes a bona fide written Acquisition Proposal to the Board after
the date hereof which was not invited, initiated, solicited or encouraged,
directly or indirectly, by the Company or any Company Representative on or after
the date hereof, if, and only to the extent that (i) a majority of the Board
determines in good faith, after consultation with its financial advisors of
nationally recognized reputation and outside legal counsel, that such
Acquisition Proposal is reasonably likely to result in a Superior Proposal, (ii)
the Company complies with all of its obligations under this Agreement, and (iii)
the Company enters into a confidentiality agreement with such Person the
material terms of which are (without regard to the terms of such Acquisition
Proposal) in all material respects no less favorable to the Company, and no less
restrictive to the Person making such Acquisition Proposal, than those contained
in the Confidentiality Agreement.
(c) Nothing in this Agreement shall prevent the Board from withholding,
withdrawing, amending or modifying its recommendation in favor of the Merger if
(i) a Superior Proposal is made to the Company and is not withdrawn, (ii) the
Company shall have provided written notice to the Buyer (a "Notice of Superior
Proposal") advising the Buyer that the Company has received a Superior Proposal,
specifying all of the material terms and conditions of such Superior Proposal
and identifying the person or entity making such Superior Proposal, (iii) the
Buyer shall not have, within three business days of the Buyer's receipt of the
Notice of Superior Proposal, made an offer that the Board by a majority vote
determines in its good
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faith judgment (after having received the written advice of a financial advisor
of national standing) to be at least as favorable to the Company's stockholders
as such Superior Proposal (it being agreed that the Board shall convene a
meeting to consider any such offer by the Buyer promptly following the receipt
thereof), (iv) the Board concludes in good faith, after consultation with its
outside counsel, that, in light of such Superior Proposal, the withholding,
withdrawal, amendment or modification of such recommendation is required for the
Board to comply with its fiduciary obligations to the Company's stockholders
under applicable law and (v) the Company shall not have violated any of the
restrictions set forth this Section 6.1 or Section 6.4. Nothing contained in
this Section 6.1(c) shall limit the Company's obligation to hold and convene the
Company Stockholders' Meeting (regardless of whether the recommendation of the
Board shall have been withdrawn, amended or modified).
(d) For all purposes of this Agreement, "Superior Proposal" means a bona
fide written proposal made by a third party to acquire, directly or indirectly,
the Company pursuant to a tender or exchange offer, merger, share exchange,
consolidation or sale of all or substantially all of the assets of the Company
or otherwise on terms which a majority of the Board determines in good faith,
(A) after consultation with UBSW or another financial advisor of nationally
recognized reputation, are superior, from a financial point of view, to the
Company's stockholders to those provided for in the Merger and (B) to be more
favorable generally to the Company's stockholders (taking into account all
financial and strategic considerations and other relevant factors, including
relevant legal, financial, regulatory and other aspects of such proposals, and
the conditions, prospects and time required for completion of such proposal) and
for which financing, to the extent required, in the reasonable judgment of the
Board, is capable of being obtained.
(e) Any disclosure that the Board may be required to make to comply with
its duties to stockholders imposed by applicable law or, with respect to the
receipt of an Acquisition Proposal, to comply with Rule 14d-9 or 14e-2 of the
Exchange Act will not constitute a violation of this Section 6.1.
(f) Nothing in this Section 6.1 shall (i) permit the Company to terminate
this Agreement (except as expressly provided in Article 8) or (ii) affect any
other obligations of the Company under this Agreement.
6.2 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practicable after the execution of this Agreement, the
Company shall prepare and the Company shall file with the SEC the Proxy
Statement, and the Buyer shall prepare and file with the SEC the Registration
Statement, in which the Proxy Statement will be included as a prospectus,
provided that the Buyer may delay with the consent of the Company, not to be
unreasonably withheld, the filing of the Registration Statement until approval
of the Proxy Statement by the SEC. The Buyer and the Company shall use
reasonable efforts to cause the Registration Statement to become effective as
soon after such filing as practicable. Each of the Buyer and the Company will
respond to any comments of the SEC and will use its respective reasonable
efforts to have the Proxy Statement cleared by the SEC and the Registration
Statement declared effective under the Securities Act as promptly as practicable
after such filings and the Company will cause the Proxy Statement and the
prospectus contained within the Registration Statement to be mailed to its
stockholders at the earliest practicable time after both the Proxy Statement is
cleared by the SEC and the Registration Statement is declared effective under
the Securities Act. Each of the Buyer and the Company will notify the other
promptly upon the receipt of any comments from the SEC or any other Governmental
Entity and of any request by the SEC or any other Governmental Entity for
amendments or supplements to the Registration Statement, the Proxy Statement or
any filing pursuant to Section 6.2(b) or for additional information and will
supply the other with copies of all correspondence between such party or any of
its representatives, on the one hand, and the SEC or any other Governmental
Entity, on the other hand, with respect to the Registration Statement, the Proxy
Statement, the Merger or any filing pursuant to Section 6.2(b). Each of the
Buyer and the Company will cause all documents that it is responsible for filing
with the SEC or other Governmental Entity under this Section 6.2 to comply in
all material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is required
to be set forth in an amendment or supplement to the Proxy Statement, the
Registration Statement or any filing pursuant to Section 6.2(b), the Buyer or
the Company, as the case may be, will promptly inform the other of such
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occurrence and cooperate in filing with the SEC or any other Governmental
Entity, and/or mailing to stockholders of the Company, such amendment or
supplement.
(b) The Buyer and the Company shall make all necessary filings with respect
to the Merger under the Securities Act, the Exchange Act, applicable state blue
sky laws and the rules and regulations thereunder.
6.3 Access to Information. Each party hereto shall (and shall cause each
of its Subsidiaries to) afford to the other parties' officers, employees,
accountants, counsel and other representatives, reasonable access, during normal
business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments, personnel and records and, during
such period, each party hereto shall (and shall cause each of its Subsidiaries
to) furnish promptly to the other parties hereto (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal or state securities
laws and (b) all other information concerning its business, properties, assets
and personnel as the other parties hereto may reasonably request. Unless
otherwise required by law, such non-public information will be subject to the
Confidentiality Agreement. No information or knowledge obtained in any
investigation pursuant to this Section 6.3 or otherwise shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the parties to consummate the Merger.
6.4 Stockholders' Meeting.
(a) Promptly after the date hereof, the Company shall take all action
necessary in accordance with the DGCL and its Restated Certificate of
Incorporation and Bylaws and the rules of NASDAQ to call, give notice of,
convene and hold the Company Meeting as promptly as practicable, and in any
event (to the extent permissible under applicable law) within 45 days after the
declaration of effectiveness of the Registration Statement. Subject to Section
5.2(c), the Company shall use its reasonable efforts to solicit from its
stockholders proxies in favor of the adoption and approval of this Agreement and
the approval of the Merger and will take all other action necessary to secure
the vote or consent of its stockholders required by the rules of NASDAQ and DGCL
to obtain such approvals. Notwithstanding anything to the contrary contained in
this Agreement, the Company (i) shall adjourn or postpone the Company Meeting to
the extent necessary to ensure that any necessary supplement or amendment to the
Proxy Statement/ Prospectus is provided to the Company's stockholders
sufficiently in advance of a vote on this Agreement to insure that such vote
occurs on the basis of full and complete information as required under
applicable law or (ii) shall (unless the Buyer otherwise consents in writing or
if prohibited by applicable law) adjourn the Company Meeting once for a period
not to exceed 25 days, if as of the time for which the Company Meeting is
originally scheduled (as set forth in the Proxy Statement/Prospectus) or
subsequently rescheduled or reconvened, there are insufficient shares of Company
Common Stock represented (either in person or by proxy) to constitute a quorum
necessary to conduct the business of the Company Meeting. The Company shall
ensure that the Company Stockholders' Meeting is called, noticed, convened, held
and conducted, and that all proxies solicited by the Company in connection with
the Company Meeting are solicited, in compliance with the DGCL, the Company's
Restated Certificate of Incorporation and Bylaws, the rules of NASDAQ and all
other applicable legal requirements. The Company's obligation to call, give
notice of, convene and hold the Company Meeting in accordance with this Section
6.4(a) shall not be limited or affected by the commencement, disclosure,
announcement or submission to Company of any Acquisition Proposal or Superior
Proposal (as defined below), or by any withdrawal, amendment or modification of
the recommendation of the Board with respect to this Agreement.
(b) Subject to Section 6.1: (i) the Board shall recommend that the
Company's stockholders vote in favor of and adopt and approve this Agreement at
the Company Stockholders' Meeting; (ii) the Proxy Statement/Prospectus shall
include a statement to the effect that the Board has unanimously recommended
that Company's stockholders vote in favor of and adopt and approve this
Agreement at the Company Meeting; and (iii) neither the Board nor any committee
thereof shall withdraw, amend or modify, or propose or resolve to withdraw,
amend or modify in a manner adverse to the Buyer, the
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recommendation of the Board that the Company's stockholders vote in favor of and
adopt and approve this Agreement.
6.5 Legal Conditions to the Merger.
(a) Subject to the terms hereof, the Company and the Buyer shall each use
its reasonable efforts to (i) take, or cause to be taken, all actions, and do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective the transactions contemplated hereby as promptly as practicable, (ii)
as promptly as practicable, obtain from any Governmental Entity or any other
third party any consents, licenses, permits, waivers, approvals, authorizations,
or orders required to be obtained or made by the Company or the Buyer or any of
their Subsidiaries in connection with the authorization, execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby,
(iii) as promptly as practicable, make all necessary filings, and thereafter
make any other required submissions, with respect to this Agreement and the
Merger required under (A) the Securities Act and the Exchange Act, and any other
applicable federal or state securities laws, (B) the HSR Act and any request by
a Governmental Entity thereunder, and (C) any other applicable law and (iv)
execute or deliver any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. The Company and the Buyer shall cooperate with each other in
connection with the making of all such filings. The Company and the Buyer shall
use their respective reasonable efforts to furnish to each other all information
required for any application or other filing to be made pursuant to the rules
and regulations of any applicable law (including all information required to be
included in the Proxy Statement and the Registration Statement) in connection
with the transactions contemplated by this Agreement.
(b) Each of the Company and the Buyer shall give (or shall cause their
respective Subsidiaries to give) any notices to third parties, and use, and
cause their respective Subsidiaries to use, their reasonable efforts to obtain
any third party consents related to or required in connection with the Merger
that are (i) necessary to consummate the transactions contemplated hereby, (ii)
disclosed or required to be disclosed in the Company Disclosure Schedule or the
Buyer Disclosure Schedule, as the case may be, or (iii) required to prevent a
Company Material Adverse Effect or a Buyer Material Adverse Effect from
occurring prior to or after the Effective Time.
6.6 Public Disclosure. The Buyer and the Company shall each use its
reasonable efforts to consult with the other before issuing any press release or
otherwise making any public statement with respect to the Merger or this
Agreement and shall not issue any such press release or make any such public
statement prior to using such efforts, except as may be required by law,
fiduciary duty or the applicable rules of the NYSE or NASDAQ.
6.7 Listing of Buyer Common Stock and Buyer Preferred Stock. The Buyer
shall (a) cause the shares of the Buyer Common Stock to be issued in the Merger
and (b) use reasonable best efforts to cause the shares of Buyer Preferred Stock
to be issued in the Merger, in each case, to be listed on the NYSE, subject to
official notice of issuance, on or prior to the Closing Date. The Buyer shall,
for the benefit of the holders of the Buyer Preferred Stock, use its reasonable
best efforts to maintain the listing of the Buyer Preferred Stock on the NYSE
for so long as shares of the Buyer Preferred Stock remain outstanding.
6.8 Company Stock Plans.
The Company shall enter into option-cancellation agreements with the holder
of each Company Stock Option outstanding at the Effective Time (whether or not
such Company Stock Option is then exercisable) whereby the holder's Company
Stock Options shall be canceled in respect of a cash payment by the Buyer, if
any, equal to the Option Settlement Amount for such Company Stock Option,
subject to applicable tax withholding (which payment shall be made by the
Buyer).
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6.9 Indemnification.
(a) The First Amended and Restated Articles of Incorporation and Bylaws of
the Surviving Corporation shall contain provisions with respect to
indemnification and exculpation of directors and officers set forth in the First
Amended and Restated Articles of Incorporation and Bylaws of the Company on the
date of this Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years after the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who, at
any time prior to the Effective Time, were directors or officers of the Company
in respect of acts or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by this
Agreement), unless such modification is required by law.
(b) From and after the Effective Time, the Buyer shall indemnify, defend
and hold harmless the present and former directors and officers of the Company
(each, an "Indemnified Party", and collectively, the "Indemnified Parties"),
against all losses, expenses, claims, damages, liabilities or amounts that are
paid in settlement of, with the approval of the Buyer, which approval shall not
be unreasonably withheld or delayed, or otherwise in connection with any claim,
action, suit, proceeding or investigation, including liabilities in connection
with any claim, action, suit, proceeding or investigation with respect to which
the Buyer has withheld settlement approval (a "Claim"), based in whole or in
part on the fact that such person is or was a director or officer of the Company
and arising out of actions or omissions occurring at or prior to the Effective
Time (including, without limitation, the transactions contemplated by this
Agreement), except for acts or omissions involving willful or intentional
misconduct or recklessness by such Indemnified Party, and shall pay expenses in
advance of the final disposition of any such action or proceeding to each
Indemnified Party upon receipt from the Indemnified Party to whom expenses are
advanced of an undertaking to repay such advances as they shall ultimately be
determined in a final adjudication from which there is not further right to
appeal that the Indemnified Party is not entitled to indemnification hereunder.
Without limiting the foregoing, in the event any Claim is brought against any
Indemnified Party (whether arising before or after the Effective Time), (i) the
Indemnified Parties may retain independent legal counsel satisfactory to them
provided that such counsel shall be reasonably acceptable to the Buyer, (ii) the
Buyer shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements thereof are received and (iii) the
Buyer will use its reasonable efforts to assist in the vigorous defense of any
such matter. Any Indemnified Party wishing to claim indemnification under this
Section 6.9 upon learning of any Claim, shall notify the Buyer, although the
failure to so notify the Buyer shall not relieve the Buyer of any liability
which the Buyer may have under this Section 6.9 (except to the extent that such
failure materially prejudices the Buyer), and shall deliver the Buyer the
undertaking contemplated by this subsection (b).
(c) For a period of six years after the Effective Time, the Buyer shall
cause the Surviving Corporation to maintain in effect a directors' and officers'
liability insurance policy covering those persons who are currently covered by
the Company's directors' and officers' liability insurance policy (a complete
and accurate copy of which has been delivered to the Buyer prior to the date of
this Agreement) with coverage in amount and scope at least as favorable to such
persons as the Company's existing coverage; provided, however, that the
Surviving Corporation will not be required, in order to maintain such directors'
and officers' liability insurance policy, to pay an annual premium in excess of
140% of the aggregate annual amounts currently paid by the Company to maintain
the existing policies (which amount is approximately $83,000); and provided
further that, if equivalent coverage cannot be obtained, or can be obtained only
by paying an annual premium in excess of 140% of such amount, the Surviving
Corporation shall only be required to obtain as much coverage as can be obtained
by paying an annual premium equal to 140% of such amount.
(d) This Section 6.9 is intended for the benefit of, and shall be
enforceable by, the Indemnified Parties, their heirs and personal
representatives, and shall be binding on the Buyer and its successors and
assigns.
6.10 Letter of the Company's Accountants. The Company shall use its
reasonable efforts to cause to be delivered to the Buyer and the Company a
letter of PricewaterhouseCoopers, the Company's
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independent auditors, dated a date within two business days before the date on
which the Registration Statement shall become effective and addressed to the
Buyer, in form reasonably satisfactory to the Buyer and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
6.11 Notification of Certain Matters. The Buyer will give prompt notice
to the Company, and the Company will give prompt notice to the Buyer, of the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be reasonably likely to cause (a) (i) any representation or warranty
of such party contained in this Agreement that is qualified as to materiality to
be untrue or inaccurate in any respect or (ii) any other representation or
warranty of such party contained in this Agreement to be untrue or inaccurate in
any material respect, in each case at any time from and after the date of this
Agreement until the Effective Time, or (b) any material failure of the Buyer or
the Company, as the case may be, or of any officer, director, employee or agent
thereof, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement. Notwithstanding the
above, the delivery of any notice pursuant to this Section 6.11 will not limit
or otherwise affect the remedies available hereunder to the party receiving such
notice or the conditions to such party's obligation to consummate the Merger.
6.12 Certain Tax Matters.
(a) The parties shall use their reasonable best efforts to cause the Merger
to be treated as a reorganization within the meaning of Section 368(a) of the
Code. The parties hereby adopt this Agreement as a plan of reorganization.
(b) From and after the date hereof, none of the parties will knowingly take
any action or fail to take any action that would prevent or impede the Merger
from being treated as a reorganization within the meaning of Section 368(a) of
the Code.
(c) The covenants set forth in this Section 6.12 shall survive the Closing
and shall continue in full force and effect at all times thereafter.
6.13 Disposition of Certain Joint Ventures and Affiliated Loan.
(a) The Purchase Agreement provides for the sale to or assumption by the JV
Purchasers of the Company's direct or indirect equity, membership, partnership
or similar interests in, or interests convertible into or exchangeable for, any
equity, membership, partnership or similar interests in, the Joint Ventures and
its interests, as creditor, under the Promissory Note dated July 1, 1995 (the
"Affiliated Loan") made by CFG. The parties to this Agreement anticipate that
the transactions provided for in the Purchase Agreement shall close immediately
following the Effective Time.
(b) On or immediately prior to the Closing, the Company shall cause CNLR
Development, Inc. to transfer its 100% general partner interests in Captec Ster
Texas LP and Captec Texas Opportunity LP to the Buyer or, at the Buyer's
discretion upon notice to the Company given at least two business days prior to
the Closing, an Affiliate of the Buyer.
6.14 Company Stockholders' Agreement. Patrick L. Beach and W. Ross Martin
have executed and delivered to the Buyer, concurrently with the execution of
this Agreement, the Stockholders' Agreement. The Company acknowledges and agrees
to be bound by and comply with the provisions of Section 3.1(a) and (b) of the
Stockholders' Agreement as if a party thereto with respect to transfers of
record of ownership of shares of the Company Common Stock, and agrees to notify
the transfer agent for any Company Common Stock of such provisions.
6.15 Termination of Registration Rights. The Company shall, promptly
following the date hereof, take all action necessary to terminate any and all
registration rights granted to any holder of shares of Company Common Stock or
any shares of Company Common Stock issued as or issuable upon the conversion or
exercise of any Stock Option or other security which is issued as a dividend or
other distribution with respect to, or in exchange for or in replacement of any
Company Common Stock.
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6.16 Consent Solicitation.
(a) As promptly as practicable after the execution of this Agreement, the
Company, in its capacity as general partner of Captec Franchise Capital Partners
L.P. III and Captec Franchise Capital Partners L.P. IV (together, the
"Syndicated Partnerships"), shall prepare and file with the SEC a Consent
Solicitation (the "Consent Solicitation") for the purpose of transferring the
general partnership interests held by the Company in the Syndicated Partnerships
to the JV Purchasers (the "GP Transfers"). The Company will respond to any
comments of the SEC and will use its reasonable efforts to have the Consent
Solicitation cleared by the SEC as promptly as practicable after such filing and
the Company will cause the Consent Solicitation to be mailed to the Syndicated
Partnerships' limited partners at the earliest practicable time after the
Consent Solicitation is cleared by the SEC. The Company will notify the Buyer
promptly upon the receipt of any comments from the SEC or any other Governmental
Entity and of any request by the SEC or any other Governmental Entity for
amendments or supplements to the Consent Solicitation or any filing pursuant to
Section 6.16(a) or for additional information and will supply the Buyer with
copies of all correspondence between the Company or any of its representatives,
on the one hand, and the SEC or any other Governmental Entity, on the other
hand, with respect to the Consent Solicitation or any filing pursuant to Section
6.16(a). The Company will cause all documents that it is responsible for filing
with the SEC or other Governmental Entity under this Section 6.16 to comply in
all material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is required
to be set forth in an amendment or supplement to Consent Solicitation or any
filing pursuant to Section 6.16(b), the Company will promptly inform the Buyer.
(b) The Company shall make all necessary filings with respect to the
Consent Solicitation under the Exchange Act and the rules and regulations
thereunder.
(c) To the fullest extent permitted by the Company's fiduciary duties as
the general partner of each of the Syndicated Partnerships, (i) the Company, as
general partner of the Syndicated Partnerships, shall recommend that the limited
partners consent to and approve the GP Transfers; (ii) the Consent Solicitation
shall include a statement to the effect that the Company, as general partner of
the Syndicated Partnerships, has recommended that limited partners consent to
and approve the GP Transfers; and (iii) the Company, in its capacity as general
partner of the Syndicated Partnerships, shall not withdraw, amend or modify, or
propose or resolve to withdraw, amend or modify its recommendation that the
limited partners consent to and approve GP Transfers. The Company shall pay the
Buyer a fee of $250,000 if the Company shall not so recommend or if the Consent
Solicitations shall not include the recommendation or if the Company shall
withdraw, amend or modify, or propose or resolve to withdraw, amend or modify
its recommendation, in each case, as a result of the Company's determination
that taking any of such actions is not permitted by the Company's fiduciary
duties as the general partner of the relevant Syndicated Partnership.
6.17 Termination of Agreements. The Buyer acknowledges and agrees that
the Company may terminate the Company's Advisory Agreement with Captec Net Lease
Realty Advisors, Inc. and the Management and Advisory Agreement with Family
Realty, Inc. at any time prior to the Effective Time.
ARTICLE VII
CONDITIONS TO MERGER
7.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction or waiver on or prior to the Closing Date
of the following conditions:
(a) Stockholder Approval. The Company Voting Proposal shall have been
approved and adopted at the Company Meeting, at which a quorum is present,
by the affirmative vote of the holders of a majority of the shares of the
Company Common Stock outstanding on the record date for the Company
Meeting.
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(b) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) Governmental Approvals. Other than the filings provided for by
Section 1.1, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by,
any Governmental Entity, the failure of which to file, obtain or occur
would cause a Buyer Material Adverse Effect or a Company Material Adverse
Effect, shall have been filed, obtained or occurred.
(d) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and the Proxy Statement shall
have been cleared by the Commission and neither the Proxy Statement nor the
Registration Statement shall be the subject of any stop order or any actual
or threatened proceedings seeking a stop order.
(e) No Injunctions. No Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any order,
executive order, stay, decree, judgment or injunction (each an "Order") or
statute, rule or regulation which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger.
(f) NYSE. The shares of the Buyer Common Stock and the Buyer
Preferred Stock to be issued in the Merger shall have been approved for
listing on the NYSE, subject only to official notice of issuance.
(g) Purchase Agreement Closing Conditions and Escrow. All conditions
necessary to consummate the transactions provided for in the Purchase
Agreement (other than the effectuation of the Merger) shall have been
satisfied or waived and documents the delivery of which are necessary under
the Purchase Agreement to consummate the transactions provided for in the
Purchase Agreement shall have been deposited into an escrow arrangement
providing for their release from escrow immediately after the Effective
Time, such arrangement to be on such other terms as are reasonably
satisfactory to the parties to the Purchase Agreement.
7.2 Additional Conditions to Obligations of the Buyer. The obligations of
the Buyer to effect the Merger are subject to the satisfaction on or prior to
the Closing Date of each of the following additional conditions, any of which
may be waived in writing exclusively by the Buyer:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct as of the Closing Date as though made on and as of the Closing Date
(except (i) to the extent such representations and warranties are
specifically made as of a particular date, in which case such
representations and warranties shall be true and correct as of such date,
(ii) for changes contemplated by this Agreement and (iii) where the failure
to be true and correct (without regard to any materiality or Company
Material Adverse Effect contained therein), individually or in the
aggregate, has not had a Company Material Adverse Effect).
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement.
(c) Tax Opinion. The Buyer shall have received a written opinion from
Shaw Pittman, a partnership including professional corporations, counsel to
the Buyer, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of
the Code.
(d) Third Party Consents. The Company shall have obtained all
consents and approvals of third parties referred to in Schedule 7.2(d),
including all necessary consents required to effect the transactions
contemplated pursuant to the Purchase Agreement. Notwithstanding the
foregoing, the Parties hereto acknowledge and agree that the failure of the
Company to obtain the consents of the limited partners of the Syndicated
Partnerships to the GP Transfers described in Section 6.16 shall not be a
failure by the Company to comply with this Section 7.2(d) and the Buyer
shall be obligated
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to consummate the Merger if all other consents have been obtained by the
Company and the other conditions to the Merger have been satisfied.
(e) Resignations. The Buyer shall have received copies of the
resignations, effective as of the Effective Time, of each officer and
director of the Company and its Subsidiaries.
(f) REIT Tax Opinion. The Buyer shall have received a written opinion
reasonably acceptable to the Buyer from Baker & Hostetler LLP, counsel to
the Company, that the Company qualified as a REIT under the Code for all
taxable years commencing with its initial taxable year through December 31,
2000, that the Company is organized in conformity with the requirements for
qualification as a REIT under the Code, and that the Company's method of
operation will enable it to meet the requirements for qualification as a
REIT under the Code for the taxable year beginning January 1, 2001,
determined as if such taxable year ended as of the Closing.
(g) General Partner Interests Transfer. The Company shall have caused
CNLR Development, Inc. to transfer its 100% general partner interests in
Captec Ster Texas LP and Captec Texas Opportunity LP to the Buyer or, at
the Buyer's discretion, an Affiliate of the Buyer, immediately prior to the
Closing.
(h) Termination of Advisory/Management Agreements. The agreements
listed on Schedule 7.2(i) shall have been terminated on terms mutually
agreeable to the parties thereto and the Buyer.
(i) Purchase Agreement and Loan Agreement. The Purchase Agreement and
Loan Agreement of even date herewith among the Buyer and the JV Purchasers
each shall remain in full force and effect.
(j) Earnings and Profits Letter. The Buyer shall have received a
letter from PricewaterhouseCoopers, the Company's independent auditors,
confirming that the Company has distributed all of its earnings and profits
for all taxable years, including the taxable year beginning January 1,
2001, and ending as of the Closing.
(k) Stock Options. The Company shall have terminated, to the
reasonable satisfaction of the Buyer, the Company's Long Term Incentive
Plan and the Directors' Deferred Compensation Plan.
(l) CFCP Promissory Note. The Promissory Note dated as of April 17,
2001 made by Captec Franchise Capital Partners, L.P. IV to the order of the
Company shall have been paid in full.
(m) Tax Return. The Company's Federal Tax Return for the year ended
December 31, 2000 shall have been filed with the IRS and a copy thereof
shall have been provided to the Buyer.
7.3 Additional Conditions to Obligations of the Company. The obligation
of the Company to effect the Merger is subject to the satisfaction on or prior
to the Closing Date of each of the following additional conditions, any of which
may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and
warranties of the Buyer set forth in this Agreement shall be true and
correct as of the Closing Date as though made on and as of the Closing Date
(except (i) to the extent such representations and warranties are
specifically made as of a particular date, in which case such
representations and warranties shall be true and correct as of such date,
(ii) for changes contemplated by this Agreement and (iii) where the failure
to be true and correct (without regard to any materiality or Buyer Material
Adverse Effect contained therein), individually or in the aggregate, has
not had a Buyer Material Adverse Effect);
(b) Performance of Obligations of the Buyer. The Buyer shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date.
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(c) Tax Opinion. The Company shall have received the opinion of Baker
& Hostetler LLP, counsel to the Company, to the effect that the Merger will
be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code.
(d) UBSW Opinion. UBSW shall not have withdrawn, modified or revoked
its fairness opinion to the Special Committee and the Board.
(e) Company Loan Agreement. At or prior to the Closing, the Buyer
shall have paid, or have made arrangements reasonably satisfactory to the
Company to pay, the outstanding amounts due under the Third Amended and
Restated Credit Agreement among the Company, First Union National Bank, as
Administrative Agent and Sole Bookrunner, and the Financial Institution's
Party to the Third Amended and Restated Credit Agreement, dated as of
February 26, 2001, relating to $80,000,000 in term loans and up to
$25,000,000 in revolving loans.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time by written notice by the terminating party to the other
party), whether before or, subject to the terms hereof, after adoption of this
Agreement by the stockholders of the Company:
(a) by mutual written consent of the Buyer and the Company; or
(b) by either the Buyer or the Company if the Merger shall not have
been consummated by January 31, 2002 (the "Outside Date") (provided that
the right to terminate this Agreement under this Section 8.1(b) shall not
be available to any party whose failure to fulfill any obligation under
this Agreement has been a principal cause of or resulted in the failure of
the Merger to occur on or before such date); or
(c) by either the Buyer or the Company if a Governmental Entity of
competent jurisdiction shall have issued a nonappealable final order,
decree or ruling or taken any other nonappealable final action, in each
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger; or
(d) by either the Buyer or the Company if (i) the Company Meeting
cannot be held because of the lack of a quorum of the Company's
stockholders or (ii) at the Company Meeting (including any adjournment or
postponement), the requisite vote of the stockholders of the Company in
favor of the Company Voting Proposal shall not have been obtained (provided
that the right to terminate this Agreement under this Section 8.1(d) shall
not be available to any party seeking termination who at the time is in
breach of or has failed to fulfill its obligations under this Agreement);
or
(e) by the Buyer, if the Company or Board of Directors of the Company
or any committee thereof shall have (i) approved or recommended, or
proposed to approve or recommend, any Acquisition Proposal other than the
Merger, (ii) breached its obligation to present and recommend the approval
and adoption of this Agreement and the Merger to the stockholders of the
Company, (iii) withdrawn or modified, or proposed to withdraw or modify, in
a manner adverse to the Buyer, its recommendation or approval of the
Merger, this Agreement or the transactions contemplated hereby as permitted
by Section 6.1, (iv) failed to mail the Proxy Statement/Prospectus to the
stockholders of the Company when the Proxy Statement/Prospectus was
available for mailing or failed to include therein such approval and
recommendation (including the recommendation that the stockholders of the
Company vote in favor of the adoption of this Agreement), (v) failed to
have issued a press release reaffirming the Board's recommendation of this
Agreement within two business days after receipt of a written request by
the Buyer to do so after the commencement of a tender offer or exchange for
more than 50% of the outstanding voting securities of the Company (it being
understood that the Buyer shall not have a right to terminate this
Agreement pursuant to this clause (v) if the Company fails to issue such a
press release in response to more than one such request), (vi) entered,
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or caused the Company or any Subsidiary to enter, into any letter of
intent, agreement in principle, acquisition agreement or other similar
agreement related to any Acquisition Proposal, (vii) resolved or announced
its intention to do any of the foregoing; or
(f) By the Buyer, if a tender or exchange offer relating to securities
of the Company shall have been commenced by a Person unaffiliated with the
Buyer, and the Company shall not have sent to its security holders pursuant
to Rule 14e-2 promulgated under the Exchange Act, within 10 business days
after such tender or exchange offer is first published, sent or given, a
statement that the Company recommends rejection of such tender or exchange
offer; or
(g) By the Buyer, if the Buyer is not in material breach of its
obligations under this Agreement, and if (i) at any time that any of the
representations and warranties of the Company herein become untrue or
inaccurate such that Section 7.2(a) would not be satisfied (treating such
time as if it were the Effective Time for purposes of this Section 8.1(g))
or (ii) there has been a breach on the part of the Company of any of its
covenants or agreements contained in this Agreement such that Section
7.2(b) would not be satisfied (treating such time as if it were the
Effective Time for purposes of this Section 8.1(g)), and, in both case (i)
and case (ii), such breach (if curable) has not been cured within 30 days
after notice to the Company; or
(h) By the Company, if it is not in material breach of its obligations
under this Agreement, and if (i) at any time that any of the
representations and warranties of the Buyer herein become untrue or
inaccurate such that Section 7.3(a) would not be satisfied (treating such
time as if it were the Effective Time for purposes of this Section 8.1(h))
or (ii) there has been a breach on the part of the Buyer of any of their
respective covenants or agreements contained in this Agreement such that
Section 7.3(b) would not be satisfied (treating such time as if it were the
Effective Time for purposes of this Section 8.1(h)), and such breach (if
curable) has not been cured within 30 days after notice to the Buyer.
8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall immediately become void and
there shall be no liability or obligation on the part of the Buyer, the Company
or their respective officers, directors, stockholders or Affiliates, except as
set forth in Sections 5.3, 8.3, 8.4 and Article IX; provided that any such
termination shall not relieve any party from liability for any willful breach of
this Agreement (which includes without limitation the making of any
representation or warranty by a party in this Agreement that the party knew was
not true and accurate in all material respects when made) and the provisions of
Sections 5.3 (regarding confidentiality), the penultimate sentence of 6.3
(regarding confidentiality), 8.3, 8.4 and Article IX of this Agreement and the
Confidentiality Agreement shall remain in full force and effect and survive any
termination of this Agreement.
8.3 General Fees and Expenses. Except as set forth in this Section 8.3
and Section 8.4, all fees and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such fees and expenses, whether or not the Merger is consummated.
8.4 Certain Fees and Expenses. If this Agreement shall be terminated (i)
pursuant to Sections 8.1(e) or 8.1(f), then the Company thereupon shall pay to
the Buyer the Break-Up Fee (as defined below) and (ii) pursuant to Section
8.1(d) or 8.1(g), then the Company shall pay to the Buyer (provided that the
Company was not entitled to terminate this Agreement pursuant to Section 8.1(h)
at the time of such termination) an amount equal to the Break-Up Expenses (as
defined herein). If this Agreement shall be terminated pursuant to Section
8.1(h), then the Buyer shall pay to the Company (provided that the Buyer was not
entitled to terminate this Agreement pursuant to Section 8.1(g) at the time of
such termination) an amount equal to the Break-Up Expenses. If this Agreement
shall be terminated pursuant to Sections 8.1(b) (if primarily resulting from any
action or inaction of the Company), 8.1(d) or 8.1(g) and prior to the time of
such termination an Acquisition Proposal has been received by the Company, and
either prior to the termination of this Agreement or within nine (9) months
thereafter, the Company enters into any written agreement to consummate a
transaction or series of transactions which, had such agreement been proposed or
negotiated during the term of this Agreement,
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would have constituted an Acquisition Proposal (each, a "Company Acquisition
Agreement"), which is subsequently consummated (whether or not any Company
Acquisition Agreement relates to the same Acquisition Proposal which had been
received at the time of the termination of this Agreement), then the Company
shall pay the Break-Up Fee to the Buyer upon the consummation thereof.
The payment of the Break-Up Fee shall be full compensation for the loss
suffered by the Buyer as a result of the failure of the Merger to be consummated
(including, without limitation, opportunity costs and out-of-pocket costs and
expenses) and to avoid the difficulty of determining damages under the
circumstances. The Break-Up Fee shall be paid by the Company to the Buyer, or
the Break-Up Expenses shall be paid by the Company to the Buyer or the Buyer to
the Company (as applicable), in immediately available funds within two (2)
business days after the date the event giving rise to the obligation to make
such payment occurred. The Company and Buyer each acknowledge that the
agreements contained in this Section 8.4 are integral parts of this Agreement;
accordingly, if the Company fails to promptly pay the Break-Up Fee or Break-Up
Expenses or the Buyer fails promptly to pay Break-up Expenses due pursuant to
this Section 8.4 and, in order to obtain payment, the Buyer or the Company
commence a suit which results in a judgment against the other for any amounts
owed pursuant to this Section 8.4, the losing party shall pay to the prevailing
party its costs and expenses (including reasonable attorneys' fees and expenses)
in connection with such suit, together with interest on the amount owed at the
applicable judgment rate. Payment of the fees described in Section 8.4 shall not
be in lieu of damages incurred in the event of breach of this Agreement.
As used in this Agreement, "Break-Up Fee" shall be an amount equal to the
lesser of (i) $5,000,000 less Break-Up Expenses paid or payable under this
Section 8.4 (the "Base Amount") and (ii) the sum of (A) the maximum amount that
can be paid to the Buyer without causing the Buyer to fail to meet the
requirements of Sections 856(c)(2) and (3) of the Code determined as if the
payment of such amount did not constitute income described in Sections
856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying Income"), as
determined by independent accountants to the Buyer, and (B) in the event the
Buyer receives a letter from outside counsel (the "Break-Up Fee Tax Opinion")
indicating that the Buyer has received a ruling from the IRS holding that the
Buyer's receipt of the Base Amount would either constitute Qualifying Income or
would be excluded from gross income of the Company within the meaning of
Sections 856(c)(2) and (3) of the Code (the "REIT Requirements") or that the
receipt by the Buyer of the remaining balance of the Base Amount following the
receipt of and pursuant to such ruling would not be deemed constructively
received prior thereto, the Base Amount less the amount payable under clause (A)
above. The Company's obligation to pay any unpaid portion of the Break-Up Fee
shall terminate two years from the date of this Agreement. In the event that the
Buyer is not able to receive the full Base Amount, the Company shall place the
unpaid amount in escrow and shall not release any portion thereof to the Buyer
unless and until the Company receives either one of the following: (i) a letter
from the Buyer's independent accountants indicating the maximum amount that can
be paid at that time to the Buyer without causing the Buyer to fail to meet the
REIT Requirements or (ii) a Break-Up Fee Tax Opinion, in either of which events
the Company shall pay to the Buyer the lesser of the unpaid Base Amount or the
maximum amount stated in the letter referred to in (i) above.
The "Break-Up Expenses" payable to the Buyer or the Company, as the case
may be (the "Recipient"), shall be an amount equal to the lesser of (i)
$1,000,000 and (ii) the Recipient's out-of-pocket expenses incurred in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, all attorneys', accountants' and investment
bankers' fees and expenses). If the Break-Up Expenses payable to the Recipient
exceed the maximum amount that can be paid to the Recipient without causing the
Recipient to fail to meet the requirements of Sections 856(c)(2) and (3) of the
Code determined as if the payment of such amount did not constitute Qualifying
Income, as determined by independent accountants to the Recipient (the "Maximum
Amount"), the amount initially payable to the Recipient shall be limited to the
Maximum Amount. If, however, within the two-year period commencing on the date
of this Agreement, the Recipient receives a letter from outside counsel (the
"Break-Up Expense Tax Opinion") indicating that it has received a ruling from
the IRS holding that the Recipient's receipt of the Break-Up Expenses would
either constitute Qualifying Income or would be
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excluded from gross income of the Recipient within the meaning of the REIT
Requirements or that receipt by the Recipient of the balance of the Break-Up
Expenses above the Maximum Amount following the receipt of and pursuant to such
ruling would not be deemed constructively received prior thereto, the Recipient
shall be entitled to have payable to it the full amount of the Break-Up
Expenses. The obligation of the Buyer or the Company, as applicable ("Payor"),
to pay any unpaid portion of the Break-Up Expenses shall terminate two years
from the date of this Agreement. In the event that the Recipient is not able to
receive the full Break-Up Expenses, the Payor shall place the unpaid amount in
escrow and shall not release any portion thereof to the Recipient unless and
until the Payor receives either one of the following: (i) a letter from the
independent accountants of the Buyer or the Company, as the case may be,
indicating the maximum amount that can be paid at that time to the Recipient
without causing it to fail to meet the REIT Requirements or (ii) a Break-Up
Expense Tax Opinion, in either of which events the Payor shall pay to the
Recipient the lesser of the unpaid Break-Up Expenses or the maximum amount
stated in the letter referred to in (i) above.
8.5 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of the Company, provided, however, that, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
8.6 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
9.1 Nonsurvival of Representations and Warranties. The respective
representations and warranties of the Company and the Buyer contained in this
Agreement or in any instrument delivered pursuant to this Agreement shall expire
with, and be terminated and extinguished upon, the Effective Time. This Section
9.1 shall have no effect upon any other obligations of the parties hereto,
whether to be performed before or after the consummation of the Merger. Each
party hereto agrees that, except for the representations and warranties
contained in this Agreement, neither the Company nor the Buyer makes any other
representations or warranties, and each hereby disclaims any other
representations and warranties made by itself or any of its officers, directors,
employees, agents, financial and legal advisors or other representatives, with
respect to the execution and delivery of this Agreement or the transactions
contemplated hereby, notwithstanding the delivery or disclosure to the other or
the other's representatives of any documentation or other information with
respect to any one or more of the foregoing.
9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly delivered (i) four business days after being
sent by registered or certified mail, return receipt requested, postage prepaid,
or (ii) one business day after being sent for next business day delivery, fees
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prepaid, via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
(a) if to the Buyer, to:
Commercial Net Lease Realty, Inc.
450 S. Orange Avenue, Suite 900
Orlando, FL 32801
Attn: Julian E. Whitehurst, Esq.
with a copy to:
Shaw Pittman
2300 N. Street, N.W.
Washington, D.C. 20037
Attn: John M. McDonald, Esq.
Fax: (202) 663-8007
(b) if to the Company, to:
Captec Net Lease Realty, Inc.
24 Frank Lloyd Wright Drive
Lobby L, 4th Floor
Ann Arbor, MI 48106
Attn: W. Ross Martin
with a copy to:
Morris, Nichols, Arsht & Tunnell
1201 N. Market Street
Wilmington, DE 19801
Attn: Andrew M. Johnston, Esq.
Fax: (302) 425-3018
and
Baker & Hostetler LLP
Suite 1100
1050 Connecticut Avenue NW
Washington, DC 20036
Attn: William J. Conti, Esq.
Fax: (202) 861-1783
Any party to this Agreement may give any notice or other communication
hereunder using any other means (including personal delivery, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any party to this
Agreement may change the address to which notices and other communications
hereunder are to be delivered by giving the other parties to this Agreement
notice in the manner herein set forth.
9.3 Entire Agreement. This Agreement (including any Schedules and
Exhibits hereto and the documents and instruments referred to herein that are to
be delivered at the Closing) constitutes the entire agreement among the parties
hereto and supersedes any prior understandings, agreements or representations by
or between the parties hereto, or any of them, written or oral, with respect to
the subject matter hereof; provided that the Confidentiality Agreement shall
remain in effect in accordance with its terms.
9.4 No Third Party Beneficiaries. Except as provided in Sections 6.7, 6.8
and 6.9, this Agreement is not intended, and shall not be deemed, to confer any
rights or remedies upon any person other than the parties hereto and their
respective successors and permitted assigns, to create any agreement of
employment with any person or to otherwise create any third-party beneficiary
hereto.
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9.5 Assignment. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement may be assigned or delegated, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other parties, and any such assignment without such
prior written consent shall be null and void. Subject to the preceding sentence,
this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties hereto and their respective successors and permitted
assigns.
9.6 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties agree hereto that the court making such determination
shall have the power to limit the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the parties with respect to the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified. In the event such court does not exercise the power granted to it in
the prior sentence, the parties hereto agree to replace such invalid or
unenforceable term or provision with a valid and enforceable term or provision
that will achieve, to the extent possible, the economic, business and other
purposes of such invalid or unenforceable term.
9.7 Counterparts and Signature. This Agreement may be executed in two
counterparts, each of which shall be deemed an original but all of which
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party hereto and delivered
to the other party, it being understood that each party need not sign the same
counterpart.
9.8 Interpretation. When reference is made in this Agreement to an
Article or a Section, such reference shall be to an Article or Section of this
Agreement, unless otherwise indicated. The table of contents, table of defined
terms and headings contained in this Agreement are for convenience of reference
only and shall not affect in any way the meaning or interpretation of this
Agreement. The language used in this Agreement shall be deemed to be the
language chosen by the parties hereto to express their mutual intent, and no
rule of strict construction shall be applied against any party. Whenever the
context may require, any pronouns used in this Agreement shall include the
corresponding masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural, and vice versa. Any reference to
any federal, state, local or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation".
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of laws of
any jurisdictions other than those of the State of Delaware.
9.10 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any party hereto in the exercise of any right hereunder
will impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor will any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right.
9.11 Remedies. Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to
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injunctive relief to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof.
9.12 Submission to Jurisdiction. Each of the parties to this Agreement
(a) consents to submit itself to the personal jurisdiction of any state or
federal court of competent jurisdiction of the State of Delaware in any action
or proceeding arising out of or relating to this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that all claims in
respect of such action or proceeding may be heard and determined in any such
court, (c) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (d)
agrees not to bring any action or proceeding arising out of or relating to this
Agreement or any of the transaction contemplated by this Agreement in any other
court. Each of the parties hereto waives any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waives any bond,
surety or other security that might be required of any other party with respect
thereto. Any party hereto may make service on another party by sending or
delivering a copy of the process to the party to be served at the address and in
the manner provided for the giving of notices in Section 9.2. Nothing in this
Section, however, shall affect the right of any party to serve legal process in
any other manner permitted by law.
9.13 WAIVER OF JURY TRIAL. THE BUYER AND THE COMPANY HEREBY IRREVOCABLY
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE
BUYER OR THE COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND
ENFORCEMENT OF THIS AGREEMENT.
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IN WITNESS WHEREOF, the Buyer and the Company have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
COMMERCIAL NET LEASE REALTY, INC.
By: /s/ GARY M. RALSTON
------------------------------------
Title: President
CAPTEC NET LEASE REALTY, INC.
By: /s/ PATRICK L. BEACH
------------------------------------
Title: Chairman
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The undersigned, being the duly elected Secretary of the Company, hereby
certifies that this Agreement has been adopted by a majority of the votes
represented by the outstanding shares of capital stock of the Company entitled
to vote on this Agreement.
--------------------------------------
Secretary
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EXHIBIT C
(a) If the Closing occurs prior to the then next scheduled dividend record date
for both the Company and the Buyer, and the dividend per share otherwise
payable on the Company Common Stock for the calendar quarter immediately
preceding such record dates (pro rated to the extent that the Closing Date
occurs prior to the end of such calendar quarter), exceeds the next
scheduled dividend per share payable on the Buyer Common Stock, the Company
may pay, on or prior to the Effective Date, a special dividend to its
shareholders in an amount per share equal to the difference between the
Company dividend and the next scheduled Buyer dividend.
(b) The Company agrees that the record date for its regular dividend payable in
the fourth quarter of 2001 shall be the usual record date established by the
Buyer for its regular fourth quarter dividend. The Company and the Buyer
shall consult with each other concerning the Buyer's record date.
144
APPENDIX B
[LOGO OF UBS WARBURG LLC] UBS WARBURG LLC
1285 Avenue of the Americas
New York, NY 10019
Telephone 212 713-2000
www.ubswarburg.com
July 1, 2001
Special Committee of the Board of Directors
Captec Net Lease Realty, Inc.
24 Frank Lloyd Wright Drive
Ann Arbor, Michigan 48106-0544
Dear Members of the Special Committee:
We understand that Captec Net Lease Realty, Inc., a Delaware corporation
("Captec" or the "Company"), is considering transactions whereby (i) Captec will
merge ("the Merger") with and into Commercial Net Lease Realty, Inc., a Maryland
corporation ("CNL"), and (ii) certain assets will be sold to CRC Asset
Acquisition LLC after the completion of the Merger (the "Other Assets Sale," and
together with the Merger, collectively the "Transaction").
Pursuant to the terms of an Agreement and Plan of Merger (the "Acquisition
Agreement"), the issued and outstanding shares of common stock of the Company,
par value $.01 per share, will be converted into the right to receive in the
Merger in the aggregate:
(a) 4,350,000 shares of Common Stock, par value $.01 per
share, of CNL;
(b) 2,000,000 shares of newly issued 9.0% Non-Voting Series A
Preferred Stock, par value $.01 per share (the "Preferred
Stock"), of CNL; and
(c) $12,099,000 in cash (collectively, the "Consideration").
The terms and conditions of the Transaction are more fully set forth in the
Acquisition Agreement and related agreements concerning the Other Assets Sale
(collectively, the "Agreements").
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of the Company of the Consideration to be received by
the stockholders of the Company in the Merger in respect of their Captec common
stock.
UBS Warburg LLC ("UBS Warburg") will receive a fee for its services as
financial advisor and will also receive a fee in connection with this opinion.
In the past, UBS Warburg and its predecessors have provided investment banking
services to CNL and received customary compensation for the rendering of such
services. In the ordinary course of business, UBS Warburg, its successors and
affiliates may trade securities of the Company or CNL for their own accounts and
the accounts of their customers and, accordingly, may at any time hold a long or
short position in such securities.
UBS Warburg has acted as financial advisor to the Special Committee of
Board of Directors of the Company in connection with the Merger. In that
capacity and at your request, we have contacted more than 50 third parties to
solicit indications of interest in a possible sale of the Company and held
discussions with certain of these parties prior to the date hereof. We were not
requested to, and did not, solicit indications of interest from third parties
solely with respect to a sale of the assets which are the subject to the Other
Assets Sale.
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[LOGO OF UBS WARBURG LLC]
Our opinion does not address the Company's underlying business decision to
effect the Merger or constitute a recommendation to any stockholder of the
Company as to how such stockholder should vote with respect to the approval of
the Acquisition Agreement. We have assumed, with your consent, that the terms of
the Other Assets Sale are the most beneficial terms from the Company's
perspective that reasonably could have been negotiated among the parties in the
circumstances. At your direction, we have not performed a liquidation analysis
of the Company. We express no opinion as to the prices at which securities
issued in the Merger will trade in the future. In rendering this opinion, we
have assumed that the parties will comply with all the material terms of the
Agreements, and that all conditions to the Agreements will be satisfied in
accordance with their terms.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to the Company and CNL; (ii) reviewed certain internal financial
information and other data relating to the business and financial prospects of
the Company (but not of CNL), including estimates and financial forecasts
prepared by management of the Company, that were provided to us by the Company
and not publicly available; (iii) conducted discussions with members of the
senior management of the Company and CNL concerning the business(es) and
financial prospects of the Company and CNL; (iv) reviewed publicly available
financial and stock market data with respect to certain other companies in lines
of business we believe to be generally comparable to those of CNL and the
Company; (v) compared the financial terms of the Merger with the publicly
available financial terms of certain other transactions which we believe to be
generally relevant; (vi) reviewed drafts of the Acquisition Agreement; and (vii)
conducted such other financial studies, analyses, and investigations, and
considered such other information as we deemed necessary or appropriate.
In connection with our review, at your direction, we have not assumed any
responsibility for independent verification for any of the information reviewed
by us for the purpose of this opinion and have, with your consent, relied on
such information being complete and accurate in all material respects. In
addition, at your direction, we have not made any independent evaluation or
appraisal of any of the assets or liabilities (contingent or otherwise) of the
Company or CNL, nor have we been furnished with any such evaluation or
appraisal. We were not authorized to and did not solicit indications of interest
from third parties with respect to a sale of only part of the Company or a
liquidation of the Company. With respect to the financial forecasts and
estimates referred to above, we have assumed, at your direction, that they have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
performance of the Company. We did not receive any material non-public
information from CNL as to its projected financial performance other than
limited information with respect to its properties. With your consent, we have
assumed that the per share value of the Preferred Stock will be $24.00 upon
issuance. We have also assumed, with your consent, that the Merger will be
accounted for under the purchase method of accounting and that the Merger will
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended. Our opinion is necessarily based on economic,
monetary, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
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146
[LOGO OF UBS WARBURG LLC]
Based upon and subject to the foregoing, it is our opinion that, as the
date hereof, the Consideration to be received by the stockholders of the Company
with respect to their Captec common stock in the Merger is fair, from a
financial point of view, to the stockholders of the Company.
Very truly yours,
UBS WARBURG LLC
By: /s/ HOWARD MARGOLIS By: /s/ SCOTT BUTERA
----------------------------- -----------------------------
Howard Margolis Scott Butera
Executive Director Executive Director
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