SC 13D/A
1
AMENDED SCHEDULE 13D
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES AND EXCHANGE ACT OF 1934
(AMENDMENT NO. 4 )*
First Union Real Estate Equity and Mortgage Investments
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(Name of Issuer)
Shares of Beneficial Interest
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(Title of Class of Securities)
337400-10-5
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(CUSIP Number)
Marc C. Krantz, Kohrman Jackson & Krantz, 1375 East 9th Street,
Cleveland, Ohio 44114, 216-736-7204
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
March 20, 1995
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement [ ]. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom copies
are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
SCHEDULE 13D
CUSIP NO. 337400-10-5
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Turkey Vulture Fund XIII, Ltd.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ x ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
BK,WC, OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Ohio
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NUMBER OF 7 SOLE VOTING POWER
1,690,500
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 9 SOLE DISPOSITIVE POWER
1,690,500
EACH
REPORTING 10 SHARED DISPOSITIVE POWER
PERSON
WITH
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,690,500
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
[___]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.3%
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14 TYPE OF REPORTING PERSON*
OO
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CUSIP No. 337400-10-5
This Amendment No. 4 to Schedule 13D Statement is filed on behalf
of TURKEY VULTURE FUND XIII, LTD., an Ohio limited liability company (the
"Fund"), for the purpose of reporting (1) the source of funds for the
previously-reported acquisition by the Fund of 725,000 shares of beneficial
interest, $1.00 par value (the "Stock"), of First Union Real Estate Equity and
Mortgage Investments ("First Union"), which together with the other Stock
beneficially owned by the Fund represents approximately 9.3% of the Stock
currently outstanding, (2) events relating to litigation commenced by First
Union, and (3) certain other matters.
Item 3. Source and Amount of Funds or Other Consideration.
The 725,000 shares of Stock reported as having been acquired by
the Fund in Amendment No. 3 to the Schedule 13D Statement filed by the Fund and
Steven A. Calabrese on March 13, 1995 ("Amendment No. 3") were acquired for an
approximate aggregate purchase price of approximately $5.8 million, $2.9
million of which was from working capital of the Fund and $2.9 million of which
was be in the form of margin debt from Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"). Interest on the margin debt is charged, in accordance with
DLJ's usual custom, at a rate permitted by the laws of the State of New York.
Interest charged at the close of a charge period is added to the opening
balance for the next charge period unless paid. DLJ has a lien on the Stock
reported herein as having been acquired by the Fund. A copy of the agreement
setting forth the terms of the margin debt is attached as Exhibit 7.5 to
Amendment No. 3.
Of the working capital of the Fund, Richard M. Osborne, the sole
managing member of the Fund ("RMO"), contributed approximately $2.05 million,
the source of which was three separate bank loans to RMO. None of the bank
loans are secured by the Stock. Two of the bank loans were previously obtained
personal lines of credit. The first, with American National Bank of Parma,
Ohio, is a line of credit used for business investment, dated June 24, 1994, in
the principal amount of $300,000 (the "American Loan"). The American Loan
matures June 24, 1995. Interest on the American Loan is payable monthly at the
rate of 8.5% per annum subject to adjustment quarterly at the discretion of
American National Bank. A copy of the American Loan is attached hereto as
Exhibit 7.9. The second loan, with The Provident Bank of Cleveland, Ohio is a
revolving credit agreement, dated July 7, 1994, in the principal amount of
$250,000 (the "Provident Loan"). The Provident Loan is due and payable on
demand. Interest on the Provident Loan is payable quarterly at the prime rate
of The Provident Bank. A copy of the Provident Loan is attached hereto as
Exhibit 7.10. The third loan is from First National Bank of Ohio of Cleveland,
Ohio in the principal amount of $1.5 million and is dated March 15, 1995 (the
"First National Loan"). The First National Loan matures on June 13, 1995.
Interest on the First National Loan is payable monthly at 1% per annum over the
prime rate of First National Bank of Ohio. The initial rate of interest on the
First National Loan is 10% per annum. A copy of the First National Loan is
attached hereto as Exhibit 7.11.
Item 4. Purpose of Transaction.
As previously reported, on February 3, 1995, First Union
commenced an action (the "First Union Action") in the U.S. District Court for
the Northern District of Ohio, Eastern Division, against RMO, the Fund, The
Wolstein Group, Inc. Best Wolstein, Scott Wolstein, Heritage Capital
Corporation, Developers Diversified Realty Corporation, 2000 OCC Corp., 1600
CNB Corp., Mark P. Escaja, Gerald E. Wedren and Craig Capital Co. (No. 1:95CV
0274) alleging that the named defendants were conspiring to take control of
First Union, violated federal and state securities laws and breached certain
obligations to other First Union shareholders. The allegations set forth in the
First Union complaint are included in Amendment No. 1 to the Schedule 13D
Statement filed by the Fund on February 11, 1995 ("Amendment No. 1"), and the
First Union complaint is attached as Exhibit 7.2 to Amendment No. 2 to the
Schedule 13D Statement filed by the Fund on March 2, 1995 ("Amendment No.2").
CUSIP No. 337400-10-5
On March 20, 1995, First Union filed a motion to amend its
complaint. The court has not yet ruled on the motion. The amended complaint
deletes 2000 OCC Corp., 1600 CNB Corp., Gerald E. Wedren and Craig Capital Co.
as named defendants. The amended complaint repeats numerous allegations
contained in the original complaint and further alleges, among other matters,
that (1) Amendments No. 1, 2 and 3 are false and misleading in violation of
Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), and
(2) the defendants have failed to comply with the requirements of Section 14(d)
of the Exchange Act and the rules and regulations promulgated thereunder,
including by making false and misleading statements under Rule 14a-9. First
Union is seeking (1) a preliminary and permanent injunction (i) to prevent the
defendants and their agents from (a) acquiring additional First Union
securities, (b) voting or otherwise exercising any rights of ownership of First
Union securities that have been acquired, (c) exercising any influence upon
First Union's trustees or management, (d) taking any action to take control of
First Union, (e) violating obligations under First Union's Declaration of Trust
and By-Laws and obligations to other First Union shareholders, and (f)
soliciting proxies and otherwise communicating with First Union shareholders,
and (ii) ordering defendants to correct the Schedule 13D Statements previously
filed and to amend proxy materials to disclose the involvement of the Fund and
its true intentions toward First Union; (2) divestiture of all First Union
securities owned by the defendants; (3) an offer of rescission for First Union
securities purchased; and (4) damages in the amount of at least $30 million.
The First Union amended complaint is attached hereto as Exhibit 7.12, which
Exhibit is hereby incorporated by reference.
RMO and the Fund continue to vehemently deny all charges made by First
Union and intend to contest the charges vigorously. RMO and the Fund believe
that First Union's continuation of the First Union Action is motivated by First
Union's management's attempt to prevent RMO and the Fund from exercising their
rights as shareholders of First Union to vote the shares owned by the Fund at
the upcoming annual meeting of First Union shareholders, to influence the
decision of First Union shareholders when they cast their votes for trustees in
connection with the upcoming annual meeting and to test the resolve of RMO and
the Fund.
As previously reported, on March 1, 1995, the Committee to Unlock the
Value of First Union Real Estate Investments (the "Committee"), which consists
of RMO, James R. Webb and Mr. Calabrese, commenced a proxy solicitation in
opposition to the Board of Trustees of First Union. Definitive proxy materials
were filed by the Committee with the SEC on March 16, 1995 and mailed to First
Union shareholders on or about such date.
Item 5. Interest in Securities of the Issuer.
In connection with the First Union Action, RMO and the Fund have
previously provided First Union with the names of the members of the Fund and
the names of such members were reported in Amendment No. 2. In addition to the
members previously reported, new members of the Fund are as follows:
Roll-Kraft, Inc., Dennis M. Gehrisch, who is individually a member, President;
and Chris and Debbie Muzzin, a husband and wife. As previously reported, RMO,
as sole managing member of the Fund, may be deemed to beneficially own the
shares of Stock owned directly by the Fund, and under Section 13d(3), RMO and
the Fund may be deemed members of a group. RMO and the Fund disclaim that they
are members of a group, and nothing in this Amendment No. 4 to Schedule 13D
Statement shall be deemed an admission that they are members of a group. In
addition, RMO and the Fund disclaim that they or either of them are members of
a group with the members of the Fund, and nothing in this Amendment No. 4 to
Schedule 13D Statement shall be deemed an admission that they or either of them
are members of a group.
Item 7. Material to be Filed as Exhibits.
Exhibit 7.9 American National Bank Note
Exhibit 7.10 The Provident Bank Promissory Note
Exhibit 7.11 First National Bank of Ohio Promissory Note
Exhibit 7.12 First Union's First Amended and Supplemental
Complaint for Injunctive Relief, Damages and
Other Relief
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
TURKEY VULTURE FUND XIII, LTD.
Dated: March 27, 1995 /s/ Richard M. Osborne
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Richard M. Osborne
Managing Member
EXHIBIT INDEX
Exhibit 7.9 American National Bank Note
Exhibit 7.10 The Provident Bank Promissory Note
Exhibit 7.11 First National Bank of Ohio Promissory Note
Exhibit 7.12 First Unions s First Amended and Supplemental
Complaint for Injunctive Relief, Damages and
Other Relief
EX-7.9
2
AMERICAN NATIONAL BANK NOTE
EXHIBIT 7.9
RICHARD M. OSBORNE AMERICAN NATIONAL BANK ACCOUNT #80059
8060 JACKSON STREET 5603 RIDGE ROAD Loan No. 49510
MENTOR, OH 44060 PARMA, OH 44129 Date June 24, 1994
Maturity Date June 24, 1995
Loan Amount $300,000.00
Renewal Of
BORROWER'S NAME AND LENDER'S NAME AND ADDRESS
ADDRESS "You" means the lender,
"I" includes each its successors and assigns
borrower above,
jointly and severally
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of THREE HUNDRED THOUSAND AND NO/100
*********************Dollars $300,000.00. [ ] Single Advance: I will receive all
of this principal sum on _______________. No additional advances are
contemplated under this note. [x] Multiple Advance: The principal sum shown
above is the maximum amount of principal I can borrow under this note. On June
24, 1994 I will receive the amount of $_____________ and future principal
advances are contemplated.
Conditions: The conditions for future advances are
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[x] Open End Credit: You and I agree that I may borrow up to the
maximum amount of principal more than one time. This feature is
subject to all other conditions and expires on June 24, 1995.
[ ] Closed End Credit: You and I agree that I may borrow up to
the maximum only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal
balance from June 24, 1994 at the rate of 8.500% per year until
SEPTEMBER 1, 1994.
[X] Variable Rate: This rate may then change as stated below.
[ ] Index Rate: The future rate will be ______________ the
following index rate: _________________________________________
[x] No Index: The future rate will not be subject to any
internal or external index. It will be entirely in your control.
[x] Frequency and Timing: The rate on this note may change
as often as QUARTERLY.
A change in the interest rate will take effect QUARTERLY COMMENCING
SEPTEMBER 1, 1994.
[ ] Limitations: During the term of this loan, the applicable annual
interest rate will not be more than _______% or less than __________%.
Effect of Variable Rate: A change in the interest rate will
have the following effect on the payments:
[x] The amount of each scheduled payment will change.
[x] The amount of the final payment will change.
[ ] ---------------------------------------------------.
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/360
basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance
of this note owing after maturity, and until paid in full, as
stated below:
[x] On the same fixed or variable rate basis in effect before maturity (as
indicated above).
[ ] at a rate equal to ________________________________.
[x] LATE CHARGE: If a payment is made more than 10 days after it
is due, I agree to pay a late charge of 10.000% OF THE LATE
PAYMENT WITH A MAXIMUM OF $30.00.
[ ] ADDITIONAL CHARGES: In addition to interest, I agree to pay
the following charges which [ ] are [ ] are not included in the
principal amount above:________________________________________.
PAYMENTS: I agree to pay this note as follows:
[x] Interest: I agree to pay accrued interest MONTHLY BEGINNING
JULY 24, 1994.
[x] Principal: I agree to pay the principal JUNE 24, 1995.
[ ] Installments: I agree to pay this note in ______ payments.
The first payment will be in the amount of $_____________________
and will be due ___________________. A payment of $_____________
will be due ________________________________ thereafter. The
final payment of the entire unpaid balance and interest will be
due ______________________________.
ADDITIONAL TERMS:
SIGNATURES: I AGREE TO THE TERMS OF THIS
NOTE (INCLUDING THOSE ON PAGE 2). I have
received a copy on today's date.
FOR THIS NOTICE "YOU" MEANS THE BORROWER.
WARNING: BY SIGNING THIS PAPER YOU GIVE
UP YOUR RIGHT TO NOTICE AND COURT TRIAL.
IF YOU DO NOT PAY ON TIME A COURT JUDGMENT
MAY BE TAKEN AGAINST YOU WITHOUT YOUR
PRIOR KNOWLEDGE AND THE POWERS OF A COURT
PURPOSE: The purpose of this CAN BE USED TO COLLECT FROM YOU REGARDLESS
loan is BUSINESS: ANNUAL OF ANY CLAIMS YOU MAY HAVE AGAINST THE
REVIEW-LINE USED FOR BUSINESS CREDITOR WHETHER FOR RETURNED GOODS,
INVEST. FAULTY GOODS, FAILURE ON HIS PART TO
COMPLY WITH THE AGREEMENT, OR ANY OTHER
CAUSE.
Signature for Lender /s/ Richard M. Osborne
RICHARD M. OSBORNE
/s/ Richard B. Wise
RICHARD B. WISE, PRESIDENT
APPLICABLE LAW: The law of the state of Ohio will govern this note. Any term of
this note which is contrary to applicable law will not be effective, unless the
law permits you and me to agree to such a variation. If any provision of this
agreement cannot be enforced according to its terms, this fact will not affect
the enforceability of the remainder of this agreement. No modification of this
agreement may be made without your express written consent. Time is of the
essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal. If
you and I agree to a different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST: If I receive the principal in more than one advance, each advance
will start to earn interest only when I receive the advance. The interest rate
in effect on this note at any given time will apply to the entire principal
advance at that time. Notwithstanding anything to the contrary, I do not agree
to pay and you do not intend to charge any rate of interst that is higher than
the maximum rate of interest you could charge under applicable law for the
extension of credit that is agreed to here (either before or after maturity).
If any notice of interest accrual is sent and is in error, we mutually agree to
correct it, and if you actually collect more interest than allowed by law and
this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the
rate on this note will be the same rate you charge on any other loans or class
of loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will
determine the number of days in a "year." If no accrual method is stated, then
you may use any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, then repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat
those payments made by you as advances and add them to the unpaid principal
under this note, or you may demand immediate payment of the charges. SET-OFF: I
agree that you may set off any amount due and payable under this note against
any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in
your possession for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total
amount of which you are entitled to demand payment under the terms of this note
at the time you set off. This total includes any balance the due date for which
you properly accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor occurs
because you set off this debt against any of my accounts. I agree to hold you
harmless from any such claims arising as a result of your exercise of your right
of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent
not prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) any collateral securing this
note is used in a manner or for a purpose which threatens confiscation by a
legal authority; (9) I change my name or assume an additional name without
first notifying you before making such a change; (10) I fail to plant,
cultivate and harvest crops in due season; (11) any loan proceeds are used for
a purpose that will contribute to excessive erosion of highly erodible land or
to the conversion of wetlands to produce an agricultural commodity, as further
explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other charges).
(2) You may set off this debt against any right I have to the payment of money
from you, subject to the terms of the "Set-Off" paragraph herein.
(3) You may demand security, additional security, or additional parties to be
obligated to pay this note as a condition for not using any other remedy.
(4) You may refuse to make advances to me or allow purchases on
credit by me.
(5) You may use any remedy you have under state or federal law. By selecting
any one or more of these remedies, you do not give up your right to later use
any other remedy. By waiving your right to declare an event to be a default, you
do not waive your right to later consider the event as a default if it continues
or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any fee you
incur with such attorney plus court costs (except where prohibited by law). To
the extent permitted by the United States Bankruptcy Code, I also agree to pay
the reasonable attorney's fees and costs you incur to collect this debt as
awarded by any court exercising jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you do to certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of dishonor).
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a
separate guarantee or endorsement). You may sue me alone, or anyone else who is
obligated on this note, or any number of us together, to collect this note. You
may do so without any notice that it has not been paid (notice of dishonor).
You may without notice release any party to this agreement without releasing
any other party. If you give up any of your rights, with or without notice, it
will not affect my duty to pay this note. Any extension of new credit to any of
us, or renewal of this note by all or less than all of us will not release me
from my duty to pay it. (Of course, you are entitled to only one payment in
full.) I agree that you may at your option extend this note or the debt
represented by this note, or any portion of the note or debt, from time to time
without limit or notice and for any term without affecting my liability for
payment of the note. I will not assign my obligation under this agreement
without your prior written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information
about me from time to time (for example, by requesting a credit report) and to
report to others your credit experience with me (such as a credit reporting
agency). I agree to provide you, upon request, any financial statement or
information you may deem necessary. I warrant that the financial statements and
information I provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail, addressed to me at my last
known address. My current address is on page 1. I agree to inform you in
writing of any change in my address. I will give any notice to you by mailing
it first class to your address stated on page 1 of this agreement, or to any
other address that you have designated.
CONFESSION OF JUDGMENT: In addition to your remedies listed herein, I authorize
any attorney to appear in a court of record and confess judgment, without
process, against me, in favor of you, for any sum unpaid and due on this note,
together with costs of suit.
EX-7.10
3
THE PROVIDENT BANK PROMISSORY NOTE
EXHIBIT 7.10
PROMISSORY NOTE
The Provident Bank NOTE NO. 1010200
$250,000.00 Cleveland, Ohio July 7, 1994
The undersigned, for value received, promises to pay to the order of The
Provident Bank, at any of its offices, the sum of Two Hundred Fifty Thousand and
00/100 Dollars ($250,000.00), (the
Maximum Credit ) or so much thereof as is loaned by the holder pursuant to the
provisions hereof, together with interest until demand or maturity at the rate
of at Provident Prime (currently 7 1\4%) per year computed on the basis of 1
year of 360 days for the actual number of days elapsed, and after default
hereunder, demand or maturity, whether at stated maturity or by acceleration, at
a rate four (4) percentage points greater than the stated rate (the Default Rate
). Interest shall be due and payable October 1, 1994, and quarterly, and at
maturity Principal shall be due and payable on Demand.
The undersigned hereby state(s) that the purpose of the loan evidenced by this
Note is _________________.
[X] Revolving Credit: If this box is checked, this Note is a revolving credit
subject to the terms of this paragraph. Subject to the conditions hereof and of
any other agreements between the parties relating hereto and until demand, if
the principal is payable on demand, or maturity (whether at scheduled or
accelerated maturity), if the principal is payable other than on demand, the
undersigned may borrow and reborrow from the holder and the holder may, in its
sole discretion, lend and relend to the undersigned such amounts not to exceed
the Maximum Credit as the undersigned may at any time and from time to time
request upon satisfactory notice to the holder.
Notwithstanding anything to the contrary contained herein or in any other
agreement between the undersigned and the holder, if this Note provides that the
principal hereof is payable on demand, then this note is a demand Note due and
owing immediately, without prior demand of the holder and immediate action to
enforce its payment may be taken at any time, without notice and without reason.
If any payment of principal or interest is not paid when due, or if the holder
deems itself insecure for any reason, including but not limited to, the
insolvency, bankruptcy, business failure, death, default in the payment of other
obligations or receivership of or concerning any maker, guarantor or endorser
hereof, this Note shall, if payable other than on demand, at the option of its
holder, become immediately due and payable, without demand or notice. The
undersigned shall promptly provide such financial information as the holder
shall reasonably request from time to time.
As collateral security for the payment of the amounts from time to time owing
hereunder, Borrower and all endorsers hereby grants to the holder a security
interest in (i) all property in which the holder now or hereafter holds a
security interest pursuant to any and all assignments, pledges and security
agreements between the undersigned and the holder and (ii) all accounts,
securities and properties now or hereafter in the possession of the holder and
in which the undersigned or any endorsers have any interest. Upon this Note
becoming due under any of its terms and provisions, and not being fully paid and
satisfied, the total sum than due hereunder may, at any time and from time to
time, be charged against any account or accounts maintained with the holder
hereof by any of the undersigned or any endorser, without notice to or further
consent from any of them, and the undersigned and all endorser agree to be and
remain jointly and severally liable for all remaining indebtedness represented
by this Note in excess of the amount or amounts so applied. The undersigned and
the holder intend that this indebtedness shall be secured by any and all
mortgages heretofore or hereafter granted by the undersigned in favor of the
holder.
There will be a minimum finance charge of $50.00 for each billing period. Prime
rate is that annual percentage rate of interest which is established by The
Provident bank from time to time as its prime rate, whether or not such rate is
publicly announced, and which provides a base to which loan rates may be
referenced. Prime rate is not necessarily the lowest landing rate of The
Provident bank. A rate based on the prime rate will change each time and as of
the date that the prime rate changes. If any payment of principal or interest is
not paid when due or if the undersigned shall otherwise default in the
performance of its obligations hereunder or under any other note or agreement
with the holder, the holder at its option, may charge and collect, or add to the
unpaid balance hereof, a late charge up to the greater of $250 or .1% of the
unpaid balance of this Note at the time of such delinquency for each such
delinquency to cover the extra expense incident to handling delinquent accounts,
and/or increase the interest rate on the unpaid balance to the Default Rate. The
holder may charge interest at the rate provided herein on all interest and other
amounts owing hereunder which are not paid when due.
The undersigned, all endorses hereof, any other party hereto, and any guarantor
hereof (collectively Obligors ) each (i) waive(s) presentment, demand, notice of
demand, protest, notice of protest and notice of dishonor and any other notice
required to be given by law in connection with the delivery, acceptance,
performance, default or enforcement of this Note, of any endorsement or guaranty
of this Note or of any document or instrument evidencing any security for
payment of this Note; and (ii) consent(s) to any and all delays, extensions,
renewals or other modifications of this Note or waivers of any term hereof or
release or discharge by the holder of any of Obligors or release, substitution
or exchange or any security for the payment hereof or the failure to act on the
part of the holder or any indulgence shown by the holder, from time to time and
in one or more instances, (without notice to or further assent from any of the
Obligors) and agree(s) that no such action, failure to act or failure to
exercise any right or remedy, on the part of the holder shall in any way affect
or impair the obligations of any Obligors or be construed as a waiver by the
holder of, or otherwise affect, any of the holder s rights under this Note,
under any endorsement or guaranty of this Note or under any document or
instrument evidencing any security for payment of this Note. The undersigned and
all endorsers further agree to reimburse the holder for all advances, charges,
costs and expenses, including reasonable attorneys fees, incurring or paid in
exercising any right, power or remedy conferred by this Note, or in the
enforcement thereof. If the undersigned are more than one (1), the liability of
the undersigned hereon is joint and several, and the term undersigned , as used
herein, means any one or more of them.
The undersigned and all endorsers authorize any attorney at law, including an
attorney engaged by the holder, to appear in any court of record in the State of
Ohio or any other State or Territory of the United States, after the
indebtedness evidenced hereby, or any part thereof, becomes due and waive the
issuance and service of process and confess judgment against any one or more
than one of the undersigned and all endorsers in favor of the holder, for the
amount then appearing due together with costs of suit and thereupon to release
all errors and waive all rights of appeal and stay of execution, but no such
judgment of judgments against any one of the undersigned shall be a bar to a
subsequent judgment or judgments against any one or more then of such persons
against whom judgment has not been obtained hereon. This warrant of attorney to
confess judgment is a joint and several warrant of attorney. The foregoing
warrant of attorney shall survive any judgment; and if any judgment be vacated
for any reason, the holder hereof nevertheless may hereafter use the foregoing
warrant of attorney to obtain an additional judgment or judgments against the
undersigned and all endorsers or any one or more of them. The undersigned and
all endorsers hereby expressly waive any conflict of interest that the holders'
attorney may have in confessing such judgment against such parties and expressly
consent to the confessing attorney receiving a legal fee from the holder for
confessing such judgment against such parties.
If the undersigned or any endorser or guarantor hereof would have the right to
rescind the loan evidenced by this Note pursuant to a right so to do under the
Truth-In-Lending Act because one or more mortgages now exist in favor of the
holder hereof covering the principal home or homes of the undersigned or any
endorser or guarantor hereof, the holder s acceptance of this Note shall
constitute a waiver of its right under any such mortgage to treat such principal
home or homes as security for the repayment or guaranty of this Note except for
the principal home or homes described in the Mortgage dated N/A.
THE PROVISIONS OF THIS NOTE SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF OHIO, AS A SPECIFICALLY BARGAINED INDUCEMENT FOR THE HOLDER TO
EXTEND CREDIT TO BORROWER, AND AFTER HAVING THE OPPORTUNITY TO CONSULT COUNSEL,
THE UNDERSIGNED AND ALL ENDORSERS HEREBY EXPRESSLY WAIVE THE RIGHT TO TRIAL BY
JURY IN ANY LAWSUIT OR PRECEDING RELATED TO THIS NOTE OR ARISING IN ANY WAY FROM
ANY INDEBTEDNESS OR OTHER TRANSACTIONS INVOLVING THE HOLDER AND THE UNDERSIGNED.
THE UNDERSIGNED HEREBY DESIGNATE(S) ALL COURTS OF RECORD SITTING IN CINCINNATI,
OHIO AND HAVING JURISDICTION OVER THE SUBJECT MATTER, STATE AND FEDERAL, AS
FORUMS WHERE ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING FROM OR OUT
OF THIS NOTE, ITS MAKING, VALIDITY OR PERFORMANCE, MAY BE PROSECUTED AS TO ALL
PARTIES, THEIR SUCCESSORS AND ASSIGNS, AND BY THE FOREGOING DESIGNATION THE
UNDERSIGNED CONSENT(S) TO THE JURISDICTION AND VENUE OF SUCH COURTS.
WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE, AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT
OR ANY OTHER CAUSE.
/s/ Richard M. Osborne
Richard M. Osborne
Address: 8635 East Avenue
Mentor, Ohio 44060
EX-7.11
4
FIRST NATIONAL BANK OF OHIO PROMISSORY NOTE
EXHIBIT 7.11
PROMISSORY NOTE
Principal Loan Maturity Loan No. Call Collateral Account Officer Initials
$1,500,000 Date 06-13-95 C1 8019583 JFN
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: RICHARD M. OSBORNE Lender: First National Bank of
7001 CENTER STREET Ohio
MENTOR, OHIO 44060 123 West Prospect Avenue
Cleveland, Ohio 44115
=================================================================
Principal Amount:$1,500,000.00 Initial Rate: 10.000% Date of Note: 3-15-95
PROMISE TO PAY, RICHARD M. OSBORNE ("Borrower") promises to pay to First
National Bank of Ohio ("Lender"), or order, in lawful money of the United States
of America, the principal amount of One Million Five Hundred Thousand & 00/100
Dollars ($1,500,000.00), together with Interest on the unpaid principal balance
from March 15, 1995, until paid in full.
PAYMENT, Borrower will pay this loan in one principal payment of $1,500,000.00
plus Interest on June 13, 1995. This payment due June 13, 1995, will be for all
principal and accrued interest not yet paid. In addition, Borrower will pay
regular monthly payments of all accrued unpaid Interest due as of each payment
date, beginning April 15, 1995, with all subsequent Interest payments to be due
on the same day of each month after that. Interest on this Note is computed on a
365/360 simple Interest basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at such
other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is Lender's Prime Rate (the
"Index"). This is the rate Lender charges, or would charge, on 90-day unsecured
loans to the most creditworthy corporate customers. This rate may or may not be
the lowest rate available from Lender at any given time. Lender will tell
Borrower the current Index rate upon Borrower's request. Borrower understands
that Lender may make loans based on other rates as well. The interest rate
change will not occur more often than each DAY AS PRIME CHANGES. The index
currently is 9.000% per annum. The interest rate to be applied to the unpaid
principal balance of this Note will be at a rate of 1.000 percentage point over
the Index, resulting in an initial rate of 10.000% per annum. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT PENALTY. Upon prepayment of this Note, Lender is entitled to the
following prepayment penalty: 1.00% of the original note balance if the loan is
paid off at any time during the first 36 months of principal and interest
payments. Except for the foregoing, Borrower may pay all or a portion of the
amount owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to make
payments under the payment schedule. Rather, they will reduce the principal
balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment or $35.00,
whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c)
Borrower defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower's property or
Borrower's ability to repay this Note or perform Borrower's obligations under
this Note or any of the Related Documents. (d) Any representation or statement
made or furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect. (e) Borrower dies or becomes insolvent, a
receiver is appointed for any part of Borrower's property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is commenced either
by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any
creditor tries to take any of Borrower's property on or in which Lender has a
lien or security interest. This includes a garnishment of any of Borrower's
accounts with Lender. (g) Any of the events described in this default section
occurs with respect to any guarantor of this Note. (h) Lender in good faith
deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Lender may hire or pay someone
else to help collect this Note if Borrower does not pay. Borrower also will pay
Lender that amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of Ohio. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of Cuyahoga County, the State of Ohio. Lender and Borrower hereby waive
the right to any jury trial in any action, proceeding, or counterclaim brought
by either Lender or Borrower against the other. This Note shall be governed by
and construed in accordance with the laws of the State of Ohio.
CONFESSION OF JUDGMENT. Borrower hereby irrevocably authorizes and empowers any
attorney-at-law to appear in any court of record and to confess judgment against
Borrower for the unpaid amount of this Note as evidenced by an affidavit signed
by an officer of Lender setting forth the amount then due, plus attorneys' fees
as provided in this Note, plus costs of suit, and to release all errors, and
waive all rights of appeal. If a copy of this Note, verified by an affidavit,
shall have been filed in the proceeding, it will not be necessary to file the
original as a warrant of attorney. Borrower waives the right to any stay of
execution and the benefit of all exemption laws now or hereafter in effect. No
single exercise of the foregoing warrant and power to confess judgment will be
deemed to exhaust the power, whether or not any such exercise shall be held by
any court to be invalid, voidable, or void; but the power will continue
undiminished and may be exercised from time to time as Lender may elect until
all amounts owing on this Note have been paid in full.
COLLATERAL. This Note is secured by a first mortgage on commercial real estate
located at 7060-62 Wayside Drive, Mentor, Ohio and 1522 Mentor Avenue,
Painesville, Ohio. This includes an Assignment of Rents on each property.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will
not affect the rest of the Note. In particular, this section means (among other
things) that borrower does not agree or intend to pay, and Lender does not agree
or intend to contract for, charge, collect, take, reserve or receive
(collectively referred to herein as "charge or collect"), any amount in the
nature of interest or in the nature of a fee for this loan, which would in any
way or event (including demand, prepayment, or acceleration) cause Lender to
charge or collect more for this loan than the maximum Lender would be permitted
to charge or collect by federal law or the law of the State of Ohio (as
applicable). Any such excess interest or unauthorized fee shall, instead of
anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when the principal has been paid in full, be refunded
to Borrower. Lender may delay or forgo enforcing any of its rights or remedies
under this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
NOTICE: FOR THIS NOTICE "YOU" MEANS THE BORROWER. WARNING: BY
SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN
AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A
COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS
YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS,
FAULTY GOODS, FAILURE ON CREDITOR'S PART TO COMPLY WITH the
AGREEMENT, OR ANY OTHER CAUSE.
BORROWER:
/s/ Richard M. Osborne
-----------------------
RICHARD M. OSBORNE
EX-7.12
5
FIRST AMENDED SUPPLEMENTAL COMPLAINT
EXHIBIT 7.12
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
FIRST UNION REAL ESTATE EQUITY ) CIVIL ACTION NO. 1:95CV0274
AND MORTGAGE INVESTMENTS, )
55 Public Square ) JUDGE LESLEY BROOKS WELLS
Suite 1900 )
Cleveland, Ohio 44113 )
)
Plaintiff, )
)
v. )
)
RICHARD M. OSBORNE, )
8635 East Avenue )
Mentor, Ohio 44060, )
) FIRST UNION'S FIRST AMENDED
and ) AND SUPPLEMENTAL COMPLAINT
) FOR INJUNCTIVE RELIEF,
THE WOLSTEIN GROUP ) DAMAGES, AND OTHER RELIEF
34555 Chagrin Blvd. )
Moreland Hills, Ohio 44022, )
)
and )
)
BERT WOLSTEIN )
32049 Fairmount Boulevard )
Cleveland, Ohio 44124-4821 )
)
and )
)
SCOTT WOLSTEIN )
32200 Chestnut Lane )
Cleveland, Ohio 44124-4328 )
)
and )
)
TURKEY VULTURE FUND XIII, LTD. )
8635 East Avenue )
Mentor, Ohio 44060 )
)
and )
)
HERITAGE CAPITAL CORPORATION )
c/o Mark P. Escaja, )
Registered Agent )
34555 Chagrin Blvd. )
Moreland Hills, Ohio 44022 )
)
and )
)
DEVELOPERS DIVERSIFIED REALTY )
CORPORATION c/o AGC Co., )
Registered Agent )
3200 National City Center )
Cleveland, Ohio 44114 )
)
and )
)
MARK P. ESCAJA )
35665 S. Huntington Drive )
Cleveland, Ohio 44139-3207 )
)
Defendants. )
For its First Amended and Supplemental Complaint against defendants Richard
M. Osborne, Bert Wolstein, Scott Wolstein, Turkey Vulture Fund XIII, Ltd.,
Developers Diversified Realty Corporation, Heritage Capital Corporation, The
Wolstein Group and Mark P. Escaja, plaintiff First Union Real Estate Equity and
Mortgage Investments ("First Union") states as follows 1:
---------------
1 The original Verified Complaint for Injunctive and Other Relief filed by
First Union at the inception of this action is incorporated herein by
reference.
NATURE OF ACTION
1. This is an action to enjoin defendants' continuing and threatened
violations of the securities laws of the United States, the common law and
statutory law of the State of Ohio and defendants' obligations under First
Union's Declaration of Trust, in connection with defendants' unlawful efforts to
seize control of First Union, a real estate investment trust. First Union also
seeks damages in the amount of at least $30 million to compensate it and its
shareholders for defendants' wrongdoing as set forth herein.
2. In furtherance of their own selfish interests, defendants have adopted,
and are now implementing, a strategy to seize control of First Union at a
bargain price, steal for themselves the premium inherent in First Union's stock,
and deprive First Union's numerous shareholders with small holdings of the
substantial long term benefits, tax and otherwise, of investment in a real
estate investment trust. Defendants have already taken, and, if not restrained,
will continue to take steps to cause First Union to cease to qualify as a real
estate investment trust under the Internal Revenue Code and to destroy First
Union's purpose of providing an investment vehicle for numerous shareholders
with small holdings.
3. To further their unlawful objectives defendants have made false and
misleading statements with respect to material facts in Schedules 13D and other
documents filed with the Securities and Exchange Commission ("SEC") in violation
of Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), as
amended, 15 U.S.C. SS 78m(d), and Rules 13d-1 and 13d-2 promulgated thereunder,
17 C.F.R. SS 240.13d-1 and 240.13d-2. In violation of these laws and regulations
defendants have utilized both market signal devices and proxy solicitation
devices to manipulate the market and mislead investors as to their true and
undisclosed intentions for First Union -- to buy control at a bargain price,
"de-REIT" the Trust, and merge it into another company or sell off its assets.
4. As part of their unlawful scheme, defendants have begun a proxy contest
to replace three trustees of First Union with three of their own nominees, none
of whom has the background and experience to serve in the positions for which
they are nominated, and all of whom are disqualified from serving as a trustee
under Section 8.10 of First Union's Declaration of Trust. Through their
solicitations, defendants have demonstrated a complete disregard for the federal
proxy rules. They have repeatedly issued press releases, made public filings,
and mailed proxy materials to First Union shareholders that are intentionally
false and designed to mislead shareholders in connection with their decision to
grant or withhold proxy authority from First Union management and solicit proxy
authority on behalf of their group, in contravention of Section 14(a) of the
Exchange Act, 15 U.S.C. SS 78n(a),and the rules and regulations promulgated
thereunder, and in contravention of the procedures proscribed therein.
5. Defendants have engaged in fraudulent, deceptive, and manipulative acts
and practices to keep down the market price for First Union shares and enable
them to buy a controlling position in the Trust at a bargain price, in violation
of Sections 10(b) and 14(e) of the Exchange Act, 15 U.S.C. SS 78j(b) and 78n(e),
and Rule 10b-5, 17 C.F.R.SS240.10b-5.
6. Defendants' efforts to seize control of First Union and deprive First
Union and its numerous shareholders of their ability to participate with other
small shareholders in their chosen investment vehicle of a real estate
investment trust constitute violations of First Union's Declaration of Trust to
which defendants are parties, the By-Laws of First Union by which defendants are
bound, and the implied duties of good faith and fair dealing defendants owe to
other First Union shareholders. First Union and its shareholders have been
damaged by defendants' unlawful actions in an amount believed to be in excess of
$30 million.
JURISDICTION AND VENUE
7. This Court has jurisdiction of the subject matter of this action
pursuant to Section 27 of the Exchange Act, 15 U.S.C.SS 78aa; 28 U.S.C.SS
1331(a); 28 U.S.C.SS 1332(a); and this Court's supplemental jurisdiction, 28
U.S.C.SS 1367. Venue is properly laid in this District by virtue of Section 27
of the Exchange Act, 15 U.S.C.SS 78aa, and 28 U.S.C.SS 1391(b).
PARTIES
8. Plaintiff First Union is an unincorporated business trust organized and
existing pursuant to the laws of Ohio and a Declaration of Trust dated August 1,
1961, as amended through July 25, 1986 (the "Declaration of Trust"). Since its
creation in 1961, First Union's principal place of business has been, and
remains, Cleveland, Ohio. The outstanding equity securities of First Union
consist of shares of beneficial interest, $1 par value (the "Shares"). The
Shares are publicly held and are registered pursuant to Section 12 of the
Exchange Act, 15 U.S.C.SS 781, and listed on the New York Stock Exchange.
9. Defendant Turkey Vulture Fund, XIII, Ltd. ("Turkey Vulture Fund" or
"Fund") is a limited liability company organized and existing under the laws of
the State of Ohio with its principal place of business in Mentor, Ohio. On
information and belief, Turkey Vulture Fund was organized in or about November,
1994 and has approximately 17 members.
10. Defendant Richard M. Osborne is a resident of Mentor, Ohio and is the
managing member of the Turkey Vulture Fund. He is also the Chairman and
President of OsAir Inc., a privately held Ohio corporation which, upon
information and belief, is affiliated with and/or has acted in concert with
Turkey Vulture Fund in connection with certain investment activities undertaken
by the Fund. On information and belief, Osborne is or has been a beneficiary
and/or trustee of OsAir Inc. Profit Sharing Trust.
11. Defendant Developers Diversified Realty Corporation ("Developers
Diversified"), a publicly-held real estate investment trust, is a corporation
organized and existing under the laws of the State of Ohio with its principal
place of business in Moreland Hills, Ohio.
12. Defendant Bert Wolstein is a resident of Cleveland,
Ohio and is Chairman of the Board of defendant Developers
Diversified.
13. Defendant Scott Wolstein, a resident of Cleveland, Ohio, is the son of
defendant Bert Wolstein and is the President and Chief Executive Officer of
defendant Developers Diversified.
14. Defendants Bert and Scott Wolstein, both together and separately, have
ownership and/or controlling interest in a number of partnerships, corporations,
and other entities which together constitute a group of companies referred to by
the Wolsteins and others as "The Wolstein Group." From time to time during the
period relevant herein, defendants Bert and Scott Wolstein have done business as
The Wolstein Group.
15. Defendant Heritage Capital Corporation is a corporation organized and
existing under the laws of the State of Ohio with its principal place of
business in Moreland Hills, Ohio. Heritage Capital Corporation is controlled by
defendants Bert and Scott Wolstein and is part of The Wolstein Group.
16. Defendant Mark P. Escaja is the Chief Financial Officer of Heritage
Capital Corporation and other companies operating under the aegis of The
Wolstein Group. Escaja is also authorized to make personal financial investments
for defendant Bert Wolstein.
17. In his capacity as Chief Financial Officer of Heritage Capital
Corporation and The Wolstein Group and/or in his capacity as investment agent
for defendant Bert Wolstein, defendant Mark P. Escaja was authorized to engage
in activities calculated to generate fee-related business and seek out and pull
together developments and joint ventures for Heritage Capital Corporation, The
Wolstein Group and/or Bert Wolstein.
FIRST UNION'S STATUS AS A REAL ESTATE
INVESTMENT TRUST ("REIT")
18. First Union was created in 1961 for the purpose of conducting business
as a real estate investment trust ("REIT"), as that term is defined in Section
856 of the Internal Revenue Code of 1986, as amended (the "Code"). Since its
creation First Union has continually operated in a manner to qualify as a REIT.
19. REITs are a product of federal tax policy and tax laws. Congress
authorized the creation of REITs in 1960 for the purpose of allowing small
investors, by investing in shares of a REIT, to enjoy the benefits of a
marketable interest in a professionally selected and managed portfolio of real
estate properties, without having the income generated by the REIT's properties
subject to federal income tax at the entity level. Congress thus sought, through
the REIT mechanism, to allow small investors to enjoy certain benefits
attributable to the ownership of substantial commercial properties which large
and more affluent investors enjoy from direct investment in real estate or
investment in real estate through other organizational structures.
20. In furtherance of the Congressional objective, the Code provides that
if a REIT derives at least 75 percent of its gross income from real estate
investments and distributes to its shareholders at least 95 percent of its
ordinary taxable income, the REIT is relieved from federal income taxes on its
ordinary income. The Code provides that a REIT will lose its special tax
treatment if it has fewer than 100 shareholders for more than 30 days in any
taxable year or if it satisfies the ownership test for a "personal holding
company," as defined in the Code, i.e., if more than 50 percent of the value of
its outstanding shares is owned directly or indirectly by five or fewer
individuals during the last half of the REIT's taxable year. To protect the
small investors to whom Congress intended to make available the benefits of REIT
status, it is crucial for a REIT to continue to qualify as such and to conduct
its affairs so as not to endanger its special tax treatment.
21. First Union exists pursuant to, and the conduct of its business and
affairs is governed by, the Declaration of Trust, a copy of which was filed as
an exhibit to First Union's original complaint. The Declaration of Trust is a
contract among First Union, the Board of Trustees, and First Union's
shareholders. Each shareholder of First Union is a party to the Declaration of
Trust and is bound by it.
22. In addition, the share certificate delivered to each shareholder
expressly states that by accepting the certificate the shareholder agrees to be
bound by all the terms and provisions of the Declaration of Trust. The form of
the share certificate, including its language, is specified in the By-Laws of
First Union.
23. The Declaration of Trust vests in First Union's Board of Trustees (the
"Trustees") the absolute and exclusive power and authority to manage the trust
and its affairs. Pursuant to the Declaration, the Trustees are responsible for
maintaining First Union's REIT status and for furthering First Union's express
purpose of providing an investment vehicle for numerous shareholders with small
holdings. Accordingly, the Declaration of Trust grants the Trustees broad powers
to preserve First Union's status as a REIT and its stated purpose, and thereby
preserve the rights and expectations of First Union's beneficiaries (i.e.,
shareholders).
24. To preserve First Union's status as a REIT, the Trustees are authorized
to actively monitor the ownership of First Union's Shares, and restrict or
regulate the issuance or transfer of Shares in such manner as the Trustees deem
advisable to prevent First Union's disqualification as a REIT.
25. Moreover, the Trustees and shareholders are specifically prohibited by
Section 11.19 of the Declaration of Trust from taking any action which would
prevent First Union from qualifying as a REIT or from destroying its stated
purpose. In particular, Section 11.19 provides in pertinent part:
No trustee and no Beneficiary [i.e., shareholder] shall take any
action which would cause the Trust to abandon its purpose of providing
an investment vehicle for numerous shareholders with small holdings or
which would, in the opinion of counsel for the Trust, furnished prior
to such action, prevent the Trust from qualifying or continuing to
qualify as a [REIT] under the Internal Revenue Code . . .
26. Section 11.19 of the Declaration of Trust likewise provides that no
shareholder shall have any power to control the Trustees or affairs of First
Union or to exercise any voting or approval powers if such powers would prevent
First Union from qualifying as a REIT.
27. The By-Laws of First Union (the "By-Laws") similarly reflect First
Union's fundamental interest in maintaining its status as a REIT. A copy of the
By-Laws is attached to the Declaration of Trust.
28. Section 5 of the By-Laws authorizes the Chief Executive Officer, with
the advice of counsel, to impose such restrictions on the transfer of Shares as
are deemed necessary to prevent First Union from being disqualified as a REIT.
29. Section 6 of the By-Laws provides that no person may own more than 9.8%
of the outstanding Shares of First Union; and, further, that no Shares or
convertible securities of First Union may be issued or transferred to any person
if, following such issuance or transfer, such person's ownership of Shares would
exceed 9.8% of the outstanding First Union Shares. The purpose of this provision
is to prevent the concentration of share holdings that would cause First Union
to lose its REIT status or to controvert the fundamental purpose of First Union
to provide numerous shareholders with small holdings an opportunity to invest in
a professionally managed real estate portfolio.
30. Subsection (b) of Section 6 of the By-Laws imposes substantial
restrictions upon Shares issued or transferred in violation of Section 6(a).
Section 6(b) specifically provides that if any Shares are issued or transferred
in violation of Section 6(a), such issuance or transfer shall be valid only with
respect to such amount of Shares or convertible securities as does not result in
a violation of Section 6(a), and shall be null and void as to the excess Shares
or convertible securities.
DEFENDANTS' UNLAWFUL ACTIVITIES
Osborne Begins to Purchase Significant
Quantities of First Union Shares
31. In or around August 2, 1994, Osborne began acquiring significant
quantities of First Union Shares in open market transactions. By January 10,
1995, Osborne had acquired approximately 906,000 Shares which represents just
under 5% of First Union's outstanding Shares. Nearly all of these Shares were
purchased by Osborne on margin through David Van Dusen ("Van Dusen"), Osborne's
broker at the offices of Kemper Securities, Inc. ("Kemper") in Willoughby, Ohio.
Osborne purchased the Shares in his own name and also on behalf of OsAir, Inc.
Profit Sharing Trust. OsAir, Inc. Profit Sharing Trust ultimately purchased
30,000 First Union Shares that were subsequently transferred to Turkey Vulture
Fund.
32. Also around August 1994, Osborne's broker, Van Dusen,
began acquiring First Union shares and recommending First Union
stock to other Kemper clients.
33. Also in 1994, Osborne's nephew, Jerry Osborne, III, began acquiring
Shares of First Union in open market transactions.
34. In or about the Fall of 1994, Osborne also
unsuccessfully solicited the brokerage firm of J. C. Bradford,
Inc. to warehouse First Union Shares for him.
35. This is not the first time defendant Osborne has been involved in an
effort to acquire a significant position in a public company. In fact, in the
past twelve (12) years or so Osborne has developed a pattern and practice of
acquiring large minority positions, in excess of 5%, in public companies;
publicly threatening the company's management to increase his position and
perhaps to acquire majority control; and then, after the stock has been put "in
play" and the market price of the stock has increased as a result of Osborne's
threats, either selling his shares back to the company or to another buyer at a
substantial profit for himself. On information and belief, within the past
twelve (12) years, Osborne has employed this practice on behalf of himself and
persons affiliated or acting in concert with him in connection with his
acquisition of shares in the following public companies: Broadview Financial
Corp., Horizon Financial Services, Inc., First American Bancorp, Park-Ohio
Industries and Cardinal Realty Services Inc. ("Cardinal Realty").
36. During the period Osborne was actively accumulating First Union Shares
he was also actively involved in the stock of two other public companies:
Cardinal Realty (a real estate company located in Columbus, Ohio) and Prudential
Realty Trust ("PruRealty") (another REIT located in New Jersey).
37. Osborne made several Schedule 13D filings on Cardinal Realty during the
period of January, 1994 to November, 1994. Osborne also filed several Schedules
13D on PruRealty during the period of November, 1994 to February, 1995. In
September, 1994, Osborne made a so-called "offer" to the board of Cardinal
Realty to acquire 51% of the company's outstanding stock. The board rejected the
offer out of hand because it was conditioned on financing, among other things.
Both the timing and publicity surrounding Osborne's offer suggest the offer was
a ploy to manipulate the market price.
38. Insignia Financial Group Inc. of Greenville, South
Carolina, and Colony Capital of California, also made
unsuccessful offers to Cardinal Realty's management during the
latter part of 1994.
39. Most of the Cardinal Realty stock Osborne purchased was purchased
through Van Dusen at Kemper. As he later did with respect to First Union stock,
Van Dusen purchased Cardinal Realty shares for his own account based in part on
the fact that Osborne was doing so.
Osborne Organizes the Turkey Vulture Fund
and Solicits Support for His Plans
40. In or about November of 1994, and perhaps earlier, while he was
actively accumulating shares in First Union and PruRealty, Osborne made the
decision to create a fund and solicit investors to assist him in acquiring a
controlling interest in, among other companies, First Union and PruRealty.
41. Osborne formally organized defendant Turkey Vulture Fund as an Ohio
limited liability company in November of 1994.
42. By the time Osborne organized the Fund, he had already accumulated a
significant minority position in First Union through various accounts at Kemper.
In order to obtain capital to accomplish his goals, Osborne began to solicit
sales of $100,000 membership interests in the Fund. During this time Osborne had
at least one discussion with defendant Escaja concerning the Fund.
43. On information and belief, Osborne, the Turkey Vulture Fund and/or
their affiliates made certain representations orally and in writing, through,
inter alia, providing copies of a Private Placement Memorandum dated November
22, 1994 (the "Private Placement Memorandum"), to potential members of the
Turkey Vulture Fund to induce these potential members to purchase membership
interests in the Turkey Vulture Fund.
44. In the Private Placement Memorandum, Osborne made the written
representation to potential members of the Turkey Vulture Fund that the Fund's
purpose and investment objective was to target publicly traded companies
selected by Osborne for a potential acquisition or other form of corporate
reorganization. Specifically, Osborne represented:
The primary investment objective of [the Fund] is to maximize the
appreciation of [the Fund's] assets by investing in securities,
primarily the common stock of publicly-traded entities, that the
Managing Director [i.e., Richard Osborne] believes (1) the market
has undervalued and (2) OFFER AN OPPORTUNITY FOR A TENDER OFFER,
MERGER, ASSET DISPOSITION OR OTHER FORM OF CORPORATE
REORGANIZATION whether by [the Fund] or a third party. To
increase the market value of the securities of such an entity (a
"Target Entity") [the Fund] may seek to accumulate a sufficient
number of shares in a Target Entity to control a Target Entity
and to affect (sic) the corporate reorganization. [The Fund] may
also seek to have the Managing Member or another affiliate of
[the Fund] appointed to the board of directors of the Target
Entity.
Turkey Vulture Fund Private Placement Memorandum at i (emphasis
added).
45. By the time the Fund was created, Osborne had determined that First
Union and PruRealty would be "Target Entities" of the Fund. In late December
1994, before most, if not all, members had signed up to join the Fund, Osborne
authorized the transfer of his First Union holdings to a new account set up for
the Fund by Kemper at Osborne's direction. Osborne's Kemper broker, Van Dusen,
was solicited to become a member of the Fund prior to this transfer and knew,
before he joined the Fund, that one of Osborne's targets was First Union.
46. Between November 1994 and early January 1995, Osborne actively
solicited a number of additional individuals and entities to become investors in
the Fund and participate with Osborne in acquiring control of First Union and
selling off its assets. On information and belief, Osborne, the Fund and/or
their affiliates advised potential investors and/or participants that First
Union was a company targeted by the Fund and that the Fund (through Osborne) had
already accumulated a substantial position in First Union.
47. To attract investors to the Fund and/or participants in Osborne's and
the Fund's plan for First Union, Osborne sought and obtained meetings with
several persons and/or entities prominent in the real estate industry, including
defendants Bert Wolstein, the Chairman of defendant Developers Diversified, and
Andrew Farkas, CEO, Chairman and President of Insignia Financial Group, a
publicly held company known for its acquisitive behavior.
48. Bert Wolstein and other members of the Wolstein family have had
personal and business relationships with members of the Osborne family for a
period of years. However, in this instance, to gain access to the Wolsteins and
Developers Diversified, Osborne used his previous relationship with defendant
Mark Escaja, the Chief Financial Officer of both The Wolstein Group and
defendant Heritage Capital Corporation. For ease of reference defendants Bert
Wolstein, Scott Wolstein, Heritage Capital, The Wolstein Group and Developers
Diversified are sometimes referred to collectively hereinafter as the "Wolstein
defendants."
49. Sometime in December of 1994, Escaja arranged for Osborne to meet Bert
Wolstein at Wolstein's offices. Defendant Scott Wolstein, President and Chief
Executive Officer of Developers Diversified, participated in at least part of
this meeting.
50. Escaja arranged this meeting, and engaged in other activities designed
to assist Osborne in connection with First Union, in his capacity as CFO of
Heritage Capital and/or The Wolstein Group and/or as an employee of Bert
Wolstein, Heritage Capital and/or The Wolstein Group. Escaja was specifically
authorized to engage in these and related activities by Bert Wolstein, Heritage
Capital and/or The Wolstein Group as part of his employment.
51. On information and belief, Osborne successfully solicited the Wolstein
defendants to participate as investors in First Union aligned with Osborne and
the Fund and/or to support Osborne and the Fund in their acquisition of control
of First Union by agreeing to warehouse or purchase First Union Shares or to
purchase First Union assets from the Fund once it accomplished its desired
takeover of First Union.
52. Shortly after this meeting, in or around January 13, 1995, defendant
Mark P. Escaja, knowing Osborne's and/or the Fund's intentions with respect to
First Union, and the likelihood that the Fund and/or Osborne would be filing a
Schedule 13D with the SEC within a few days, purchased 3,000 shares of First
Union. Escaja sold these shares at a profit in or about January 25, 1995.
53. Also in or around January 13, 1995, non-party James Schoff, an
associate of Escaja's, a general partner in several of The Wolstein Group
companies and Executive Vice President of Developers Diversified, purchased
3,000 shares of First Union. On information and belief, James Schoff made these
purchases after discussing with defendant Mark P. Escaja defendants' intentions
for First Union. James Schoff sold these shares at a profit in or about January
25, 1995.
54. Both Escaja and James Schoff purchased their shares of
First Union through non-party William Schoff, a broker with
Prudential Securities in Rochester, New York, who is James
Schoff's brother.
55. In or about January 13, 1995, William Schoff purchased 1,000 shares of
First Union. William Schoff sold these shares at a profit in or about January
25, 1995.
56. In addition to soliciting the support of the Wolstein defendants,
Osborne sought the support of non-party Andrew Farkas and his company, Insignia
Financial Group, which specializes in apartment properties. On information and
belief, Osborne wanted Farkas to invest in the Fund, purchase First Union
apartment properties during the intended breakup of First Union's portfolio, or
both.
57. In or around November of 1994, Osborne forwarded materials on First
Union and PruRealty to Farkas to solicit his opinion with respect to these
companies. Also, Osborne discussed First Union with Farkas in the latter part of
1994, because, according to Osborne, Farkas was a person "who liked to buy
undervalued assets."
58. At the same time Osborne had his contacts with Farkas, an agent for
Insignia was attempting on Farkas' behalf to arrange a meeting between Farkas
and James C. Mastandrea of First Union to discuss "common interests." Although
Insignia and Farkas refused to provide Mr. Mastandrea with the details of what
they wanted to discuss, they indicated that one idea might involve an exchange
of Insignia assets for First Union stock, and insisted that Mr. Mastandrea "owed
it to his shareholders" to meet with Insignia.
59. Also, at around this same time, representatives of Insignia were
meeting with representatives of Developers Diversified, including James Schoff.
60. In addition to the Wolsteins and Farkas, between late 1994 and the
present, Osborne has made contacts with a number of persons whom he has
described as investment bankers, appraisers, mortgage brokers and real estate
consultants, to assist him in evaluating and/or acquiring First Union and,
apparently, disposing of its assets.
61. In or around January 1995, for instance, Osborne made contact with
nonparty Gene Newman, a former First Union executive now affiliated with Sun
REIT, a REIT located in Florida. First Union has learned that when Newman left
First Union in April of 1994 he took with him confidential internal financial
information of First Union. During this period, Newman spoke with Osborne
several times about First Union and its portfolio and management and, in a
follow-up letter to Osborne dated February 2, 1995, wrote:
I agree with you that the company is very much under-valued and, given
the right management team, there is significant upside potential in
the company. If there is anything I can do to help you in achieving
your goals with this company, please feel free to give me a call.
62. Ultimately, Osborne retained non-party Daniel Merkel, a Cleveland real
estate consultant, and possibly others, to assist him in his plans for First
Union. First Union has been precluded from discovering the precise activities
Merkel has been performing on behalf of Osborne and the Fund because Merkel has
been instructed by Osborne's counsel not to respond to such inquiries.
63. As a result of these and other efforts, by the middle
of January 1995 Osborne had sold approximately sixteen interests
in the Fund. These sixteen interests resulted in approximately
$2.8 million in additional capital for Osborne and the Fund. The
persons and/or entities who signed up as members of the Fund
include, in addition to defendant Osborne: Robert E. Cseplo;
Dworken & Bernstein Co., LPA Profit Sharing Plan; David Gehrisch;
Mark Grossi; Marian Rose Nathan, Trustee; M.E. Osborne Corp.;
John C. Quagliata; Frank Regalbato; R-C Enterprises, a general
partnership of which Steven Calabrese is the general partner;
Royce Properties, Inc.; Svete, McGee & Carrabine Co.,L.P.A.
401(k) Profit Sharing Trust; Michael J. Toth; David L. Van Dusen,
Osborne's Kemper broker; Donald D. Smith; Carl J. Viviani; and
Thomas E. Wheeler (collectively, the "members" of the Fund).
64. At least two of these members (and perhaps more) are clients of
Osborne's broker, Van Dusen, and had also purchased First Union shares outside
of their membership in the Fund.
65. Additional ownership of Shares by Fund members outside of the Fund
includes: (1) approximately 24,000 Shares held by Fund member (and Osborne/Fund
broker) David Van Dusen; (2) approximately 17,000 Shares held by Fund member
John Quagliata; (3) approximately 4,000 Shares held by Fund member Frank
Regalbuto; (4) approximately 10,000 Shares held by Joseph Svete, whose profit
sharing trust is a member of the Fund; (5) approximately 5,000 Shares held by
Fund member Thomas Wheeler; and (6) approximately 17,000 Shares held by Steven
Calabrese and his partnership, Fund member R-C Enterprises.
66. With respect to this contemporaneous ownership of First Union Shares
outside of the Fund, Fund documents prohibit any member from selling, selling
short or covering short sales in the securities of any company in which the Fund
has a long position. Obviously, a Fund member could not comply with this
provision unless the Fund provided ongoing information to its members as to the
investments made on their behalf. These restrictions constitute an arrangement
and/or understanding among Osborne, the Fund and the Fund's members as to First
Union Shares which should have been, but were not disclosed in the Fund's public
filings.
67. Although he is not a member of Turkey Vulture Fund, Jerome Osborne,
III, Osborne's nephew, has attended several meetings on behalf of the Fund.
Jerome Osborne, III owns approximately 5,000 Shares of First Union outside of
Turkey Vulture Fund.
Osborne and Turkey Vulture Fund File Their
First materially False and Misleading Schedule 13D
68. Following their acquisition of a greater than 5% interest in First
Union, Turkey Vulture Fund and Osborne filed on January 17, 1995, a Schedule 13D
with the SEC ostensibly on behalf of Turkey Vulture Fund and delivered a copy of
the Schedule 13D to First Union.
69. The securities laws, and in particular Section 13(d)(1) of the Exchange
Act and regulations promulgated thereunder, require the filing of a Schedule 13D
by any person within ten days after acquiring, directly or indirectly,
beneficial ownership interest in five percent of certain classes of securities,
including the Shares issued by First Union.
70. A Schedule 13D must make certain disclosures, including: (1) the name
and background of the person acquiring the securities, including, inter alia,
whether or not, during the last five years, such person has been convicted in a
criminal proceeding; (2) the source and amount of funds or other consideration
used by the person to make the purchase; (3) the purpose of the acquisition of
the securities including a description of any "plans or proposals" which the
filing person has for the issuer which would relate to or result in, among other
things, a material change in the issuer's business, structure, or management;
(4) any contracts, arrangements, understandings or relationships which the
filing person has with respect to any securities of the issuer; and (5) the
total percentage interest of the filing person in the securities of the issuer.
71. The January 17, 1995 Schedule 13D does not disclose, and in fact
intentionally conceals, the Fund's primary investment objectives of taking over
and disposing of the Fund's "Target Entities" like First Union as identified in
the Fund's Private Placement Memorandum and related documents. The January 17,
1995 Schedule 13D falsely states that the purpose of the Turkey Vulture Fund's
acquisition of First Union's Shares is to "acquire a significant minority
interest in First Union for the purpose of investment" and also supplies a
boiler plate list of actions the filer might consider "in the future," including
various means of gaining control of First Union. The January 17, 1995 Schedule
13D falsely states that Turkey Vulture Fund and Osborne have no present plans to
pursue any of the outlined "plans or proposals," and falsely represents that
"[n]either the Fund nor [Osborne] has any current plans to make material changes
in the business and/or corporate structure of First Union."
72. In addition, the Exchange Act and regulations promulgated thereunder,
and applicable law, require (1) that the Schedule 13D disclose whether the
filing person is part of a "group" for purposes of acquiring, holding or
disposing of shares of the issuer, as the term "group" is defined in the
statute, regulations and applicable law; (2) that separate disclosures be made
as to each member of the "group," including the disclosure of each group
member's identity and background, source of funds, purpose for acquiring an
interest in the securities of the issuer, ownership interest in the securities
of the issuer, and contracts, arrangements, understandings or relationships with
respect to the securities of the issuer; and (3) that each group member make
separate disclosures of information concerning the group. The securities laws
further require that any additional information relevant to the initial Schedule
13D, or which alters the initial disclosures, must be promptly provided by
amending the Schedule 13D.
73. The Schedule 13D filed by Turkey Vulture Fund on January 17, 1995,
identifies Turkey Vulture Fund as an Ohio limited liability company of which
defendant Osborne is the "managing member," and states that Turkey Vulture Fund
and Osborne, and only those persons, are the beneficial owners of approximately
five percent of the shares of First Union.
74. The January 17, 1995 Schedule 13D fails to disclose the true ownership
and identities of the members of the Turkey Vulture Fund as required by
applicable regulation, 17 C.F.R.
240.13(d)-101, Instruction C.
75. The January 17, 1995 Schedule 13D fails to disclose that the Fund is a
part of a larger group including, but not limited to, the other defendants
herein and, in fact, expressly and impliedly represents that Turkey Vulture Fund
and Osborne are acting solely for the benefit of Turkey Vulture Fund and no
other person or entity in acquiring Shares of First Union. As such, it is false
and/or materially misleading.
76. The January 17, 1995 Schedule 13D fails to disclose the required
background information with respect to the individual members of the Turkey
Vulture Fund, including, but not limited to, whether, during the last five
years, any member of the Turkey Vulture Fund has been convicted in a criminal
proceeding.
77. On information and belief, Robert E. Cseplo, a member of the Turkey
Vulture Fund and the president and sole shareholder of Kimco Products, Inc., was
convicted in 1994 of willfully underreporting income on his wholly owned
corporation's federal income tax return (a violation of 26 U.S.C. SS 7206(1))
and of willfully attempting to evade individual income taxes by preparing and
signing a return that failed to report the receipt of sums skimmed from the
corporation (a violation of 26 U.S.C. SS 7201). This information was not
disclosed in the January 17, 1995 Schedule 13D.
78. The January 17, 1995 Schedule 13D fails to disclose that the Operating
Agreement of Turkey Vulture Fund expressly allows the individual Members of the
Turkey Vulture Fund to hold for their own account securities of the same issuer
and same class as securities held by the Turkey Vulture Fund; that certain
members of the Turkey Vulture Fund own Shares of First Union outside of the
Fund; and the number of shares of First Union that certain members of the Turkey
Vulture Fund hold outside of the Turkey Vulture Fund.
79. The January 17, 1995 Schedule 13D fails to disclose any and all
contracts, arrangements, understandings or relationships (legal or otherwise)
among defendants, their affiliates and/or third parties with respect to First
Union.
80. The January 17, 1995 Schedule 13D fails to disclose that certain
members of Osborne's family own or control First Union Shares outside of Turkey
Vulture Fund.
Escaja Unwittingly Reveals the Secret Scheme
81. The secret and illegal scheme of Turkey Vulture Fund,
Osborne and the other defendants first became known to First Union when, on
January 30, 1995, First Union received a written response from defendant
Heritage Capital Corporation, by and through Heritage's Chief Financial Officer,
defendant Escaja, to a blind Wall Street Journal advertisement which First Union
had placed in early January of 1995, prior to the filing of the original Turkey
Vulture Fund Schedule 13D.
82. The Wall Street Journal advertisement (which did not identify First
Union as its source) expressed interest in and sought information on a possible
friendly merger or acquisition by First Union of a REIT meeting certain
requirements. A copy of Heritage Capital Corporation's written response, dated
January 24, 1995, to First Union's advertisement, and the advertisement, were
attached to First Union's original complaint.
83. In its response to the Wall Street Journal advertisement, Heritage
Capital represented that its "group is currently in the process of acquiring a
majority interest in a publicly held REIT that fits the criteria of your
advertisement." The letter did not identify the REIT.
84. Upon receipt of Heritage Capital's response on January 30, 1995, a
First Union representative contacted defendant Escaja by telephone to discuss
Heritage Capital's January 24, 1995 response letter. The First Union
representative, Richard Merel, identified himself to Escaja as a representative
of the party that placed the blind Wall Street Journal ad.
85. In the initial telephone conversation with Escaja and in subsequent
telephone conversations on the same day, defendant Escaja told the First Union
representative that his "group" was interested in acquiring two publicly-held
REITs, PruRealty and First Union. Through this conversation with Escaja, First
Union became aware for the first time that such a group existed; that the group
had accumulated 10 to 12 percent ownership interest in First Union within the
last 90 to 120 days; that it had targeted First Union for acquisition; and that
the group had already made Schedule 13D filings on First Union under the name
"Turkey Vulture Fund."
86. Defendant Escaja also informed the First Union representative that the
group he represented had approximately $8 to $12 million already invested and
had access to additional funds for acquisition. Escaja further stated that the
members of his group currently control Developers Diversified Realty, which he
described as a REIT which they had brought public approximately two years ago.
87. Defendant Escaja also told the First Union representative that the
group's intention was to acquire a majority interest in First Union; sell off
the portfolio of properties to other companies including other publicly held
REITs; and use the remaining "shell" of First Union as a vehicle for other
transactions. Defendant Escaja also stated that the group had done its
"homework" on First Union and believed that now was the time to move, and that
the group was interested in finding another party who could match, dollar for
dollar, the amount necessary to obtain control of First Union. Escaja also
indicated that, based on their research, First Union had approximately $100
million in equity and that the First Union Shares were currently trading between
$8.00 to $8.50 a Share. He stated that his group believed the breakup value of
First Union was between $15.00 and $18.00 a Share, which would mean
approximately a $25 million windfall profit for the group.
88. Defendant Escaja stated that the group was interested in pursuing a
"friendly" takeover of First Union but would consider other options if a
friendly deal was not possible. Defendant Escaja also stated that his group has
made several unsuccessful attempts to contact First Union within the past weeks
but that one of its members was scheduled to meet with First Union's management
at 4:00 p.m. on Friday, February 3, 1995.
89. Although defendant Escaja declined to name all members of the group, he
affirmed that defendants Turkey Vulture Fund, and persons associated with
Heritage Capital and Developers Diversified Realty are all part of the group
seeking to obtain control of First Union and that the group also included
several other individuals. On information and belief, other members of the group
which is seeking to seize control of First Union and/or participate in the
bust-up style takeover include, but are not limited to, all current and past
members of the Turkey Vulture Fund; the Wolstein defendants; Escaja; Osborne;
and nonparties Steven Calabrese, David Van Dusen and James Webb. The group
described by Escaja and comprising defendants and others named herein, among
others, is sometimes hereinafter referred to collectively as the "Turkey Vulture
Group."
90. In or about February 1, 1995, the day after his telephone conversations
with Richard Merel, defendant Mark P. Escaja purchased an additional 1,000
shares of First Union. Escaja sold these shares on February 6, 1995, after the
filing of this lawsuit on February 3, 1995.
Osborne and Turkey Vulture Fund
File a Second False and
Materially Misleading Schedule 13D
91. In or about February 3, 1995 First Union initiated this action in the
United States District Court for the Northern District of Ohio.
92. In or about February 10, 1995 Osborne and Turkey Vulture Fund filed an
amendment to the January 17, 1995 Schedule 13D (the "Amended Schedule 13D") with
the SEC, and delivered a copy to First Union.
93. The Amended Schedule 13D totally and utterly fails to correct the
material deficiencies in the January 17, 1995 Schedule 13D. The Amended Schedule
13D likewise contains new misrepresentations of material facts and new omissions
of material facts with respect to defendants and their plans and
intentions for First Union.
94. The Amended Schedule 13D identifies Turkey Vulture Fund as an Ohio
limited liability company of which Osborne is the "managing member," and states
Turkey Vulture Fund and Osborne, and only those persons, are the beneficial
owners of approximately 5.2 percent of the shares of First Union. The Amended
Schedule 13D intentionally conceals the fact that the Fund and Osborne are part
of a larger group which includes the other defendants and whose goal and
intention is to take over First Union and sell off its assets to group members
and their affiliates.
95. The Amended Schedule 13D fails to disclose the true
ownership and identities of the members of the Fund as required
by applicable regulation, 17 C.F.R. 240.13(d)-101, Instruction C.
96. The Amended Schedule 13D fails to disclose the required background
information with respect to the individual members of the Turkey Vulture Fund,
including, but not limited to whether or not, during the last five years, any
member of the Turkey Vulture Fund has been convicted in a criminal proceeding.
97. The Amended Schedule 13D fails to disclose Robert E. Cseplo's 1994
conviction for underreporting corporate income on his wholly owned corporation's
federal income tax return and willfully attempting to evade individual income
taxes by preparing and signing a false return.
98. The Amended Schedule 13D fails to disclose that the Operating Agreement
of Turkey Vulture Fund expressly allows the individual members of the Turkey
Vulture Fund to hold for their own account securities of the same issuer and
same class as securities held by the Turkey Vulture Fund; that certain members
of the Turkey Vulture Fund own Shares of First Union outside of the Fund; and
the number of Shares of First Union that certain members of the Turkey Vulture
Fund hold outside of the Turkey Vulture Fund.
99. The Amended Schedule 13D fails to disclose that certain members of
Osborne's family own or control First Union Shares outside of Turkey Vulture
Fund.
100. The Amended Schedule 13D fails to disclose that Osborne and/or Turkey
Vulture Fund have hired several consultants and have sought out investment
bankers to assist in their efforts to take-over First Union and dispose of its
assets.
101. The Amended Schedule 13D fails to disclose any and all contracts,
arrangements, understandings or relationships (legal or otherwise) among
defendants, their affiliates and/or third parties with respect to First Union.
102. The Amended Schedule 13D neither confirms nor disavows certain of the
statements in the January 17, 1995 Schedule 13D concerning certain actions
Osborne and Turkey Vulture Fund may take in the future with regard to First
Union. As a result, the Amended Schedule 13D is ambiguous and inherently
misleading.
103. In fact, the Amended Schedule 13D was not filed in order to disclose
additional or updated information, but rather as part of Osborne and the Fund's
efforts to solicit proxies from First Union's shareholders without conforming
with the federal proxy rules. To this end, the Amended Schedule 13D states that
"[Richard M. Osborne] intends to seek representation on the board of trustees of
First Union and [to] propose a slate of trustees in opposition to the slate to
be proposed by First Union in connection with First Union's upcoming annual
meeting."
104. The Amended Schedule 13D contains numerous additional statements and
contentions that are neither required nor contemplated by Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. These
statements are clearly an attempt to solicit both the sympathies and proxies of
First Union shareholders without conforming to the requirements of Section 14(a)
of the Exchange Act and the rules and regulations promulgated thereunder and are
thus in violation of Section 14(a) and its rules and regulations.
Osborne and Turkey Vulture Fund
Attempt to Purchase Three Seats on
First Union's Board of Trustees
105. First Union is a publicly traded real estate investment
trust. Pursuant to Section 8.2 of First Union's Amended
Declaration of Trust and applicable law, First Union's Trustees
are elected by First Union's shareholders.
106. In a press release dated February 15, 1995 Osborne and Turkey Vulture
Fund attempted to purchase three seats on First Union's Board of Trustees.
107. In the February 15, 1995 press release, defendants Osborne and Turkey
Vulture Fund offered to pay James Mastandrea, First Union's President, Chief
Executive Officer and Trustee one million dollars, ostensibly from Osborne's
personal funds, in exchange for Mr. Mastandrea's resignation. Osborne and Turkey
Vulture Fund linked the one million dollar payment to Mr. Mastandrea to the
resignation of Mr. Mastandrea, Kenneth K. Chalmers and Daniel G. DeVos from
First Union's Board of Trustees. In their place, and in exchange for the one
million dollar payment to Mr. Mastandrea, defendant Richard M. Osborne and two
persons he identified as "Cleveland-based real estate experts" would be elected
or nominated to the board. One of these persons is Steven Calabrese, whose
partnership (R-C Enterprises) is a Fund member. The other is James Webb.
108. Osborne and the Fund characterized the February 15, 1995 press release
as an effort to efficiently resolve the within action. In reality, the press
release was another publicity stunt designed to solicit the proxies of First
Union shareholders by means of materially false and misleading statements in
violation of, among other things, Section 14(a) of the Exchange Act and the
rules and regulations promulgated thereunder.
109. Mr. Mastandrea rejected Osborne and the Fund's "offer"
immediately and identified it as the bribe it was obviously
intended to be.
Osborne and Turkey Vulture Fund, aka
"The Committee To Unlock The Value Of
First Union Real Estate Investments,"
Distribute an Illegal, Misleading Proxy Solicitation.
110. Osborne and the Fund's efforts to improperly gain representation on
First Union's Board of Trustees intensified on March 1, 1995 when the Fund,
calling itself "The Committee To Unlock The Value of First Union Real Estate
Investments," mailed what it labelled as "An Important Message From The
Committee To Unlock The Value of First Union Real Estate Investments" to various
Cleveland area newspapers, and, on information and belief, to some First Union
shareholders. The so-called Committee had not at the time of this mailing filed
any proxy materials with the SEC or the New York Stock Exchange, in violation of
Rule 14a-6 of the Exchange Act.
111. What Turkey Vulture Fund labelled "An Important Message From The
Committee To Unlock The Value Of First Union Real Estate Investments" was
actually a solicitation of proxies by Osborne and the Turkey Vulture Fund.
Accordingly, the March 1, 1995 letter headed "An Important Message From The
Committee To Unlock The Value Of First Union Real Estate Investments" is
hereinafter referred to as the "Proxy Solicitation."
112. Osborne and the Turkey Vulture Fund distributed the Proxy Solicitation
to the Cleveland area newspapers in an effort to solicit proxies and otherwise
disseminate Osborne and the Fund's "message" to First Union shareholders and the
investing public.
113. Osborne and the Turkey Vulture Fund distributed the Proxy Solicitation
without contemporaneously furnishing the recipients a copy of either a
preliminary or definitive proxy statement as required by the Exchange Act and
the rules and regulations promulgated thereunder, including Rule 14a-3(a).
114. The Proxy Solicitation is inherently misleading in that
it contains numerous misstatements and omissions of material
facts.
115. For example, the Proxy Solicitation fails to identify the relationship
between the so-called "Committee To Unlock The Value Of First Union Real Estate
Investments" and the Fund and fails to disclose, and indeed continues to
misrepresent, the Fund, Osborne, and/or the Committee's true intentions with
respect to First Union. In fact, the Proxy Solicitation does not even mention
the Fund.
116. Moreover, the Proxy Solicitation fails to comply with the requirements
of SEC Rule 14 as to form and presentation and fails to disclose any of the
information required by Regulation 14A with respect to the background of the
proposed nominees.
Osborne and Turkey Vulture Fund File Their
Third Materially False and Misleading Schedule 13D
117. Also on or about March 1, 1995, Osborne and Turkey Vulture Fund filed
a second amendment to the January 17, 1995 Schedule 13D (the "Second Amended
Schedule 13D") with the SEC and delivered a copy to First Union.
118. The Second Amended Schedule 13D discloses certain information that
should have been, but was not, disclosed in the January 17, 1995 Schedule 13D
and the Amended Schedule 13D. The Second Amended Schedule 13D nevertheless fails
to correct other material deficiencies in the January 17, 1995 Schedule 13D and
the Amended Schedule 13D and contains new misrepresentations and omissions of
material facts with respect to defendants and their plans and intentions for
First Union.
119. The Second Amended Schedule 13D identifies Turkey Vulture Fund as an
Ohio limited liability company of which Osborne is the "managing member," and
states Turkey Vulture Fund and Osborne, and only those persons, are the
beneficial owners of approximately 5.3 percent of the Shares of First Union. The
Second Amended Schedule 13D fails to disclose, and in fact intentionally
conceals, the fact that the Fund and Osborne are part of a larger group which
includes the other defendants and whose goal and intention is to take over First
Union and sell off its assets to group members and their affiliates. It also
fails to disclose that the express purpose of the Fund is to take over and
effect major corporate reorganizations of "Target Entities."
120. The Second Amended Schedule 13D identifies, for the first time,
certain members of the Turkey Vulture Fund. The Second Amended Schedule 13D
fails to disclose, however, the required background information with respect to
the individual members of the Turkey Vulture Fund, including, but not limited
to, whether or not, during the last five years, any member of the Turkey Vulture
Fund has been convicted in a criminal proceeding.
121. The Second Amended Schedule 13D partially discloses the provisions of
the Operating Agreement of Turkey Vulture Fund, and admits, for the first time,
that certain members of Turkey Vulture Fund or their affiliates, own Shares of
First Union outside of Turkey Vulture Fund. The Second Amended Schedule 13D
fails to disclose, however, which members of Turkey Vulture Fund or their
affiliates own Shares of First Union outside of Turkey Vulture Fund; how many
shares are owned by each of these individual members and/or their affiliates;
and when these individual members or affiliates purchased Shares of First Union
outside of Turkey Vulture Fund.
122. The Second Amended Schedule 13D fails to disclose that certain members
of Osborne' family who are not members of Turkey Vulture Fund and are not
otherwise identified in the Second Amended Schedule 13D own or control First
Union Shares outside of Turkey Vulture Fund.
123. The Second Amended Schedule 13D fails to disclose that Osborne and/or
Turkey Vulture Fund have hired several consultants and have sought out
investment bankers to assist in their efforts to take control of First Union and
dispose of its assets.
124. The Second Amended Schedule 13D fails to disclose any and all
contracts, arrangements, understandings or relationships (legal or otherwise)
among defendants, their affiliates and/or third parties with respect to First
Union.
125. The Second Amended Schedule 13D neither confirms nor disavows certain
of the statements in the January 17, 1995 Schedule 13D and the Amended Schedule
13D concerning actions Osborne and Turkey Vulture Fund may take in the future
with regard to First Union. As a result, the Second Amended Schedule 13D is
ambiguous and inherently misleading.
126. In addition, the Second Amended Schedule 13D again contains
superfluous material which was included to further Osborne and the Fund's
ongoing efforts to solicit proxies and which is violative of Section 14(a) of
the Exchange Act and the rules and regulations promulgated thereunder.
Osborne and The Fund File Their Fourth
Materially False and Misleading Schedule 13D
127. On or about March 13, 1995, Osborne and the Fund filed a third
amendment to the January 17, 1995 Schedule 13D (the "Third Amended Schedule
13D"), with the SEC and delivered copies to First Union.
128. The Third Amended Schedule 13D fails to correct material deficiencies
in the other three Schedules 13D previously filed by Osborne and the Fund. The
Third Amended Schedule 13D likewise contains new misrepresentations and
omissions of material fact with respect to defendants and their plans and
intentions for First Union.
129. The Third Amended Schedule 13D identifies the Fund as an Ohio limited
liability company of which Osborne is the "managing member" and states that the
Fund and Osborne, and only those persons, are beneficial owners of approximately
9.3% of First Union's Shares. The Third Amended Schedule 13D fails to disclose,
and indeed intentionally conceals, the fact that Osborne and the Fund are part
of a larger group which includes the other defendants and whose purpose and
intention is to take over First Union and sell off its assets to group members
and their affiliates. It also fails to disclose that the express purpose of the
Fund is to target publicly held companies for acquisition and/or corporate
reorganization.
130. In addition, the Third Amended Schedule 13D once again fails to
disclose any and all arragnements, understandings and/or relationships (legal or
otherwise) among Osborne, the Fund, the other defendants and their affiliates
(among others).
131. Also, on information and belief, the Third Amended Schedule 13D fails
to accurately disclose the source of funds used to acquire First Union Shares
and, in particular, the funds used to acquire a 725,000 Share block on March 10,
1995. The Third Amended Schedule 13D recites that $2.9 million of the funds used
to acquire this block:
[w]ill be from working capital of the Fund .... The working capital of
Fund will be contributed by [Osborne] and the other members of the
Fund. The exact proportions of such contributions have not been
finally determined.
On information and belief, this description of the source of funds is false and
misleading because the Fund does not have any working capital whatsoever, and
thus the Third Amended Schedule 13D fails to explain the source of the $2.9
million in non-margin debt used by Osborne and the Fund to purchase the 725,000
Share block on March 10, 1995.
132. The Third Amended Schedule 13D also continues Osborne's and the Fund's
improper and unlawful practice of including superfluous information in the
Schedule 13D not called for by Section 13(d) and the rules and regulations
promulgated thereunder in order to further their proxy solicitation efforts. The
inclusion of this superfluous information is violative of Section 14(a) and the
rules and regulations promulgated thereunder.
Osborne and The Fund File Materially False
and Misleading Proxy Materials with the SEC
and Disseminate Materially False and Misleading
Information to First Union Shareholders and
the Investing Public in Connection with Their
Proxy Contest for Three Seats on First Union's Board
133. Beginning on or about March 3, 1995, Osborne and the Fund, under the
guise of their "Committee to Unlock the Value of First Union Real Estate
Investments," filed their preliminary Proxy Statement and subsequent amendments
with the SEC as required by Section 14(a) of the Exchange Act and the rules and
regulations promulgated thereunder including Schedule 14A.
134. On or about March 17, 1995, Osborne and the Fund, again under the
guise of their "Committee to Unlock the Value of First Union Real Estate
Investments," filed their definitive Proxy Statement with the SEC as required by
Section 14(a) of the Exchange Act and the rules and regulations promulgated
thereunder including Schedule 14A.
135. Beginning on or about March 17, 1995, the Proxy Statement of Osborne
and the Fund, again under the guise of their so-called "Committee," was
distributed to First Union shareholders along with a second letter from the
"Committee" addressed to "Dear Fellow First Union Real Estate Investments
Shareholder."
136. Osborne and the Fund's preliminary Proxy Statement, definitive Proxy
Statement, Proxy Statement and the second letter to First Union's shareholders
all contain numerous false and misleading statements of material fact, as well
as omissions of material fact, which were all made in order to further Osborne's
and the Fund's ongoing efforts to seize control of First Union and sell off its
assets to group members and their affiliates. The numerous material
misstatements and omissions in the Proxy Statement of Osborne and the Fund and
in the letter to shareholders are intentional and designed to deceive First
Union shareholders and the investing public, and include, but are not limited
to, the following:
a. The Proxy Statement fails to disclose that Osborne's and the
Fund's true intention for First Union is to take control of the
Company and sell off its assets to other Turkey Vulture Group
members and their affiliates in a bust-up style takeover;
b. The Proxy Statement misrepresents that Osborne's and the Fund's
intention for First Union is to "salvage and then revive the
Company," when in actuality the intention of Osborne and the Fund
and their affiliates is to seize control of First Union and sell
off its assets in order to earn a profit for themselves;
c. The Proxy Statement misrepresents that the Fund
was formed to "acquire, hold, sell or otherwise
invest in all types of securities and other
instruments," and fails to disclose, and in fact
intentionally conceals, that the express objective
of the Fund is to target publicly held companies
selected by Osborne for a "tender offer, merger,
asset disposition or other form of corporate
reorganization whether by the [Fund] or a third
party; "
d. The Proxy Statement fails to disclose that the so called
"Committee" is in actuality Osborne and at least two other
individuals hand-picked by Osborne whose purpose and goal is to
further the illegal and unlawful purposes of Osborne, the Fund
and the other defendants;
e. The Proxy Statement falsely states that the "Committee" has the
right to vote certain Shares when in fact the "Committee" does
not own or have the right to vote any First Union Shares, and
only one of the Committee members owns Shares;
f. The Proxy Statement falsely represents that the
three nominees of the "Committee" -- James Webb,
Steven Calabrese and Osborne -- will be able to
assume seats on First Union's board if elected
when, in fact, they are barred from doing so by
the conflict of interest provision in Section 8.10
of First Union's Declaration of Trust because
Osborne owns, directly or indirectly, more than 1
% of the shares of at least one other REIT, i.e.,
PruRealty, and more than 1% of the shares of
another real estate company that competes with
First Union;
g. The Proxy Statement falsely represents that the
Committee's nominees have "substantial commercial
real estate . . . experience in investing,
managing and analyzing real estate in a profitable
manner," when in fact they have little or no
experience in doing so or in doing so with large
commercial and residential properties;
h. The Proxy Statement falsely implies that the
Committee's nominees will take certain action if
elected -- such as, for example, termination of
the Rights Agreement and termination of the
provision in Section 6 of First Union's By-Laws
prohibiting any person from owning more than 9.8%
of the Shares--when in fact such action can only
be taken by a majority or more of Trustees and/or
a vote of the shareholders of First Union; and
i. The Proxy Statement misrepresents that the total
decline in the trading price of First Union's
Shares since 1987 is the responsibility of current
management and, in their effort to capitalize on
this misrepresentation, falsely represents in a
chart on page 4 of the Proxy Statement that Mr.
Mastandrea joined First Union in mid-1992, when in
fact he did not join the Company until July of
1993.
137. The second letter to First Union shareholders from the so-called
"Committee" distributed on or about March 17, 1995 includes many of the same
misstatements and omissions of material fact as the Proxy Statement, which are
identified above in paragraph 136, and contains additional misstatements and
omissions of material fact including, but not limited, the following:
a. The letter falsely states that the "Committee" will "maintain REIT
status" when, in fact, Osborne, the Fund and their affiliates already
are planning to break-up the Company and sell off its assets;
b. The letter falsely represents that the "Committee" will "evaluate the
possibility" of merging First Union with another REIT when, on
information and belief, Osborne, the Fund and their affiliates already
have plans to do so as part of their goal to break-up First Union and
dispose of its assets;
c. The letter falsely implies that all three "Committee" members are
shareholders of First Union when neither the Committee nor Mr. Webb
owns a single First Union Share, and the only Shares owned by Osborne
are those held by the Fund;
d. The letter falsely states that the stock price of First
Union is in the midst of a "steady decline" when, in
fact, the stock price has risen since September of
1994; and
e. The letter falsely represents that Mr. Mastandrea's
employment contract includes a provision that "may
force" First Union to exchange real estate owned by Mr.
Mastandrea for First Union Shares when, in fact, the
contract merely requires First Union to "consider" such
an exchange if the properties are offered to the Trust
by Mastandrea and then only on terms "agreeable" to
First Union.
First Union is Without an Adequate
Remedy at Law to Stop Defendants' Unlawful Conduct
138. The Turkey Vulture Group and each defendant member thereof have the
present intention and common objective to seize control of First Union, deprive
it of its REIT status and its stated purpose of providing an investment vehicle
for numerous shareholders with small holdings, sell off First Union's assets,
capture for themselves the premium inherent in the difference between the
current trading price of the Shares and the fair market value of its underlying
properties, and cause other severe and irreparable harm to First Union and its
shareholders.
139. The Turkey Vulture Group and each defendant member thereof have, by
use of the mails and other means and/or instrumentalities of interstate
commerce, been engaged in and are continuing to engage in unlawful concerted
action to accomplish their secret objective of seizing control of First Union
without complying with the disclosure requirements of federal and Ohio
securities laws.
140. As part of this unlawful and concerted conduct, the Turkey Vulture
Group and each defendant member thereof are intentionally attempting to conceal
their present intentions and plans from First Union, First Union's shareholders,
the SEC and the investing public by, among other things, filing a false and
materially misleading Schedule 13D and subsequent amendments thereto which
blatantly misrepresent the intention of the Turkey Vulture Group and each
defendant member thereof, failing to disclose the existence of the Turkey
Vulture Group and the identity of its members, and otherwise misleading and
defrauding First Union, its shareholders and the investing public.
141. As a further part of defendants' unlawful and concerted action,
Osborne and the Fund are attempting to seek representation on First Union's
board and in doing so are engaged in a campaign of intentional distortion,
misrepresentation and fraud which includes the dissemination of materially false
and misleading press releases and the filing with the SEC, and dissemination to
the public, of proxy statements, proxy solicitations and other materials that
are materially false and misleading and are intentionally designed to deceive
First Union's shareholders and the investing public.
142. Defendants have purposefully timed their purchases of First Union
Shares, their public statements regarding First Union and their proxy
solicitation efforts to damage First Union by disrupting and interfering with
its annual meeting, scheduled for April 11, 1995.
143. As a direct and proximate result of the unlawful conduct of
defendants, First Union and its shareholders are suffering, and will continue to
suffer, unless defendants' unlawful conduct is enjoined by this Court, severe
and irreparable harm, which includes but is not limited to, the imminent loss of
its REIT status and the destruction of its stated purpose of providing an
investment vehicle for numerous shareholders with small holdings, and the
distraction of First Union management from implementing its strategic plan. In
addition, the investing public has made, and is continuing to make, decisions to
buy and sell First Union securities in the market on the basis of the false and
misleading information disseminated by defendants, including defendants'
Schedules 13D and defendants' failures to disclose their true status, the true
extent of their holdings in First Union, and their plans and proposals for it.
Moreover, First Union shareholders are being forced to make decisions on whether
to provide or withhold proxy authority from First Union management based on
Osborne and the Fund's false and misleading proxy solicitations, proxy statement
and other materials.
144. First Union is without an adequate remedy at law to
remedy these harms.
COUNT I
145. First Union incorporates herein by reference each and every allegation
contained in paragraphs 1 through 144 above as if fully rewritten herein.
146. Defendants have violated and continue to violate Section 13(d) of the
Exchange Act and rules and regulations promulgated thereunder in at least the
following respects, among others:
(a) Defendants have filed, caused to be filed on their
behalf, or participated in the filing of a Schedule 13D
and subsequent amendments thereto which, at the time
filed, were false and misleading with respect to
material facts, and which omitted to state material
facts necessary in order to make the statements therein
not false or misleading, in at least the respects
detailed above and including, but not limited to:
(i) the January 17, 1995 Schedule 13D and each subsequent
amendment thereto failed to disclose defendants' plan and
intention to seize control of First Union and sell off
its assets;
(ii) the January 17, 1995 Schedule 13D and each subsequent
amendment thereto failed to disclose defendants' intention
to cause First Union to lose its REIT status under the
Internal Revenue Code;
(iii) the January 17, 1995 Schedule 13D and each subsequent
amendment thereto failed to disclose the true source of the
funds used to acquire the First Union Shares that were the
subject of each respective filing;
(iv) the January 17, 1995 Schedule 13D and each subsequent
amendment thereto failed to fully and accurately disclose
any and all provisions in the Operating Agreement of Turkey
Vulture Fund relating to contracts, arrangements,
understandings or relationships among the members of Turkey
Vulture Fund;
(v) the January 17, 1995 Schedule 13D and each
subsequent amendment thereto failed to
disclose all contracts, arrangements and
understandings regarding First Union between
and among certain members of the Turkey
Vulture Fund who own Shares of First Union
outside of the Turkey Vulture Fund, the Fund,
Osborne, certain members of Osborne's family
who own Shares outside of the Fund and
members of the Turkey Vulture Group;
(vi) the January 17, 1995 Schedule 13D and each subsequent
amendment thereto failed to disclose the existence of the
Turkey Vulture Group, its true intentions and the identity
of its members;
(vii) the January 17, 1995 Schedule 13D and each subsequent
amendment thereto failed to disclose the true extent of the
Turkey Vulture Group's holdings in First Union;
(viii) the January 17, 1995 Schedule 13D and each subsequent
amendment thereto failed to disclose any and all contracts,
arrangements, understandings and/or relationships (legal or
otherwise) among defendants, their affiliates and/or third
parties with respect to First Union;
(ix) the amendments to the January 17, 1995 Schedule 13D neither
confirm nor disavow certain of the statements in the January
17, 1995 Schedule 13D concerning certain actions Osborne and
Turkey Vulture Fund may take in the future with regard to
First Union; and
(b) Defendants have failed to file the required
Schedule 13D identifying themselves as part of the Turkey Vulture Group and
disclosing their intention to seize control of First Union, all with the intent
and purpose of frustrating the purposes of Section 13(d) and defrauding First
Union, First Union's shareholders and the investing public.
147. First Union and its shareholders have been and will continue to be
irreparably harmed by, and have no adequate remedy at law for, said violations.
COUNT II
148. First Union incorporates by reference each and every allegation
contained in paragraphs 1 through 147 above as if fully rewritten herein.
149. The entire course of conduct engaged in by defendants with respect to
First Union, and in particular, the filing of the false and misleading January
17, 1995 Schedule 13D by or on behalf of defendants, was designed to have the
effect, and will likely have the effect, of signaling to sophisticated market
arbitrageurs defendants' secret and undisclosed intentions to seize control of
First Union and/or to put First Union "in play."
150. Defendants' actions in sending such a signal, which they know and
intend will be understood only by sophisticated market arbitrageurs, constitutes
the commencement of a tender offer by defendants for First Union's Shares within
the meaning of Section 14(d) of the Exchange Act and the rules and regulations
promulgated thereunder, thus requiring defendants to comply with the reporting
and other requirements of Section 14(d) and applicable rules and regulations.
151. Defendants have intentionally and knowingly failed to comply with the
requirements of Section 14(d) and rules and regulations promulgated thereunder
and, in particular, have failed, among other things, to disclose their true
intentions with respect to First Union as discussed herein, to disclose their
identities, to disclose the extent of their holdings, to disclose material
financial information regarding their offer, request and/or invitation for
tender of First Union's securities, to disclose their intention to "de-REIT"
First Union and cause its shareholders to lose the tax advantages of owning
shares of a REIT, and to otherwise provide shareholders with any true and
accurate information to evaluate defendants' tender offer.
152. First Union and its shareholders have been and will continue to be
irreparably harmed by, and have no adequate remedy at law for, said violations.
COUNT III
153. First Union incorporates by reference each and every allegation
contained in paragraphs 1 through 152 above as if fully rewritten herein.
154. The entire course of conduct engaged in by defendants with respect to
First Union and defendants' purchases of First Union securities and intended
further acquisitions of such securities were intended to and did manipulate the
trading market for First Union securities. In said course of conduct defendants,
by use of the mails and other means and/or instrumentalities of interstate
commerce, have engaged in fraudulent, deceptive and manipulative acts and
practices as described herein in violation of Sections 10(b) and 14(e) of the
Exchange Act and SEC Rule 10(b)-5.
155. First Union and its shareholders have been and will continue to be
irreparably harmed by, and have no adequate remedy at law for, said violations.
COUNT IV
156. First Union incorporates by reference each and every allegation
contained in Paragraphs 1 through 155 above as if fully rewritten herein.
157. The entire course of conduct engaged in by defendants with respect to
First Union, their purchases of First Union securities and their attempted
acquisition of control of First Union is in violation of Ohio Revised Code SS
1707.041, which requires that an offeror make certain required disclosures and
file certain financial and other information with the Ohio Division of
Securities upon commencement of a tender offer.
158. The Turkey Vulture Group and the individual defendant members thereof
are offerors within the meaning of this provision and, accordingly, defendants'
failure to make the appropriate filings and disclosures violates this provision
of Ohio law.
159. First Union and its shareholders have been and will continue to be
irreparably harmed by, and have no adequate remedy at law for, said violations.
COUNT V
160. First Union incorporates by reference each and every allegation
contained in paragraphs 1 through 159 above as if fully rewritten herein.
161. Defendants' purchases of First Union securities, without publicly
disclosing their intent to obtain control of First Union or otherwise make a
"full, fair and effective" disclosure of that intent, violates Section 1707.041
of the Ohio Revised Code. Defendants' tender offer follows such unlawful
purchases by less than one year, and, therefore, violates Section 1707.041 of
the Ohio Revised Code.
162. First Union and its shareholders have been and will continue to be
irreparably harmed by, and have no adequate remedy at law for, said violations.
COUNT VI
163. First Union incorporates by reference each and every allegation
contained in paragraphs 1 through 162 above as if fully rewritten herein.
164. The entire course of conduct engaged in by defendants with respect to
First Union, their purchases of First Union securities and their attempted
acquisition of control of First Union is and will continue to be in violation of
the Declaration of Trust to which defendant shareholders and First Union are
parties and by which defendant shareholders are bound. Defendants' conduct also
violates their obligations of good faith and fair dealing to other First Union
shareholders because said course of conduct endangers the qualification of First
Union as a REIT and will ultimately result in First Union's loss of REIT status,
and ignores First Union's stated purpose of providing an investment vehicle for
numerous shareholders with small holdings, all to the substantial detriment of
First Union and its shareholders.
165. As a result of defendants' actions, First Union and its shareholders
have suffered damages including, but not limited to, the following:
(a) Loss of the long-term growth opportunities First
Union is designed to achieve for its shareholders;
(b) Waste of the financial and human resources of the Trust,
including, but not limited to, the diversion of management from
the implementation of First Union's Strategic Plan;
(c) Loss to shareholders of the future tax benefits
First Union shareholders would have received as
investors in a REIT;
(d) Damage to the credibility and business reputation
of First Union and its management; and
(e) Loss of business opportunities for the Trust,
currently and in the future.
166. First Union and its shareholders have been and will continue to be
harmed and suffer damages as a result of defendants' actions in an amount to be
proven at trial, but which is expected to exceed $30 million.
COUNT VII
167. First Union incorporates by reference each and every allegation
contained in paragraphs 1 through 166 above as if fully rewritten herein.
168. Defendants intend to and will acquire or transfer First Union
securities in violation of First Union's By-Laws, including the By-Law provision
prohibiting any person from owning more than 9.8% of First Union's outstanding
Shares, unless the court enforces and enjoins defendants from violating the
By-Laws.
169. First Union and its shareholders have been and will continue to be
irreparably harmed by, and have no adequate remedy at law for, said violations
of the By-Laws by defendants.
COUNT VIII
170. First Union incorporates by reference each and every allegation
contained in paragraphs 1 through 169 above as if fully rewritten herein.
171. As described herein, defendants and certain other nonparty purchasers
of First Union Shares have violated and continue to violate Section 14(e) of the
Exchange Act and the rules and regulations promulgated thereunder in at least
the following respects, among others:
(a) After commencing, and/or taking a substantial step
or steps to commence a tender offer for First
Union's Shares, defendants violated Rule 14e-3(a)
by purchasing or selling, or causing to be
purchased or sold, Shares of First Union while in
possession of material, non-public information
relating to such tender offer, which information
defendants knew or had reason to know was acquired
directly or indirectly from defendant Turkey
Vulture Fund or a member, employee or other person
acting on behalf of defendant Turkey Vulture Fund;
and
(b) After commencing, and/or taking a substantial step
or steps to commence a tender offer for Shares of
First Union, defendants violated Rule 14e-3(d) by
communicating material, non-public information
relating to such offer to defendants and/or
unidentified non-parties in bad faith, under
circumstances in which it was reasonably
foreseeable that such communication would likely
result in a violation of Rule 14e-3(a).
172. First Union, its shareholders, and the investing public have been and
will continue to be irreparably harmed by, and have no adequate remedy at law
for, defendants' violations of Section 14(e) of the Exchange Act and the rules
and regulations promulgated thereunder.
COUNT IX
173. First Union incorporates by reference each and every allegation
contained in paragraph 1 through 172 above as if fully rewritten herein.
174. On or about February 10, 1995, March 1, 1995, and March 13, 1995
defendants filed amendments to the January 17, 1995 Schedule 13D. The January
17, 1995 Schedule 13D and the amendments thereto included solicitation material
not required by Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder.
175. The inclusion of solicitation material not required by Section 13(d)
of the Exchange Act and the rules and regulations promulgated thereunder
constituted a public solicitation of proxies by defendants in violation of
Section 14(a) of the Exchange Act and the rules and regulations promulgated
thereunder.
176. In addition, defendants have issued and/or caused to be issued several
press releases and other statements, including, but not limited to, the February
15, 1995 press release and the March 1, 1995 press release referred to above,
each of which was an unlawful "solicitation" (as such term is defined by Rule
14a-1(1)), in further violation of Section 14(a) of the Exchange Act and the
rules and regulations promulgated thereunder.
177. In addition, defendants have filed with the SEC and/or disseminated to
First Union shareholders and the investing public, by use of the mails and/or
other means and instrumentalities of interstate commerce, proxy statements and
other solicitation materials, described herein, that include numerous false and
misleading statements of material fact and which are intentionally designed to
deceive First Union shareholders and the investing public, all in violation of
Section 14(a) of the Exchange Act and the rules and regulations promulgated
thereunder.
178. The January 17, 1995 Schedule 13D and the amendments thereto, the
proxy statements and other solicitation materials, and the press releases and
other statements referred to herein violated Section 14(a) of the Exchange Act
and the rules and regulations promulgated thereunder in at least the following
respects, among others:
(a) Defendants failed to furnish each person solicited with a
publicly filed preliminary or definitive written proxy statement
prior to or contemporaneous with their solicitation of proxies
therefrom in violation of Rule 14a-3;
(b) The proxy materials furnished by defendants, the January 17,1995
Schedule 13D and the amendments thereto, and the press releases
and other statements referred to above failed to comply with the
requirements of Rule 14a-5 as to form and presentation of
information;
(c) The form of proxy sent or given to shareholders
did not comply with requirements of Rule 14a-4;
(d) The proxy materials furnished by defendants, the January 17,1995
Schedule 13D and the amendments thereto, and the press releases
and other statements referred to above were not timely and
properly filed with the SEC as required by Rules 14a-6 and
14a-11; and
(e) The proxy materials furnished by defendants, the
January 17,1995 Schedule 13D and the amendments
thereto, and the press releases and other
statements referred to above, at the time and in
the light of the circumstances under which they
were made, were false or misleading with respect
to material facts or omitted facts necessary in
order to make the statements therein not false or
misleading, all in violation of Rule 14a-9.
179. First Union, its shareholders, and the investing public have been and
will continue to be irreparably harmed by, and have no adequate remedy at law
for, defendants' violations of Section 14(a) of the Exchange Act and the rules
and regulations promulgated thereunder.
COUNT X
180. First Union incorporates by reference each and every allegation
contained in paragraph 1 through 179 above as if fully rewritten herein.
181. By virtue of their direct or indirect control over defendant Mark P.
Escaja, defendants Bert Wolstein, Scott Wolstein, Heritage Capital and/or The
Wolstein Group are jointly and severally liable under Section 20(a) of the
Exchange Act for the violations of the federal securities laws by defendant Mark
P. Escaja as stated herein, with and to the same extent as defendant Mark P.
Escaja.
182. First Union and its shareholders have been, and will continue to be
irreparably harmed by, and have no adequate remedy at law for, said violations.
COUNT XI
183. First Union incorporates by reference each and every allegation
contained in paragraph 1 through 182 above as if fully rewritten herein.
184. Defendant Mark P. Escaja is an employee of defendants
Bert Wolstein, The Wolstein Group and Heritage Capital
Corporation. Escaja is likewise the Chief Financial Officer of
defendants The Wolstein Group and Heritage Capital Corporation.
185. Escaja was acting within the scope of his authority as an agent and
employee of Bert Wolstein, The Wolstein Group and Heritage Capital Corporation,
and/or as the Chief Financial Officer of The Wolstein Group and/or Heritage
Capital Corporation at all times relevant to this action.
186. Under the doctrine of respondeat superior and or principal/agent
theory, defendants Heritage Capital Corporation, The Wolstein Group and/or Bert
Wolstein are jointly and severally liable for the securities law violations and
other wrongful conduct of defendant Mark P. Escaja as stated herein.
187. First Union and its shareholders have been, and will continue to be
irreparably harmed by, and have no adequate remedy at law for, said violations.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays:
A. That a preliminary injunction be issued pending final
determination of this cause:
1. Enjoining defendants, their officers, agents, servants, employees,
and attorneys, and those persons in active concert or participation with them
who receive actual notice of such order, from:
(a) acquiring or attempting to acquire any additional
First Union securities;
(b) voting or otherwise exercising any rights of
ownership of the First Union securities which they
have acquired;
(c) exercising, directly or indirectly, any influence upon the Board
or management of First Union or otherwise using or attempting to
use defendants' ownership position in First Union as a means of
controlling or affecting the Board or management of First Union;
(d) taking or attempting to take any other action in
furtherance of their strategy to seize control of
First Union;
(e) violating and breaching their obligations under the Declaration
of Trust and the First Union By-Laws and their obligations of
good faith and fair dealing to other First Union shareholders;
and
(f) soliciting proxies and otherwise communicating with First Union
shareholders in violation of Section 14(a) of the Exchange Act
and the rules and regulations promulgated thereunder.
2. Ordering defendants promptly to amend the January 17, 1995 Schedule 13D
and amendments thereto and their proxy materials to correct the false and
misleading statements contained therein and to state all facts necessary to make
the statements contained therein not false or misleading, and ordering all
defendants to file Schedules 13D and amended proxy materials fully disclosing
their involvement in the Turkey Vulture Group and the true intentions of the
Turkey Vulture Group toward First Union.
B. That upon final determination of this cause said
preliminary injunction be made permanent.
C. That upon final determination of this cause the Court issue an order
requiring defendants to divest themselves of all interests they own or otherwise
have in First Union securities.
D. That upon final determination of this cause the Court issue an order
requiring defendants to offer to rescind their purchases of First Union
securities to the extent defendants are able to determine from whom they
purchased such First Union securities.
E. That defendants be ordered to pay First Union damages as
a consequence of their conduct in an amount to be proven at trial
but no less than $30 million.
F. That the Court grant plaintiff its costs herein and such
other and further relief as may be just and proper.
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Frances Floriano Goins (0018631) Daniel L.
Brockett (0060128) Timothy F. Sweeney (0040027)
Roger Gold (0055905) SQUIRE, SANDERS & DEMPSEY
4900 Society Center 127 Public Square Cleveland,
Ohio 44114-1304
Attorneys for Plaintiff First Union
Real Estate Equity and Mortgage
Investments