<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Captec Net Lease Realty, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
]
CAPTEC NET LEASE REALTY, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
Notice is hereby given that the Annual Meeting of Stockholders of Captec
Net Lease Realty, Inc. will be held at The Ritz-Carlton Hotel, Dearborn,
Michigan on Thursday, June 3, 1999, at 10:00 a.m., Eastern time, for the
following purposes:
1. To elect nine directors, each to serve until the next annual
meeting of the stockholders and until his successor has been duly elected
and qualified;
2. To receive reports at the meeting. No action constituting approval
or disapproval of the matters referred to in said reports is contemplated;
and
3. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on April 30, 1999,
will be entitled to notice of and to vote at the meeting or any adjournment
thereof. Stockholders are urged to complete, date and sign the enclosed proxy
and return it in the enclosed envelope. The principal address of Captec Net
Lease Realty, Inc. is 24 Frank Lloyd Wright Drive, P.O. Box 544, Ann Arbor, MI
48106-0544.
By order of the Board of Directors,
/s/ W. Ross Martin
W. ROSS MARTIN
Executive Vice President and
Chief Financial Officer
Dated: April 30, 1999
YOUR VOTE IS IMPORTANT.
PLEASE SIGN, DATE AND RETURN YOUR PROXY.
<PAGE> 3
CAPTEC NET LEASE REALTY, INC.
PROXY STATEMENT
------------------------
This proxy statement is furnished in connection with the solicitation of
proxies to be used at the Annual Meeting of Stockholders (the "Annual Meeting")
of Captec Net Lease Realty, Inc., a Delaware corporation (the "Company"), to be
held at The Ritz-Carlton Hotel, Dearborn, Michigan on Thursday, June 3, 1999, at
10:00 a.m., Eastern time, and at any adjournment thereof. This proxy statement
and the accompanying notice and proxy will first be sent to stockholders by mail
on or about May 6, 1999.
Annual Report. Copies of the Company's Annual Report to Stockholders for
the fiscal year ended December 31, 1998 are enclosed.
Solicitation and Revocation of Proxies. This solicitation of proxies is
made by and on behalf of the Board of Directors. The cost of the solicitation of
proxies will be borne by the Company. In addition to solicitation of proxies by
mail, employees of the Company or its affiliates may solicit proxies by
telephone or facsimile.
If the enclosed proxy is signed and returned, the shares represented
thereby will be voted in accordance with any specification made therein by the
stockholder. In the absence of any such specification, the shares will be voted
to elect the director nominees set forth under "Election of Directors" below. A
stockholder's presence at the meeting, without more, will not operate to revoke
the proxy. The proxy is revocable by the stockholder at any time to the extent
not yet exercised by giving notice to the Company in writing at its address
indicated on the attached Notice of Annual Meeting of Stockholders or at the
Annual Meeting.
Outstanding Shares. The close of business on April 30, 1999, has been fixed
as the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting. On that date, the Company's issued and
outstanding voting securities consisted of 9,508,108 shares of common stock, par
value $.01 per share (the "Common Stock"), each of which is entitled to one vote
at the Annual Meeting.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 1, 1999, by: (a) the Company's
directors (all of whom are also nominees for director); (b) each other person
who is known by the Company to own beneficially more than 5.0% of the
outstanding shares of the Common Stock; (c) each of the Company's executive
officers; and (d) the Company's executive officers and directors as a group.
Unless otherwise stated, the following beneficial owners have sole voting power
and sole investment power of all shares of Common Stock set forth opposite their
names.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
---------------- --------------------- --------
<S> <C> <C>
Patrick L. Beach(2)......................................... 619,850 6.5%
W. Ross Martin(3)........................................... 308,628 3.2
H. Reid Sherard(4).......................................... 67,639 *
Ronald Max(5)............................................... 16,667 *
Richard J. Peters(6)........................................ 8,800 *
Creed L. Ford, III(6)....................................... 3,500 *
William H. Krul, II(6)...................................... 3,500 *
Lee C. Howley(6)............................................ 15,500 *
Albert T. Adams............................................. 5,000 *
William J. Chadwick(7)...................................... 4,000 *
The Public Institution For Social Security.................. 527,778 5.6
Boston Partners Asset Management L.P.(8).................... 480,000 5.0
Mutual Management Corp.(9).................................. 480,000 5.0
Solomon Smith Barney Holdings, Inc.(9)...................... 511,200 5.4
Marsh & McLennan Companies, Inc.(10)........................ 496,374 5.2
All Executive Officers and Directors as a Group............. 1,053,084 11.1%
</TABLE>
- -------------------------
* Less than 1.0%.
(1) Excludes shares of the Common Stock subject to options which are not
exercisable within 60 days.
(2) Includes options exercisable within 60 days to purchase 133,334 shares of
Common Stock issued pursuant to the Captec Net Lease Realty, Inc. Long Term
Incentive Plan (the "Long-Term Incentive Plan") and 250 shares of Common
Stock owned beneficially by Mr. Beach.
(3) Includes options exercisable within 60 days to purchase 66,667 shares of
Common Stock issued pursuant to the Long-Term Incentive Plan and 675 shares
of Common Stock owned beneficially by Mr. Martin.
(4) Includes options exercisable within 60 days to purchase 33,333 shares of
Common Stock issued pursuant to the Long-Term Incentive Plan and 500 shares
of Common Stock owned beneficially by Mr. Sherard.
(5) Includes options exercisable within 60 days to purchase 16,667 shares of
Common Stock issued pursuant to the Long-Term Incentive Plan.
(6) Includes options exercisable within 60 days to purchase 2,500 shares of
Common Stock issued pursuant to the Long-Term Incentive Plan.
(7) Owned beneficially by Mr. Chadwick.
(8) According to a Schedule 13G dated February 9, 1998, filed with the United
States Securities and Exchange Commission (the "Commission"), Boston
Partners Asset Management, L.P. ("BPAM"), an investment advisory firm,
beneficially owns 480,000 shares of the Common Stock. BPAM disclosed in its
Schedule 13G that (i) it has shared dispositive and voting power for all
480,000 shares of the Common Stock with Boston Partners, Inc. ("Boston
Partners"), the sole general partner of BPAM and Desmond John Heathwood, the
principal stockholder of Boston Partners; and (ii) each of BPAM, Boston
Partners and Mr. Heathwood may be deemed to own beneficially all 480,000
shares of the Common Stock. BPAM
2
<PAGE> 5
also disclosed in its Schedule that it holds all 480,000 shares of the
Common Stock under management for its clients, none of whom owns more than
5.0% of the Common Stock.
(9) According to a Schedule 13G/A dated January 22, 1999, filed with the
Commission, Mutual Management Corp. ("MMC"), an investment advisory firm,
beneficially owned 480,000 shares of the Common Stock. MMC disclosed in its
Schedule 13G/A that it has shared dispositive and voting power for all
480,000 shares of the Common Stock with Salomon Smith Barney Holdings Inc.
("SSB"), the sole stockholder of MMC and Citigroup Inc. ("Citigroup"), the
sole stockholder of SSB. SSB and Citigroup disclosed in their Schedule
13G/A that they each have shared dispositive and voting power for 511,200
shares of Common Stock. MMC may be deemed to own beneficially 480,000
shares of the Common Stock, and SSB and Citibank may be deemed to own
beneficially 511,200 shares of the Common Stock.
(10) According to a Schedule 13G/A dated February 4, 1999, filed with the
Commission by Marsh & McLennan Companies, Inc. a holding company, its
wholly owned subsidiary Putnam Investments, Inc. ("PII") and PII's wholly
owned subsidiaries The Putnam Advisory Company, Inc. ("PAC") and Putnam
Investment Management, Inc. ("PIMI") and the Putnam Capital Appreciation
Fund ("PCAF") in the aggregate beneficially own shares of the Common Stock
as follows: (i) PII -- 496,374 shares (shared voting power -- 10,674
shares, shared dispositive power -- 496,374 shares); (ii) PIMI -- 485,700
shares (shared dispositive power -- 485,700 shares); (iii) PAC -- 10,674
shares (shared voting and dispositive power -- 10,674 shares); and (iv)
PCAF -- 485,700 shares (shared voting and dispositive power -- 485,700
shares).
ELECTION OF DIRECTORS
The Company's Bylaws establish the number of directors at not less than
three nor more than 15 members. The Board of Directors may increase or decrease
the number of members of the Board of Directors. The Board of Directors has
chosen to establish the number of directors at nine. At the Annual Meeting, the
shares represented by proxies, unless otherwise specified, will be voted for the
election of the nine nominees named herein, each to serve until the next annual
meeting and until his successor is duly elected and qualified.
The director nominees are identified in the following table. Messrs. Beach,
Martin and Sherard each were initially elected as directors on August 29, 1997.
Messrs. Peters, Ford, Krul and Howley each were elected as directors on November
10, 1997. Each of Messrs. Beach, Martin, Sherard, Peters, Ford, Krul and Howley
were re-elected as directors on May 8, 1998. Messrs. Adams and Chadwick were
each initially elected to the Board of Directors on October 7, 1998.
If for any reason any of the nominees is not a candidate when the election
occurs (which is not expected), the Board of Directors expects that proxies will
be voted for the election of a substitute nominee designated by management. The
following information is furnished concerning each nominee for election as a
director.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
<TABLE>
<CAPTION>
EXPIRATION
DIRECTOR OF TERM FOR
NAME AGE PRINCIPAL OCCUPATION SINCE WHICH PROPOSED
---- --- -------------------- -------- --------------
<S> <C> <C> <C> <C>
Patrick L. Beach............ 42 Chairman of the Board of Directors, 1997 2000
President and Chief Executive Officer
W. Ross Martin.............. 38 Executive Vice President, Chief Financial 1997 2000
Officer and Treasurer
H. Reid Sherard............. 47 Senior Vice President -- Sales and Marketing 1997 2000
Richard J. Peters........... 51 President, R.J. Peters & Company, L.L.C. 1997 2000
Creed L. Ford, III.......... 47 Chief Executive Officer, Kona Restaurant 1997 2000
Group
William H. Krul, II......... 49 President, Miller-Valentine Construction, 1997 2000
Inc.
Lee C. Howley............... 51 President, Howley & Company 1997 2000
Albert T. Adams............. 47 Partner, Baker & Hostetler LLP 1998 2000
William J. Chadwick......... 51 Managing Director, Chadwick, Saylor & Co., 1998 2000
Inc.
</TABLE>
3
<PAGE> 6
Each of the nominees has engaged in the principal occupation or activity
indicated for at least five years, except as follows. From 1981, Mr. Beach has
served as the Chairman of the Board of Directors, President and Chief Executive
Officer of Captec Financial Group, Inc. ("Captec Financial"), an affiliate of
the Company. Mr. Martin has served as the Senior Vice President and Chief
Financial Officer of Captec Financial since 1994. Mr. Sherard has served as the
Senior Vice President -- Sales and Marketing of Captec Financial since 1994.
From 1986 through June 1997, Mr. Peters was a senior executive of Penske
Corporation, serving most recently as Executive Vice President and Chief
Financial Officer, and as President and Chief Executive Officer of Penske Motor
Sports, Inc. Mr. Peters also currently serves as the President and Chief
Executive Officer of Illitch Ventures, Inc. From 1976 until 1997 Mr. Ford served
in numerous capacities with Brinker International, most recently as Chief
Operating Officer and a Director.
Mr. Peters is a Director of Penske Corporation, Penske Motor Sports, Inc.
and Aon Funds. Mr. Howley is a Director of Boykin Lodging Company, International
Total Services, Inc. and LESCO, Inc. Mr. Adams is a Director of American
Industrial Property REIT, Associated Estates Realty Corporation, Boykin Lodging
Company, Developers Diversified Realty Corporation and Dairy Mart Convenience
Stores, Inc.
Kona Restaurant Group, of which Mr. Ford is the Chief Executive Officer, is
a lessee of four properties from the Company on which it operates Johnny
Carino's Italian Kitchen and Kona Steakhouse restaurants. Total rent to the
Company from the properties was approximately $525,000 in 1998 and is
anticipated to be approximately $750,000 in 1999.
Messrs. Beach, Martin and Sherard are the Chief Executive Officer,
President and Chairman, the Senior Vice President and Chief Financial Officer,
and the Senior Vice President -- Sales and Marketing, respectively, of Captec
Financial. Messrs. Beach and Martin also serve as the Chief Executive Officer,
President and Chairman and the Executive Vice President and Chief Financial
Officer, respectively, of Captec Net Lease Realty Advisors, Inc. ("Captec
Advisors"). Messrs. Beach, Martin and Sherard and Captec Financial are each
stockholders of Captec Advisors. Together with Captec Financial, Captec Advisors
provides the Company with certain investment and financial advisory services
pertaining primarily to the acquisition, development and leasing of properties
pursuant to an August 29, 1997 Advisory Agreement (the "Advisory Agreement").
Pursuant to the Advisory Agreement, the Company pays to Captec Advisors a
management fee in an amount equal to the lesser of (i) 0.6% per annum of the
aggregate capitalized cost (excluding accumulated depreciation) of all assets in
the Company's portfolio, or (ii) 5.0% of the Company's revenues. Under the
Advisory Agreement, the Company may pay Captec Advisors an incentive fee, which
will equal 15.0% of the amount by which any increase in annual Funds From
Operations ("FFO") per share exceeds a 7.0% annual increase in FFO per share
multiplied by the weighted average number of shares of common stock outstanding.
The Company is also subject to cost reimbursements to Captec Advisors in an
amount equal to all costs incurred in the acquisition of properties. The sum of
the incentive fee and the cost reimbursement (the "acquisition fee") will not
exceed 3.0% of the acquisition cost of properties identified by the Advisor and
acquired during the term of the Advisory Agreement. In December 1998 the
Advisory Agreement was amended retroactive to January 1, 1998 (the "Amendment").
The effect of the Amendment was to reduce the management fee to Captec Advisors
by the amount of acquisition fees paid directly to Captec Advisors as a result
of acquisitions made by Captec Franchise Capital Partners L.P. III and Captec
Franchise Capital Partners L.P. IV, of which the Company is the general partner.
During 1998, the Company incurred $194,000 of asset management fees and
approximately $1,123,000 in acquisition fees to Captec Advisors. Based upon the
Company's existing portfolio of properties and its anticipated acquisition
activity in 1999, the Company estimates it will pay $1.9 million (inclusive of
the acquisition fee) as compensation pursuant to the Advisory Agreement in 1999.
The amount to be paid under the Advisory Agreement in 1999 will vary based upon
numerous circumstances, some of which are beyond the Company's control, and the
actual amount paid pursuant to the Advisory Agreement may vary materially.
Mr. Beach and the Company are each stockholders of Family Realty, Inc.
("Family Realty"), an affiliate of the Company formed in 1998 to invest in
net-leased entertainment-based retail properties. Pursuant to an agreement
between the Company and Family Realty, the Company will receive a quarterly
asset management fee from Family Realty beginning in the first quarter of 1999.
The Company estimates it will receive total asset management fees of $400,000
from Family Realty in 1999. The amount to be received from Family Realty in
4
<PAGE> 7
1999 will vary based upon numerous circumstances, some of which are beyond the
Company's control, and the actual amount received may vary materially.
In August 1998 the Company acquired the general partnership interests of
Captec Franchise Capital Partners L.P. III and Captec Franchise Capital Partners
L.P. IV, each an affiliated limited partnership of the Company which is engaged
in substantially the same business as the Company. Mr. Beach was one of the
general partners of the affiliated partnerships, and received approximately
$394,000 as compensation for his general partnership interests.
Mr. Adams is, and during the fiscal year ended December 31, 1998 was, a
partner of Baker & Hostetler LLP, which the Company retained in 1998 and intends
to retain in 1999 to provide legal services to the Company.
During the fiscal year ended December 31, 1998, the Board of Directors held
four meetings which all directors attended, with the exception of Mr. Ford who
did not attend the May 8, 1998 meeting. The Board of Directors has appointed an
Executive Committee, Compensation Committee, Audit Committee and a Special
Committee, and does not have a Finance or Nominating Committee. The Audit and
Compensation Committees each held two committee meetings during 1998, which all
committee members attended, with the exception of Mr. Ford who did not attend
the May 8, 1998 meeting. The Executive and Special Committees did not meet in
1998.
Since December 1998, the Audit Committee has consisted of Messrs. Peters,
Ford and Adams. Prior to December 1998, the Audit Committee consisted of Messrs.
Peters, Ford and Howley. The Audit Committee recommends annually to the Board of
Directors the engagement of the independent public accountants for the Company,
reviews the plans for, and results of, audit engagements, approves professional
services provided by the independent public accountants, considers the range of
audit and nonaudit fees, and reviews the independent public accountants' letter
of comments and management's responses thereto, the adequacy of the Company's
internal accounting controls, and major accounting or financial reporting
matters.
The Executive Committee consists of Messrs. Beach, Martin and Peters. The
Executive Committee was formed in December 1997 to exercise all of the powers of
the Board of Directors in the management of the business and affairs of the
Company during intervals between meetings of the Board of Directors.
The Special Committee consists of Messrs. Adams, Chadwick and Howley. The
Special Committee was formed in December 1998 to analyze the benefits and
disadvantages of operating the Company as a self-administered and self-managed
real estate investment trust.
Since December 1998, the Compensation Committee has consisted of Messrs.
Howley, Krul and Chadwick. Prior to December 1998, the Compensation Committee
consisted of Messrs. Peters, Howley and Krul. The Compensation Committee
determines compensation for senior management, advises the Board of Directors on
the adoption and administration of employee benefit and compensation plans and
administers the Long-Term Incentive Plan.
Directors' Compensation. Each independent director is compensated at the
rate of $16,000 per year. Each director also receives $1,000 for attendance at
each meeting of the Board of Directors and of any committee or $250 for
participation in any meeting by telephone. Upon completion of the Company's
initial public offering in November 1997, Messrs. Peters, Ford, Krul and Howley
each received a 10-year option for 5,000 shares of Common Stock, exercisable at
$18.00 per share. Options to purchase 2,500 shares of Common Stock vested in
November 1998 and the remainder will vest in November 1999. Upon election to the
Board of Directors, Messrs. Adams and Chadwick each received a 10-year option
for 5,000 shares of the Common Stock, exercisable at $18.00 per share. Options
to purchase 2,500 shares of Common Stock will vest in October 1999 and the
remainder will vest in October 2000.
Directors who are not employees of the Company are eligible to participate
in the Company's Directors' Deferred Compensation Plan (the "Deferred Plan").
The Deferred Plan, which is administered by officers appointed by the Board of
Directors who are not eligible to participate in it, allows directors to defer
receipt of
5
<PAGE> 8
the fees payable to them by the Company for their services as directors. The
value of the amounts credited to a director in the Deferred Plan increases or
decreases based on the market value of the Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Howley and Krul each served on the Compensation Committee during
1998, and Messrs. Peters and Chadwick each served on the Compensation Committee
during a portion of 1998. None of Messrs. Peters, Howley, Krul and Chadwick have
been an officer or employee of the Company or have any financial relationship
with the Company other than disclosed herein. See "Election of
Directors -- Nominees for Election at the Annual Meeting -- Directors'
Compensation."
COMPENSATION COMMITTEE REPORT
Introduction. The Compensation Committee is responsible for determining the
compensation to be paid to the Company's executive officers. The Committee also
is responsible for making major policy decisions with respect to health care and
other benefit plans and administers the Long-Term Incentive Plan.
The Compensation Committee seeks (i) to provide competitive compensation
that enables the Company to attract and retain qualified executives and align
their compensation with the Company's overall business strategies, and (ii) to
provide each executive officer with substantial incentive to work for the
success of the Company through stock options which provide for participation in
the Company's growth and success. To achieve this goal, the Compensation
Committee determines executive compensation with a focus on compensating
executive officers based on their responsibilities and the Company's
performance. The primary components of the Company's executive compensation
program are (i) base salaries and certain other annual compensation, (ii)
bonuses, and (iii) Common Stock options.
Base Salaries and Other Annual Compensation. The base salaries and certain
other compensation for the Company's executive officers in 1998 were determined
based upon the experience of the executives in the industry, together with
comparisons of compensation paid by companies of similar size in the real estate
investment trust industry. This compensation was determined after consulting
with the Company's financial advisors.
Messrs. Beach and Martin each have executed October 15, 1997 employment
agreements pursuant to which they receive base salaries of $150,000 and
$100,000, respectively, health and life insurance and certain other benefits.
The employment agreements also entitle Messrs. Beach and Martin to options to
purchase 400,000 shares and 200,000 shares of the Common Stock respectively for
a period of 10 years at a purchase price of $18.00 per share pursuant to the
Long-Term Incentive Plan. See "Executive Compensation -- Employment Agreements."
The Compensation Committee believes that these annual compensation packages are
commensurate with the experience and responsibility of Messrs. Beach and Martin.
Mr. Max's base salary for the fiscal year ended December 31, 1998 was $100,000.
Bonuses. The employment agreements each entitle Mr. Beach and Mr. Martin to
an annual bonus on a sliding scale of 10.0% to 100.0% of annual base salary
contingent, and based upon the percentage increase of FFO per share in any
calendar year from the prior calendar year. Bonuses relating to 1998 were paid
to Messrs. Beach and Martin in the amounts of $60,000 and $40,000, respectively.
Stock Options. All of the Company's executive officers are eligible to
receive options to purchase shares of Common Stock under the Long-Term Incentive
Plan. The Company believes that stock options provide valuable motivation and
long-term incentive to management. Stock option grants reinforce long-term goals
by providing the proper nexus between the interests of management and the
interests of the Company's stockholders. Pursuant to their employment
agreements, Messrs. Beach and Martin have been granted options under the
Long-Term Incentive Plan to purchase 400,000 and 200,000 shares of Common Stock,
respectively, at $18.00 per share. Mr. Max has been granted a 10-year option to
purchase 50,000 shares of Common Stock at $18.00 per share. Options to purchase
133,334, 66,667, and 16,667 shares of Common Stock by
6
<PAGE> 9
Messrs. Beach, Martin and Max, respectively, vested on November 12, 1998. The
remaining options granted to Messrs. Beach, Martin and Max will vest and become
exercisable in two equal annual installments on November 12, 1999 and 2000. The
number of options granted initially to Messrs. Beach, Martin and Max was
determined through consultation with the managing underwriters of the Company's
initial public offering and based on the expected contribution of each of them
to the Company. Mr. Sherard has been granted a 10-year option to purchase
100,000 shares of Common Stock at $18.00 per share. The options granted to Mr.
Sherard vest and become exercisable in three equal annual installments on May 8,
1999, 2000 and 2001. See "Election of Directors -- Nominees for Election at the
Annual Meeting -- Directors' Compensation" for a description of the stock
options granted to the remaining directors.
William J. Chadwick
Lee C. Howley
William H. Krul, II
7
<PAGE> 10
EXECUTIVE COMPENSATION
The following information is provided for each of the Company's executive
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------
ANNUAL COMPENSATION(1) AWARDS
--------------------------------- --------------------
OTHER RESTRICTED
ANNUAL STOCK STOCK ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(2) ($) (#)(3) ($)
------------------ ------ ------ ----- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Patrick L. Beach.......... 1998 $150,000 $60,000 -- -- -- --
Chairman, President 1997 $ 11,538 -- -- -- 400,000 --
and Chief Executive
Officer
W. Ross Martin............ 1998 $100,000 $40,000 -- -- -- --
Executive Vice President 1997 $ 7,692 -- -- -- 200,000 --
and Chief Financial
Officer
H. Reid Sherard(4)........ 1998 $ -- -- -- -- 100,000 --
Senior Vice President --
Sales and Marketing
Ronald Max(5)............. 1998 $100,000 -- $28,973 -- -- --
Vice President and Chief 1997 $ 7,692 -- -- -- 50,000 $300
Investment Officer
</TABLE>
- -------------------------
(1) 1997 amounts reflect compensation paid by the Company from November 18, 1997
(the date of the initial public offering) through December 31, 1997. The
Company did not pay any compensation prior to November 18, 1997.
(2) Total perquisites and other personal benefits for each of the executive
officers do not exceed the threshold amounts specified in the regulations
promulgated by the Commission.
(3) Granted pursuant to the Long-Term Incentive Plan.
(4) Amounts relating to 1998 paid to Mr. Sherard reflect compensation paid by
the Company from May 8, 1998 (the date upon which Mr. Sherard was employed
by the Company) through December 31, 1998.
(5) Mr. Max, 41, has served as Vice President and Chief Investment Officer of
the Company since November 1997. From September 1995 through November 1997,
Mr. Max served as Regional Vice President of Captec Financial, and from
August 1994 through September 1995, Mr. Max served as Director of
Acquisitions of Brauvin Real Estate Funds.
Messrs. Beach and Martin each entered into October 15, 1997 employment
agreements with the Company. Each agreement provides for an initial three-year
term that is automatically extended for an additional year at the end of each
year of the agreement, subject to the right of either party to terminate the
agreement at the end of the then applicable term by giving written notice of
termination on or before November 30 of any year. Each agreement provides for
the annual base salary, stock options, and bonus described under "Election of
Directors -- Compensation Committee Report," and medical and dental benefits,
vacation and sick leave, life insurance and certain additional compensation. Mr.
Sherard and Mr. Max do not have employment agreements.
8
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON REALIZED AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
NAME EXERCISE(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Patrick L. Beach.............. -- -- 133,334/266,666 --
W. Ross Martin................ -- -- 66,667/133,333 --
H. Reid Sherard............... -- -- 0/100,000 --
Ronald Max.................... -- -- 16,667/ 33,333 --
</TABLE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return of a
hypothetical investment in the Common Stock with the cumulative total return of
a hypothetical investment in each of the National Association of Real Estate
Investment Trusts ("NAREIT") Equity Index and the S&P 500 Index based on the
respective market price of each such investment from October 31, 1997 through
December 31, 1998, assuming in each case an initial investment of $100 on
October 31, 1997, and reinvestment of dividends.
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
10/31/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98
-------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
CRRR 100.00 95.49 96.21 87.64 93.07 76.53
S&P 500 100.00 106.43 121.27 125.28 112.82 136.84
NAREIT Equity 100.00 104.57 104.09 99.31 88.86 86.27
</TABLE>
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any stockholder proposal intended to be presented at the Company's 2000
Annual Meeting of Stockholders must be received by the Company at 24 Frank Lloyd
Wright Drive, Lobby L, 4th Floor, Ann Arbor, MI 48106-0544, on or before
November 26, 1999, for inclusion in the Company's proxy statement and form of
proxy relating to the 2000 Annual Meeting of Stockholders. For those Stockholder
proposals which are not submitted in accordance with Rule 14a-8 (such as a
proposal to be submitted at the next annual meeting of stockholders but not
submitted for inclusion in the Company's proxy statement), the Company's
designated proxies may exercise their discretionary voting authority without any
discussion of the proposal in the Company's proxy materials for any proposal
which is received by the Company after November 26, 1999.
9
<PAGE> 12
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and owners
of more than 10.0% of the Company's Common Stock to file with the Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Executive officers, directors and
owners of more than 10.0% of the Common Stock are required by Commission
regulations to furnish the Company with copies of all forms they file pursuant
to Section 16(a).
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1998, its
executive officers, directors and greater than 10.0% beneficial owners complied
with all applicable Section 16(a) filing requirements except that Messrs. Adams,
Sherard and Chadwick each made a single late filing of a Form 3 and Messrs.
Peters, Beach and Howley each made late filings of Forms 4.
OTHER MATTERS
The Company has selected PricewaterhouseCoopers LLP as its independent
accountants for the current fiscal year. Representatives of
PricewaterhouseCoopers LLP, which served as the Company's independent public
accountants during the fiscal year ended December 31, 1998, are expected to be
present at the Annual Meeting, will have the opportunity to make a statement if
they so desire and will be available to respond to appropriate questions.
If the enclosed proxy is executed and returned to the Company, the persons
named in it will vote the shares represented by that proxy at the Annual
Meeting. The form of proxy permits specification of a vote for the election of
directors as set forth under "Election of Directors," the withholding of
authority to vote in the election of directors, or the withholding of authority
to vote for one or more specified nominees.
When a choice has been specified in the proxy, the shares represented will
be voted in accordance with that specification. If no specification is made,
those shares will be voted at the Annual Meeting to elect directors as set forth
under "Election of Directors." Under Delaware law, broker non-votes and
abstaining votes will not be counted in favor of or against any nominee. The
nine director nominees receiving the greatest number of affirmative votes will
be elected directors. If any other matter properly comes before the Annual
Meeting, the persons named in the proxy will vote thereon in accordance with
their judgment. Management does not know of any other matter that will be
presented for action at the Annual Meeting.
By order of the Board of Directors,
/s/ W. Ross Martin
W. ROSS MARTIN
Executive Vice President and
Chief Financial Officer
Dated: April 30, 1999
10
<PAGE> 13
CAPTEC NET LEASE REALTY, INC.
24 Frank Lloyd Wright Drive
Ann Arbor, Michigan 48106
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CAPTEC NET LEASE
REALTY, INC. FOR USE ONLY AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
JUNE 3, 1999 AND ANY ADJOURNMENT THEREOF.
The undersigned, being an stockholder of CAPTEC NET LEASE REALTY, INC.
("Captec"), hereby authorizes Patrick L. Beach, W. Ross Martin and H. Reid
Sherard, and each of them, with the full power of substitution, to represent the
undersigned at the Annual Meeting of Stockholders of Captec to be held at The
Ritz-Carlton Hotel, Fairlane Plaza, 300 Town Center Drive, Dearborn, Michigan on
June 3, 1999 at 10:00 a.m., local time, and at any adjournment thereof, and at
the meeting to act with respect to all votes that the undersigned would be
entitled to cast, if then personally present, as appears on the reverse side of
this proxy.
In their discretion, the proxies are authorized to vote with respect to
matters incident to the conduct of the meeting and upon such other matters as
may properly come before the meeting. This proxy may be revoked at any time
before it is exercised.
Shares of the Common Stock of Captec will be voted as specified. If no
specification is made, shares will be voted FOR the nominees for director named
on the reverse side and IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES as to
any other matter which may properly come before the Meeting.
CONTINUED ON THE OTHER SIDE
<PAGE> 14
CAPTEC NET LEASE REALTY, INC.
Tear at Perforation
THE ANNUAL MEETING OF STOCKHOLDERS OF CAPTEC NET LEASE REALTY, INC. WILL BE HELD
THURSDAY, JUNE 3, 1999, AT 10:00 A.M. AT THE RITZ-CARLTON HOTEL, FAIRLANE
PLAZA, 300 TOWN CENTER DRIVE, DEARBORN, MICHIGAN.
1. ELECTION OF DIRECTORS
Nominees: Patrick L. Beach W. Ross Martin H. Reid Sherard
Richard J. Peters Creed L. Ford, III William H. Krul, II
Lee C. Howley Albert T. Adams William J. Chadwick
FOR all nominees WITHHELD as to all nominees
FOR, except vote withheld from the following nominee(s):
---------------------------------------------------------------
2. ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
FOR AGAINST ABSTAIN
The undersigned hereby acknowledges receipt of a Notice of Annual
Meeting of Stockholders of Captec Net Lease Realty, Inc. called for June 3,
1999, and a Proxy Statement for the Meeting prior to the signing of this proxy.
Dated: , 1999
--------------------
---------------------------------
---------------------------------
Please sign exactly as your name(s)
appear(s) on this proxy. When signing
in a representative capacity, please
give title.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.
