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SCHEDULE 14A
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Captec Net Lease Realty, Inc.
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[CAPTEC Letterhead]
July 14, 2000
Dear Fellow Captec Shareholder:
We recently mailed to you Captec Net Lease Realty's Annual Report and proxy
statement for our annual meeting of shareholders to be held on August 9, 2000.
As the meeting date is almost upon us, we hope you will take a moment to
carefully review these materials and VOTE FOR THE REELECTION OF CAPTEC'S
NOMINEES BY COMPLETING AND RETURNING THE WHITE PROXY CARD IN THE ENVELOPE
PROVIDED. Please be sure to sign and date the card to ensure that your vote is
counted. If you have already returned the WHITE proxy card, we thank you for
your support.
We also want to alert you that over the next few weeks, you may receive proxy
solicitation material with a green proxy card from Opportunity Partners LP, a
small money management firm run by Phillip Goldstein. Do not be confused. This
solicitation is not endorsed by Captec's Board or management. Do not return any
proxy card sent to you by Mr. Goldstein.
THE GOLDSTEIN SOLICITATION IS NOT ENDORSED BY CAPTEC OR ITS BOARD OF DIRECTORS
If you receive such material, or are contacted by Mr. Goldstein, we urge you to
disregard his solicitation. Who is Phillip Goldstein? Mr. Goldstein has a
history of investing in small closed-end international mutual funds trading at a
discount to their net asset values. Mr. Goldstein sometimes engages these funds
in proxy fights in which he seeks to convert them from closed-end funds into
open-ended mutual funds. Mr. Goldstein does this not as an advocate for other
shareholders. Rather he seeks to make a short-term profit on his investment in a
stock, and move on to the next opportunity. In fact, he has admitted that he has
only been a Captec shareholder since February 15, 2000. Now Mr. Goldstein, who
has no operating or managerial experience in the real estate investment trust
industry, is seeking to replace your entire board of directors with a slate of
nominees, including himself, and other individuals who are completely new to our
business and industry. TWO OF THE GOLDSTEIN NOMINEES, MR. GOLDSTEIN AND GERALD
HELLERMAN, ARE FORMER DIRECTORS OF CLEMENTE STRATEGIC VALUE FUND. THESE TWO
INDIVIDUALS GAINED THEIR DIRECTORSHIPS THROUGH A HOSTILE PROXY CONTEST
SOLICITATION, THEN SUBSEQUENTLY RESIGNED FOLLOWING A DISPUTE WITH THEIR
CO-DIRECTORS.
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Having reviewed Mr. Goldstein's proxy statement, we believe there are several
important reasons why shareholders should strongly oppose his solicitation:
> GOLDSTEIN AND HIS SLATE HAVE ABSOLUTELY NO EXPERIENCE IN THE REAL ESTATE
INVESTMENT TRUST INDUSTRY, MUCH LESS IN A SPECIALIZED REIT THAT FOCUSES ON
NET LEASE REAL ESTATE INVESTING.
Your Board and management have more than 125 years collective experience in real
estate operations, and as we outlined in our previous letter, have operated
Captec effectively and profitably. By contrast, Goldstein's slate does not
include anyone with experience in our industry. FOUR OF THE GOLDSTEIN NOMINEES
OWN NO SHARES OF CAPTEC STOCK. Mr. Goldstein's four other co-nominees reportedly
own a grand total of 32,000 shares among them, COMPARED TO MANAGEMENT'S AND THE
BOARD'S OWNERSHIP OF APPROXIMATELY 949,000 SHARES, OR NEARLY 10% OF THE
COMPANY'S COMMON STOCK. As your company's founders, management, along with the
Board, have a vested interest in Captec that Mr. Goldstein's slate will never
have.
> GOLDSTEIN FAILS TO STATE WHAT HIS PLANS ARE FOR THE COMPANY SHOULD HIS
HAND-PICKED BOARD BE ELECTED.
Much to the contrary, Mr. Goldstein's only real plan of action for Captec
according to his proxy statement is to conduct an expensive, open-ended
investigation of your Board's decision not to proceed with a proposed
restructuring plan, despite the fact that an exhaustive discussion of the
factors behind the Board's initial decision to pursue the plan is a matter of
public record on the SEC's website (the plan can be reviewed on the EDGAR
database at www.sec.gov). Mr. Goldstein presents himself as a concerned
shareholder, but never once has he contacted the company to express his concerns
before engaging in a potentially costly solicitation.
> THE GOLDSTEIN SOLICITATION PRESENTS ENORMOUS RISKS TO YOUR INVESTMENT.
We continue to listen to our investors and their concerns about achieving both
short-term and long-term value. Towards that end, the company announced on June
29, 2000, that it retained Prudential Securities Incorporated, a prominent
investment bank, to assist the Board in exploring a number of options to unlock
the potential value in our stock, which options include considering a sale of
the company.
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Mr. Goldstein's solicitation offers little more than a diversion of the Board's
attention from these goals and is based primarily on a series of unfounded
allegations. His unfounded and unsupported attacks on the integrity of the
company and its officers could serve to harm the Board's ability to enhance
shareholder value.
Moreover, the potential removal of the existing board in favor of Mr.
Goldstein's slate could be highly disruptive to our business and destructive to
the value of your shares. It is clear that Captec's current management team does
not support Mr. Goldstein and that Mr. Goldstein does not support the management
team. Thus, the management team would likely not continue in its current role
should Goldstein prevail. If the Opportunity Partners' slate is elected, who
will run Captec? Mr. Goldstein? His inexperienced nominees? Captec is not a
mutual fund. It is a real estate operating company that requires knowledge,
experience and resources that are lacking by Mr. Goldstein and his slate of
nominees.
The success of Captec also requires maintaining important business relationships
with top national retailers and restaurant chains. The changing of the entire
board could result in a loss of confidence from restaurant companies, developers
and retailers with whom management has developed a solid base of trust over the
years. MR. GOLDSTEIN'S CAMPAIGN PRESENTS SHAREHOLDERS WITH POTENTIAL DISRUPTION
OF YOUR COMPANY'S OPERATIONS AND SUBSTANTIAL RISK TO YOUR INVESTMENT.
> GOLDSTEIN FALSELY ALLEGES CONFLICTS OF INTEREST AND NO SAFEGUARDS TO ADDRESS
THEM.
Captec has had affiliations with its Advisor and Captec Financial Group, Inc,
which affiliations have been a matter of public record from the time of the
company's initial public offering. Any transactions with affiliates are governed
by conflict resolution policies, reviewed by the Audit Committee and the
company's external auditors and fully disclosed in the company's financial
reports. Contrary to Goldstein's false allegations, Captec affiliated entities
have:
- PROVIDED Captec with referrals resulting in $81 million of property
acquisitions to date.
- CULTIVATED key institutional investor relationships resulting in the
formation of three joint ventures with $84 million of equity capital
provided by investors and management agreements running to Captec that
have generated $5.2 million of funds from operations for Captec to date.
- ENABLED Captec to limit its operating costs to by essentially "renting" an
infrastructure at a fraction of what it would cost to otherwise operate
the company.
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> MANAGING EFFECTIVELY FOR CAPTEC SHAREHOLDERS
Since completing its public offering in November 1997, your Board and management
have achieved the following accomplishments (as measured across 1998 and 1999).
- Realized a compounded annual growth rate in FFO per share of 26%.
- Realized a compounded annual growth rate in revenues of 47%.
- Paid annual dividends of $1.50 per share in 1998, $1.52 per share in 1999
and $0.76 per share through the first two quarters of 2000.
- Successfully raised $84 million of private equity from institutional
investors to continue to generate growth through joint ventures, in the
face of prevailing market conditions that prohibited the company from
raising new public equity capital on a favorable basis.
- Generated fee income and/or costs savings as a result of managing the
joint ventures totaling $5.5 million.
- Prudently managed in a capital constrained environment by controlling
costs, managing its portfolio and maintaining the discipline of
controlling leverage targets.
- Managed through a significant default in the property portfolio without
incurring any long-term degradation of the portfolio and ending up with
record low vacancies at the end of the period.
Contrary to Mr. Goldstein's false claims, these accomplishments are not the work
of a Board and management that is serving its own interests. In fact, your
management team has worked extremely hard to deliver results during a very
challenging time for the REIT industry.
SUPPORT THE EXISTING CAPTEC BOARD TO PRESERVE THE VALUE OF YOUR INVESTMENT
We appreciate your support as we explore means for maximizing value for all
Captec shareholders, while continuing to operate Captec's business efficiently
and effectively. PLEASE SUPPORT YOUR BOARD TODAY BY VOTING FOR YOUR DIRECTORS ON
THE ENCLOSED WHITE PROXY CARD. If you have voted the green proxy card by
mistake, you may change your vote by completing and returning the WHITE card
today. If you need assistance in voting your shares, please call our proxy
solicitor, Georgeson Shareholder Communications Inc. toll free at
1-800-223-2064. We thank you again for your support.
Sincerely,
Patrick L. Beach
Chairman and Chief Executive Officer
Captec Net Lease Realty, Inc.
