May --, 2000
Dear Fellow Captec Net Lease Realty Shareholder:
If you have not been following the recent developments about Captec Net
Lease Realty, Inc. ("Captec"), here is a synopsis.
[Insert Chart of Captec's Stock Price Since Inception]
----------------------------------------------------
In November 1997, hopeful investors paid $18 per share to purchase
Captec stock in an IPO. At that time, Captec's managers were granted long-term
options to purchase hundreds of thousands of shares at that same price in order
to "reinforce long-term goals by providing the proper nexus between the
interests of management and [Captec's] shareholders." Unfortunately, by
mid-December 1999, Captec's stock price had fallen to about $10 per share and
the chances of profiting anytime soon from their options looked pretty slim.
What could our managers do to salvage their dreams of getting rich from Captec?
The answer came on December 20, 1999, when they dropped a bombshell on
shareholders by announcing a plan to merge Captec with two private companies
that they controlled, abandon its tax-advantaged REIT status and slash the
quarterly dividend to shareholders from $0.38 to $0.11. Albert T. Adams, a
director who headed the "independent" committee responsible for the plan tried
to generate enthusiasm for the seemingly incestuous transactions. "This is the
right strategy and direction for the company," he confidently announced.
Investors, however, apparently disagreed with Mr. Adams and promptly pummeled
Captec's stock price, knocking it down almost 30% that day! As one shareholder
put it, "I got Captec'd."
As details of the merger became known, shareholder resentment of
management began to mount. In fact, a number of Captec shareholders accused
management of self-dealing, alleging that the proposed merger was designed to
benefit Captec's managers at the expense of its public shareholders. For
example, one angry Captec shareholder said this about management's plan:
It's hard for me to be civil when I see so many people being hurt
financially by management's self-serving interests. . . . [CAPTEC]'s
plan causes us to suffer. If you were a retiree with 10,000 shares you
now have to reduce your standard of living by more than $10,000
yearly... that hurts! If management wanted to change the company and
bail themselves out of their other business, they could have made [an]
LBO at say $12.00 and provided shareholders with the funds to invest
elsewhere in REITs that serve our income needs. That would have been
the honorable thing to do, not use your position to screw everyone for
your own benefit. . . . What management is intentionally doing here is
one of the most uncivil things I've seen in my 30 years [of investing].
I [have] seen managements make many major mistakes that literally
ruined companies but what management is trying to do here is immoral. I
don't know how they could possibly look at their parents, grandparents
and children in the eyes. If they were my children and did such a
greedy act, I [would] be ashamed of them. . . . Shame, shame!
<PAGE>
On April 19, 2000, management finally filed a lengthy preliminary proxy
statement that disclosed numerous conflicts on the part of our managers and
their advisors related to the merger. On the same day, we also filed preliminary
proxy materials with the SEC in opposition to the proposed merger and in favor
of the election of directors who would commit to explore alternatives designed
to maximize shareholder value. On May 1, 2000, we filed another more forceful
letter with the SEC that highlighted some of the conflicts of interest and
strongly opposed the merger. Three hours later, Captec management announced that
it was canceling the merger because "there does not appear to be overwhelming
support for this transaction." In a Dow Jones news story the following day, Ross
Martin, Captec's CFO insisted perhaps somewhat disingenuously that our efforts
had nothing to do with the decision to scrap the merger.
Whatever led management to cancel the merger, investors responded
favorably as the stock price rose some 20% in the days following the May 1st
announcement. Despite that rise, Captec's shares are still trading at a price
that is more than 30% below net asset value. So, there is lots of room for price
improvement. At the annual meeting, Captec shareholders will decide who they
want to represent them, the incumbent directors who stood by as Captec's price
declined and who now face serious conflicts of interest, or directors whose only
goal is to increase the value of your stock. Before you decide how to cast your
vote, please consider these points:
o In Captec's May 1st announcement, Patrick Beach, Captec's CEO, stated
that "while we continue to believe the plan announced in December
would maximize value for all shareholders over the long term, [Captec]
is canceling its plan to terminate its REIT status at this time."
(emphasis added) Is management planning to come back with another
de-REITing plan when things simmer down? They seem to be leaving the
door open.
o In the same announcement, Mr. Beach also said, "In a market
unreceptive to REIT investment, management's goal continues to be a
differentiation between Captec's investment properties and those of
its industry." That suggests that Mr. Beach still doesn't get it. We
believe that the main reason for the depressed price of Captec stock
is a perception that management is more concerned with its own income
and perks than with maximizing shareholder value.
o In the aforementioned Dow Jones story, Mr. Martin "dismisses
suggestions that the company's restructuring plan was self-serving to
management." Have our managers really been sobered by the negative
response from shareholders? Will they now respond to legitimate
shareholder concerns? Can they be trusted to maximize shareholder
value and how will they allay concerns about self-dealing?
o Mr. Martin has flatly stated that the highest offer made for Captec
(and which was rejected) was at $12 per share. Yet, a highly respected
real estate investor told us that he recently made an offer to Mr.
Beach and Mr. Martin for $13 per share that they rejected. Perhaps
there is some legitimate explanation but Mr. Martin's categorical
denial does raise concerns about management's credibility and
integrity.
<PAGE>
As might be expected, Captec's managers continue to insist that their
sole objective is to increase shareholder value. As Mr. Beach says, "Our goal
has been, is and will continue to be to increase returns to shareholders,
period." Yet, it is indisputable that Mr. Beach has interests that are not
aligned with those of other shareholders because unlike them, he derives
significant income from managing Captec and affiliates of Captec. Thus, the
question of whether he will be tempted to pursue actions that will benefit
himself and his associates but harm other Captec shareholders persists.
We do not know for certain whether or not their intentions have been
honorable all along but we think Mr. Beach and his team simply have too many
conflicts and that until they sever their relationship with Captec, its share
price will continue to be depressed. For example, a financially shaky
Beach-controlled company to which he and his associates have personally loaned
money has borrowed more than $11 million (representing about $1.20 per Captec
share) from Captec. It is difficult to see how Mr. Beach and his team can lead
the way to maximizing the value of Captec stock when they have an obvious
interest in not demanding repayment of that $11 million loan. In addition, two
lawsuits have been filed against the current directors alleging breaches of
fiduciary duty to shareholders. If the current directors are sincerely concerned
about maximizing shareholder value, we think the best way to demonstrate that is
to allow a new board that is not faced with similar conflicts to assume control
of Captec.
In any event, there are enough unanswered questions to warrant an
independent investigation. Consequently, we are proposing that shareholders vote
to recommend that an independent investigation into the circumstances leading to
the proposed restructuring of Captec be conducted. If our current managers have
nothing to hide, they should welcome an opportunity to clear up any doubts about
their motives. However, if such an investigation indicates, for instance, that
any of Captec's advisors were responsible for imposing costs on Captec that
should have been paid by Mr. Beach's other companies, it may be necessary to
seek appropriate relief. In that event, only truly independent directors will be
able to effectively negotiate with firms that advised management with respect to
the aborted merger like Prudential Securities, J. C. Bradford or Baker &
Hostetler. That is because our current managers were responsible for employing
these firms in the first place.
We believe that many shareholders have lost confidence in Captec's
current managers and would welcome new leadership. Consequently, at the annual
meeting, we will nominate a slate of directors who are committed to increasing
the value of your investment. Among the alternatives they will consider are the
sale of the company, an orderly liquidation, a share repurchase program and a
self-tender offer. As evidence of their commitment to deliver a higher stock
price, these nominees have agreed to have their compensation held in escrow
until the price of Captec stock reaches $12 per share.
<PAGE>
If our nominees are elected, you can be assured that (1) they will work
to insure that Captec's stock price will not languish at a large discount to its
liquidating value; and (2) the interests of the managers will never be placed
above the interests of the shareholders.
In addition to this mailing, you also may receive proxy-soliciting
materials from the incumbent directors and a phone call from a proxy-soliciting
firm that they hired with your money. They will try to convince you that the
election of our nominees is "not in your best interests." Please take that with
a large grain of salt. After all, they can't just say, "We like our jobs and the
perks that go with them and we will spend plenty of shareholder money to keep
them." All we ask is that you use your own intelligence and common sense in
deciding which nominees you trust to represent your interests.
To conclude, If you want directors who are committed to achieving a
higher stock price you must return the GREEN proxy card. Remember, only the last
valid proxy card you submit is counted and it supersedes any previous ones.
Therefore, once you submit a GREEN proxy card, please do not sign and submit a
later dated WHITE proxy card, as that will invalidate your vote. If you have any
questions, please call me at (914) 747-5262 or e-mail me at [email protected].
Yours truly,
Phillip Goldstein
Portfolio Manager
<PAGE>
PROXY STATEMENT IN OPPOSITION TO THE SOLICITATION BY THE BOARD OF DIRECTORS OF
THE CAPTEC NET LEASE REALTY, INC.
ANNUAL MEETING OF SHAREHOLDERS (To be held on June --, 2000)
My name is Phillip Goldstein. I am the portfolio manager of Opportunity
Partners L.P., the soliciting shareholder. I am an investment manager who
presently manages investment portfolios having assets in excess of $50 million.
Since December 1, 1992, I have been the president and 50% shareholder of Kimball
& Winthrop, Inc., a company that serves as the general partner of Opportunity
Partners which is a shareholder in Captec Net Lease Realty, Inc. ("the
Company"). We are sending this proxy statement and the enclosed GREEN proxy card
to holders of record on May --, 2000 (the "Record Date") of the Company. We are
soliciting a proxy to vote your shares at the 2000 Annual Meeting of
Shareholders of the Company (the "Meeting") and at any and all adjournments or
postponements of the Meeting. Please refer to the Company's proxy soliciting
material for additional information concerning the Meeting and the matters to be
considered by the shareholders.
This proxy statement and the enclosed GREEN proxy card are first being
sent to shareholders of the Company on or about May --, 2000.
INTRODUCTION
There is one matter that the Company has scheduled to be voted upon at
the meeting:
1. The election of nine persons to serve as directors of the Company.
In addition, we intend to introduce the following proposal at the meeting.
2. It is recommended that the Board of Directors authorize an independent
investigation of the circumstances leading to the proposed (and
subsequently abandoned) restructuring of the Company.
With respect to these matters, we are soliciting a proxy to vote your
shares FOR the election of Rajeev Das, Andrew Dakos, Glenn Goodstein, Steven
Samuels, Gerald Hellerman, Brian Appel, Peter Brennan, John A. (Pete) Bricker,
Jr. and me to serve as directors of the Company and FOR the independent
investigation of the circumstances leading to the proposed restructuring.
How Proxies Will Be Voted
All of the proposals scheduled by the Company to be voted on at the
meeting are included on the enclosed GREEN proxy card. If you will not attend
the meeting and you wish to vote FOR the election of our nominees to the Board
and/or FOR the independent investigation, you may do so by completing and
returning a GREEN proxy card.
If you return a GREEN proxy card to us or to our agent, your shares
will be voted on each matter as you indicate. If you do not indicate how your
shares are to be voted on a matter, they will be voted FOR the election of the
above nominees to the Board and FOR the independent investigation of the
circumstances leading to the proposed restructuring. If you return a GREEN proxy
card, you will be granting the persons named as proxies discretionary authority
to vote on any other matters of which they are not now aware that may come
before the meeting. These may include, among other things, matters relating to
the conduct of the meeting.
<PAGE>
Voting Requirements
If a quorum is not present at the meeting, or if a quorum is present
but sufficient votes to approve any of the proposals are not received, the
persons named as proxies may propose one or more adjournments of the meeting to
permit further solicitation of proxies, consideration of matters of which we are
not aware at this time, or negotiations with the incumbent directors. The
proxies may also propose one or more adjournments for other legal reasons not
currently foreseen. If an adjournment of the meeting is proposed, the persons
named as proxies on the GREEN proxy card will vote for or against such
adjournment in their discretion. The proxies may also temporarily decline to
attend the meeting (which we believe is permitted under state law), thereby
possibly preventing a quorum to solicit additional proxies or for other legal
reasons not currently foreseen. Please refer to the Company's proxy statement
for the voting requirements for each proposal.
Revocation of Proxies
You may revoke any proxy you give to management or to us at any time
prior to its exercise by (i) delivering a written revocation of your proxy to
the Company; (ii) executing and delivering a later dated proxy to us or to the
Company or to our respective agents; or (iii) voting in person at the meeting.
(Attendance at the meeting will not in and of itself revoke a proxy.) There is
no limit on the number of times you may revoke your proxy prior to the meeting.
Only the latest dated, properly signed proxy card will be counted.
Information Concerning the Soliciting Shareholder
The shareholder making this solicitation is Opportunity Partners L.P.
60 Heritage Drive, Pleasantville, NY 10570. As noted above, I, Phillip Goldstein
am an investment manager who presently manages investment portfolios having
assets in excess of $50 million. Since December 1, 1992, I have been the
president and 50% shareholder of Kimball & Winthrop, Inc., a company that serves
as the general partner of Opportunity Partners. Opportunity Partners is a
shareholder in the Company. Since 1996, I have taken an active role in urging
the management of certain companies to take various actions that I believe would
benefit those companies and their shareholders.
As of May --, 2000 Opportunity Partners owned one share of Common Stock
of the Company. I am also deemed to be the beneficial owner of ---,--- shares of
Common Stock held in brokerage accounts by my clients (including Opportunity
Partners) and me. Combined, these personal and client holdings total ---,---
shares, representing approximately -.-% of the Company's outstanding Common
Stock. Exhibit 1 to this proxy statement contains a schedule showing my
purchases and sales of Common Stock within the past two years.
REASON FOR THE SOLICITATION
We are conducting this contest in order to give shareholders an
opportunity to elect directors who are more committed to increasing shareholder
value than the incumbents and that do not face the sort of conflicts of interest
that the incumbent directors face. To prove their commitment, our nominees will
have their fees held in escrow until the Company's stock price rises to $12 per
share. We also believe that an independent investigation into the circumstances
leading to the proposed (and subsequently abandoned) restructuring of the
Company is warranted.
CERTAIN CONSIDERATIONS
In deciding whether to give us your proxy, you should consider the
following:
Implementation of certain Board actions may require shareholder
approval, and no assurance can be given that such approval will be obtained. In
addition, various costs, which would be borne indirectly by shareholders, may be
associated with certain actions, including but not limited to those associated
with holding a special meeting of shareholders. We believe that such costs are
far outweighed by the benefits to most shareholders of these actions. In
addition, certain actions may have tax consequences for shareholders that cannot
be quantified at this time.
I believe that all shareholders of the Company will benefit if any
actions taken to improve shareholder value or to reduce or eliminate the gap
between the Company's stock price and its liquidating value are successful.
However, you should know that I also have personal financial incentives to
increase the Company's stock price because my clients who hold shares of the
Company pay me fees that are based upon a share of the profits the client earns.
Thus, these fees will partially depend on the value of the Company's shares.
ELECTION OF DIRECTORS
At the meeting, I will nominate the following persons for election as a
director for a term expiring in 2001.
<PAGE>
<TABLE>
<CAPTION>
Name, Address, Age Principal Business Occupation(s)
- ------------------ --------------------------------
<S> <C>
Phillip Goldstein (Age 55) Since 1992, Mr. Goldstein has managed investments for a limited number of
60 Heritage Drive clients and has served as the portfolio manager and president of the general
Pleasantville, NY 10570 partner of Opportunity Partners, a private investment partnership. Mr. Goldstei
has been an advocate for shareholder rights since 1996. From 1998-2000, he was
director of Clemente Strategic Value Fund and was elected a director of Mexico
Equity & Income Fund in February 2000.
Glenn Goodstein (Age 37) Since 1992, Mr. Goodstein has managed investments for a limited number of clients.
16830 Adlon Road Between 1988 and 1996, Mr. Goodstein held several executive positions
Encino, CA 91436 with Automatic Data Processing.
Andrew Dakos (Age 34) Private investor. Vice President -- Sales, UVitec Printing Ink, Inc. since 1997,
14 Mill Street Sales Manager 1992-1997.
Lodi, NJ 07644
Gerald Hellerman (Age 62) Managing director of Hellerman Associates, a financial consulting firm; Trustee
10965 Eight Bells Lane of Third Avenue Trust since 1993; Director of Clemente Strategic Value Fund from
Columbia, MD 21044 1998-2000.
Rajeev Das (Age 31) Senior Analyst for Kimball & Winthrop, Inc. since 1997. Credit
125 Seaman Avenue Manager for Muriel Siebert & Company from 1995-1997.
New York, NY 10034
Steven Samuels (Age 43) Principal of Samuels Chase & Co., a licensed broker-dealer since 1995;
72 Coleytown Road Principal of Kimball & Winthrop, Inc., General Partner of Opportunity
Westport, CT 06880 Partners L.P. since 1992.
Brian Appel (Age 40) Managing Partner of Appel & Associates, LLP, a law firm
1901 Avenue of the Stars, No.525 specializingin real estate and commercial transactions since 1991.
Los Angeles, CA 90067
John A. (Pete) Bricker, Jr. (Age 48) Principal and co-founder SCM Advisors, LLC (1992), investment advisor
5330 Castlewood Road for Sandera Capital Management, L.P.; former director General
Dallas, TX 75229 Housewares Corp.
Peter F. Brennan (Age 45) Co-founder of MidCap Investors (1990); President of Noyes Partners Inc.,
50 Broad Street -12th Floor a registered broker-dealer since 1998. Chair of Corporate Governance &
New York, NY 10004 Shareholders Rights Committee of the NY Society of Security Analysts.
</TABLE>
As of May --, 2000 Mr. Das, Mr. Dakos, Mr. Goldstein, Mr. Goodstein,
Mr. Brennan and Mr. Bricker beneficially owned ------, ------, -------,
- -------,-------- and ------ shares of the Company respectively. None of the
other nominees own any shares.
Other than fees that may be payable by the Company to its directors,
none of our nominees have any arrangement or understanding with any person with
respect to any future employment by the Company or by any affiliate of the
Company.
The persons named as proxies on the enclosed GREEN proxy card intend,
in the absence of contrary instructions, to vote all proxies they are entitled
to vote IN FAVOR of the election of the above persons, each of whom have
consented to stand for election and to serve if elected. If any nominee is
unable to serve, an event not now anticipated, the proxies will be voted for
such other person, if any, as is designated by the persons named as proxies.
<PAGE>
A RECOMMENDATION THAT THE BOARD OF DIRECTORS AUTHORIZE AN INDEPENDENT
INVESTIGATION INTO THE CIRCUMSTANCES LEADING TO THE PROPOSED (AND SUBSEQUENTLY
ABANDONED) RESTRUCTURING OF THE COMPANY
Because of the allegations by a number of shareholders of self-dealing by
management and two lawsuits, we think that an independent investigation into the
circumstances leading to the proposed merger is desirable.
THE SOLICITATION
I am making this solicitation on behalf of Opportunity Partners. Persons
affiliated with or employed by affiliates of Opportunity Partners may assist me
in the solicitation of proxies. They will not receive any special compensation
for their services. Banks, brokerage houses and other custodians, nominees and
fiduciaries will be requested to forward this proxy statement and the enclosed
GREEN proxy card to the beneficial owners of shares of Common Stock for whom
they hold shares of record. We will reimburse these organizations for their
reasonable out-of-pocket expenses.
Initially, I will personally bear all of the expenses related to this proxy
solicitation. Because I believe that the shareholders will benefit from this
solicitation, I intend to seek reimbursement of these expenses from the Company.
Shareholders will not be asked to vote on the reimbursement of solicitation
expenses incurred by either the incumbent directors or me. I estimate that the
current managers will spend about $---,000 of shareholder funds and my expenses
will be about $50,000. As of May --, 2000, my expenses have been approximately
$-----. If the Company does not reimburse me, I may seek reimbursement from one
or more of my clients or from their affiliates.
Neither Opportunity Partners nor I have, within the past year, been a party
to any contract, arrangement or understanding with any person with respect to
any securities of the Company. In addition, there is no arrangement or
understanding involving either myself or any affiliate that relates to future
employment by the Company or any future transaction with the Company.
ADDITIONAL PROPOSALS
We know of no business that will be presented for consideration at the
meeting other than that set forth in this proxy statement and in the Company's
proxy statement. If any other matters are properly presented for consideration
at the meeting, it is the intention of the persons named as proxies in the
enclosed GREEN proxy card to vote in accordance with their own best judgment on
such matters.
DATED: May --, 2000
EXHIBIT 1: SECURITIES OF THE COMPANY PURCHASED OR SOLD
WITHIN THE PAST TWO YEARS BY THE SOLICITING SHAREHOLDER
Except as disclosed in this proxy statement, I have not had any
interest, direct or indirect in the Company. The following table sets forth
certain information with respect to purchases and sales of shares of Common
Stock of the Company within the past two years by me and by accounts holding
shares as to which I am deemed to be the beneficial owner (the "Accounts"). Some
of the shares are held in margin accounts, together with other securities.
Therefore, a portion of the purchase price and market value of the shares may
from time to time be represented by margin borrowings, depending upon the net
debit balances, if any, of the margin accounts, which fluctuate daily.
<TABLE>
<CAPTION>
Date Shares Purchased Date Shares Purchased Date Shares Sold
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
PROXY CARD
PROXY SOLICITED IN OPPOSITION TO THE BOARD OF DIRECTORS OF
CAPTEC NET LEASE REALTY, INC. BY OPPORTUNITY PARTNERS L.P.
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE --, 2000
The undersigned hereby appoints Steven Samuels, Rajeev Das, Andrew Dakos and
Phillip Goldstein, and each of them, as the undersigned's proxies, with full
power of substitution, to attend the Annual Meeting of Shareholders of Captec
Net Lease Realty, Inc. (the "Company") to be held at ------ on -------, June --,
2000, at -------------------------------------------- (the "Meeting"), and any
adjournment or postponement thereof, and to vote on all matters that may come
before the Meeting and any such adjournment or postponement the number of shares
that the undersigned would be entitled to vote, with all the power the
undersigned would possess if present in person, as specified below. The proxies
may vote in their discretion with respect to such other matter or matters as may
come before the Meeting and with respect to all matters incident to the conduct
of the Meeting. The proxies may also temporarily decline to attend the meeting,
thereby preventing a quorum in order to solicit additional proxies or for any
other legal reason.
(INSTRUCTIONS: Mark votes by placing an "x" in the appropriate [ ].)
1. ELECTION OF NINE DIRECTORS
FOR all of the nominees listed below [ ] WITHHOLD AUTHORITY [ ]
(except as indicated to the contrary below) to vote for all of the
nominees listed below
PHILLIP GOLDSTEIN, GLENN GOODSTEIN, ANDREW DAKOS,
GERALD HELLERMAN, RAJEEV DAS, STEVE SAMUELS, BRIAN
APPEL, PETER BRENNAN AND JOHN A. (PETE) BRICKER, JR.
To withhold authority to vote for one or more nominees, enter the
name(s) of the nominee(s) below.
------------------------------------------------------------------------------
2. RECOMMENDATION THAT THE BOARD OF DIRECTORS AUTHORIZE AN INDEPENDENT
INVESTIGATION OF THE CIRCUMSTANCES LEADING TO THE PROPOSED (AND
SUBSEQUENTLY ABANDONED) RESTRUCTURING.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Important - - Please sign and date below. Your shares will be voted as
directed. If no direction is made, this proxy will be voted FOR the election of
the nominees named above in Proposal 1 and FOR Proposal 2. The undersigned
hereby acknowledges receipt of the proxy statement dated May --, 2000 of
Opportunity Partners L.P. and revokes any proxy previously executed. (Important
- - Please be sure to enter date.)
Please sign exactly as your name appears hereon. When shares are held by joint
tenants, both should sign. When signing as an attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by the President or other duly authorized officer.
If a partnership, please sign in partnership name by authorized person. Please
return promptly in the enclosed envelope.
SIGNATURE(S)______________________________________ Dated: _______________
