SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by Registrant [ ]
Filed by a Party other than the Registrant [X]
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 Sec. 240.14a-11(c) or Sec.
240.14a-12
CAPTEC NET LEASE REALTY, INC.
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- (Name of Registrant as Specified in its Charter)
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- OPPORTUNITY-PARTNERS L.P.
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- (Name of Person(s) Filing Proxy Statement, if Other Than the
Registrant)
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- Payment of Filing Fee (Check the appropriate box):
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- [X] No fee required.
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- [ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4)and 0-11.
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- (1) Title of each class of securities to which transaction
applies: _____________________________________________
- (2) Aggregate number of securities to which transaction
applies: _____________________________________________
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- (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):
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- (4) Proposed maximum aggregate value of transaction:
______________________________________________
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- (5) Total fee paid:
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- [ ] Fee paid previously with preliminary materials.
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- [ ] 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.
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The Letter Captec Insiders Don't Want Stockholders to Read
Opportunity Partners L.P., 60 Heritage Drive, Pleasantville, NY
10570 / Tel: (914) 747-5262
October 25, 2001
Dear Fellow Captec Net Lease Realty Stockholder:
The past four years have not been good for Captec
stockholders who have seen their shares lose one-third of their
value. Captec's managers and directors, on the other hand, have
fared quite well by awarding themselves millions of dollars in
fees, bonuses and perks. The good news is that they may soon be
departing. However, before they go, they are asking stockholders
to contribute toward a generous farewell present for Captec's
CEO, Patrick L. Beach. Specifically, we are being asked to allow
Mr. Beach to buy more than $20 million worth of Captec's assets
for only $7.5 million!
One of the few things that Captec stockholders have learned
to count on is that the price of their stock will drop sharply
right after a strategic transaction is announced. That is
because the deal invariably includes a special benefit for Mr.
Beach that dilutes the value of our stock. True to form,
Captec's stock price quickly fell 10% after Mr. Beach announced a
proposed merger with Commercial Net Lease Realty ("NNN") on July
2, 2001.
Patrick Beach's Financial Problems
Patrick Beach has some serious financial problems. First,
losses have been mounting at Captec Financial Group ("CFG"), his
private mortgage finance company. Do you recall his attempt last
year to bail out CFG by merging it with Captec? He also wanted
Captec to buy his worthless management company on for several
million dollars. Had he succeeded, it almost certainly would
have been a financial disaster for Captec's stockholders.
Fortunately, that merger was abandoned after we publicly
announced that we would oppose it.
Another problem for Mr. Beach is that he has grown
accustomed to a lavish lifestyle. Last year he moved far away
from Captec's Michigan headquarters to a palatial estate
overlooking the Pacific Ocean in Santa Barbara, California. He
has never publicly told stockholders about his move. Could the
reason for his silence be that they might question how anyone can
manage a company from a distance of 2,000 miles?
For most people, running a money-losing business like CFG
while trying to maintain an extravagant lifestyle would be a
blueprint for financial ruin. But Patrick Beach is not like most
people. He is a master salesman and wheeler-dealer. Being
strapped for cash does not dampen his enthusiasm for deal making.
Being chairman of Captec's board of directors has allowed him to
shuffle assets between Captec and his other companies like a
three-card Monte dealer. After persuading the board to approve
last year's merger with CFG, he was pretty sure he could sell
them anything. All he needed to do was to concoct another
bailout scheme.
Mr. Beach's Day of Reckoning
The biggest problem hanging over Mr. Beach's head is a
demand loan from Captec to CFG. A few years ago, he was able to
reduce the principal of that loan by "bartering" the general
partner interests in two real estate partnerships he controlled
to Captec. At the time, he said they were worth more than $4
million. (As noted below, he now says these same partnership
interests have almost no value so we should sell them back to him
for a small fraction of that price.) After that self-dealing
transaction CFG still owed Captec about $10 million. But as long
as Mr. Beach had a friendly board of directors at Captec, there
was little chance of the note being called.
However, after the merger with CFG was scuttled, unhappy
stockholders demanded that management pursue a sale of Captec.
Mr. Beach realized that if Captec were sold to another company,
the CFG note would probably be called and drive CFG into
bankruptcy. How could he prevent that? Never underestimate Mr.
Beach's resourcefulness.
At last year's stockholder meeting on August 9, 2000, Mr.
Beach was asked if CFG could repay the $10 million in the event
demand was made. He responded: "Absolutely!" Because we were
skeptical we wrote a letter to Captec's board of directors
expressing concern about CFG's deteriorating credit worthiness
and urging them to call the loan. The board did not act on our
request. Evidently, Mr. Beach was able to assure them that
nothing was amiss at CFG.
On March 19, 2001, Mr. Beach's day of reckoning arrived. He
finally confessed that CFG could not repay the demand note. The
board of directors must have been shocked to learn that CFG was
on the brink of bankruptcy and that Mr. Beach had misled them.
But, not to worry. Mr. Beach had a plan to sell Captec and also
to stave off CFG's insolvency -- as long as the board of
directors continued to ignore the stench of his self-dealing.
Mr. Beach Strikes a Bargain
Mr. Beach has a knack for turning a lemon into lemonade -
for Patrick Beach. Consequently, he proposed that immediately
after Captec merges with NNN, he would buy the CGF note along
with other non-real estate assets (the "excluded assets") from
NNN for $7.5 million. Even though NNN had valued the excluded
assets at $16.6 million it readily accepted Mr. Beach's lowball
offer and even agreed to finance 90% of the purchase price.
Since NNN is not in the habit of selling assets below their fair
market value, we can only conclude that the price NNN will pay to
Captec stockholders shortchanges them by at least $10.7 million
($1.13 per share). But stockholders may be giving up much more
than that because NNN may have valued the excluded assets as if
they were distress merchandise. They include the following:
? The general partner interests in Captec Franchise
Capital partners, L.P. III and IV. These were
purchased from CFG in August 1998 for $4.4 million.
Captec's most recent balance sheet values them at $4.1
million.
? A 22.6% equity interest in FC Venture I LLC, a joint
venture with Fidelity Management Trust Company. In
1999 and 2000, Captec invested $7.1 million in FC
Venture I. Captec's interest is valued most recently
at $7.3 million.
? A collateralized $9.6 million promissory note from CFG
payable on demand.
? A 60% equity interest in Family Realty Inc. and Family
Realty II, Inc. as well as the management contracts for
both entities. The management contracts alone generate
fees of approximately $1.9 million per annum. Assuming
a valuation of five times annual fees, the management
contracts have a value of $9.5 million.
Thus, we estimate the value of the excluded assets that Mr. Beach
is buying for $7.5 million to be $30.5 million (4.1 + 7.3 + 9.6 +
9.5). Moreover, he won't even have to come up with any cash
since the modest $750,000 down payment is less than his $916,875
severance payment. That is a very sweet deal for our cash poor
CEO! As for the stockholders of Captec who will effectively be
transferring around $2.40 per share (based on the above
assumptions) from their pockets to Mr. Beach's, caveat emptor.
The Board Plays Dead
If a third party had offered $7.5 million for the excluded
assets, there is little doubt that both Mr. Beach and the board
would have rejected it as grossly inadequate. Why then would the
board not seek higher offers for these assets? Let's put it like
this. If Al Dunlap had served under Captec's board of directors,
he would probably still be running Sunbeam.
The plain truth is that Captec's board of directors has
utterly failed to protect stockholders from Patrick Beach's
attempts to plunder assets that rightly belong to them. Since
the merger with NNN was announced three lawsuits have been filed
against Captec's directors for breach of fiduciary duty. We do
not know why the directors have been so passive in the face of
Mr. Beach's brazen attempt to hijack stockholder assets but we
can speculate.
We think the directors are tired. After approving one
Beach-initiated acquisition after another, they must have been
demoralized to learn that "prospective purchasers were ascribing
little or no value" to assets valued at $21 million. Without
soliciting other offers for the excluded assets, they agreed to
Mr. Beach's lowball offer because as they say, he "appear[s] to
be the best possible purchaser." The lack of oversight is
appalling. Think about it. What public company purchases assets
that have little value except to the person running the company?
It seems like a clear case of dereliction of duty on the part of
the board of directors.
When the directors finally realized that Mr. Beach had
conned them, they should have fired Mr. Beach and pursued legal
action against him. Instead, they rolled over and played dead.
They say in their proxy statement that they "discussed,"
"observed," "reviewed," and "considered" evidence of Mr. Beach's
self-dealing. They also "discussed" demanding repayment of the
CFG note. They meekly listened as Mr. Beach brazenly threatened
to terminate Captec's management contracts with the Family Realty
entities without questioning whether that would breach his
fiduciary duty to Captec. Ultimately, the board of directors did
nothing.
Actually, one director, Richard J. Peters, did make a half-
hearted suggestion to Mr. Beach that he pay a higher price for
the excluded assets. Mr. Beach said, "No way" and Mr. Peters
gave up and went back to sleep with his fellow directors. While
they snoozed, Mr. Beach signed a agreement to vote "against any
proposal made by a third party to acquire Captec . . . even if
such proposal is more favorable generally to Captec's
stockholders than the [NNN] merger proposal." Is there any doubt
as to where Mr. Beach's loyalty lies?
To put a veneer of respectability on the transaction, UBS
Warburg was hired to provide a fairness opinion. A fairness
opinion is generally a rubber stamp of management's decision to
proceed with a transaction. Warburg's fairness opinion is
precisely that. To make sure Warburg would issue a favorable
opinion, it got paid $500,000 up front and will collect another
$2.25 million if stockholders are gullible enough to approve the
proposed merger. Such incentives make an objective fairness
opinion almost impossible. However, just to make sure it didn't
probe too deeply, the board's special committee instructed
Warburg not to value Captec's assets and liabilities. A fairness
opinion that does not include any verification of management's
representations isn't worth the paper it is written on. That is
doubly true when management consists of Mr. Beach and his
cronies.
Two Important Questions
First, what is the proposed merger with NNN worth to Captec
stockholders? Mr. Beach says it is $13.05 per share. However,
the largest portion of the payment will consist of NNN stock and
the $13.05 figure is based on NNN's closing price on June 29,
2001, the day prior to the merger announcement. On that day, NNN
shares closed at $14.25, up 5% from the previous day's closing
price on suspiciously high volume of 195,400 shares. Was NNN's
stock price artificially inflated on June 29th? We don't know
but even though NNN stock has been trading well below $14
recently, Mr. Beach is still touting the $13.05 number. We think
that is highly misleading. In any event, as of October 11, 2001,
the date of management's proxy filing, the value of the merger is
at most $12.42 per share.
The second important question is what would Captec be worth
with Patrick Beach out of the picture? We think substantially
more than $12.42 per share. In a February 2000 conference call
Mr. Beach stated that he believed the net asset value ("NAV") of
Captec was "slightly over" $17 per share. He has never publicly
indicated why it might have gone down since then. In July 2001,
immediately after the NNN merger was announced, a Robertson
Stephens REIT analyst estimated the NAV at $14.50 to $15 per
share. If we add to the NNN deal value of $12.42 per share the
underpayment for the excluded assets ($23.0 million), the
elimination of the golden parachutes for Mr. Beach and his right
hand man, Ross Martin ($1.6 million) and the contingent portion
of UBS Warburg's fee ($2.3 million), we get a value of $15.25 per
share.
How To Get Greater Value
There are two alternatives that we believe will deliver much
more value to stockholders than $12.42: (1) an orderly
liquidation of Captec's assets and (2) a restructured merger with
NNN or another company but with the excluded assets being placed
in a liquidating trust.
An orderly liquidation seems promising. Recently, Mr. Beach
himself stated that the market is robust for triple net lease
properties like the ones Captec owns. Based upon lower cap rates
of recent sales of comparable properties, we think Captec's
properties could be sold piecemeal at more attractive prices than
NNN is offering. Meanwhile, Captec's financing costs, which are
very high, could be much lower if people of unquestioned
integrity were managing it. Ask yourself this. Would you lend
money to Messrs. Beach and Martin at market rates?
The obvious benefit of the second alternative, a liquidating
trust for the excluded assets, is that it solves the problem of
self-dealing. The board rejected a liquidating trust but not
because it would not generate more money for stockholders than
Mr. Beach's lowball bid. The reason they gave was that it was
not "practicable." In case you do not know what "practicable"
means it is a synonym for "possible." The fact is a liquidating
trust is an ideal vehicle for disposing of illiquid assets. It
is utter nonsense to say that a liquidating trust is impossible
to manage and it only serves to confirm our opinion that the
board seems tired of dealing with Mr. Beach. They want out now
even if it means letting him buy $30 million worth of our assets
for a mere $7.5 million.
Stockholders Must Act To Preserve the Value of Their
Investment
Thankfully, stockholders will have the final say. What we
must do now is use our common sense and say "No" to Patrick
Beach's brazen attempt to buy our assets for millions of dollars
less than their fair value. There are two sound reasons to vote
AGAINST the proposed merger. First, if it is not approved, we
intend to nominate a slate of directors who will consider both of
the above options and will zealously work to maximize stockholder
value. Second, if the merger is approved, your vote AGAINST the
merger will preserve your legal right to demand an appraisal for
your shares and the possibility of receiving much more money for
them.
If you have any questions, please call us at (914) 747-5262
or e-mail us at OPLP@att.net.
Yours truly,
Phillip Goldstein
Portfolio Manager
PROXY STATEMENT IN OPPOSITION TO THE SOLICITATION BY THE BOARD OF
DIRECTORS OF CAPTEC NET LEASE REALTY, INC.
SPECIAL MEETING OF STOCKHOLDERS (To be held on November 19, 2001)
INTRODUCTION
My name is Phillip Goldstein. I am the portfolio manager of
Opportunity Partners L.P., the soliciting stockholder. I am an
investment manager who presently manages investment portfolios
having assets of approximately $70 million. Since December 1,
1992, I have been the president and 50% stockholder of Kimball &
Winthrop, Inc., a company that serves as the general partner of
Opportunity Partners, a stockholder of Captec Net Lease Realty,
Inc. ("Captec"). We are sending this proxy statement and the
enclosed GREEN proxy card to stockholders of record on October 9,
2001 (the "Record Date") of Captec. We are soliciting a proxy to
vote your shares at the Special Meeting of Stockholders of Captec
(the "Meeting") to be held on November 19, 2001 and at any and
all adjournments or postponements of the Meeting. Please refer
to Captec's proxy soliciting material for additional information
concerning the Meeting and the matters to be considered by the
stockholders.
This proxy statement and the enclosed GREEN proxy card are first
being sent to Captec's stockholders on or about October 25, 2001.
There is only one proposal to be voted upon at the meeting: a
merger of Captec with and into Commercial Net Lease Realty, Inc.
("NNN"). We are soliciting a proxy to vote your shares AGAINST
the proposed merger.
How Proxies Will Be Voted
If you return a GREEN proxy card to us or to our agent, your
shares will be voted as you indicate. If you do not indicate how
your shares are to be voted, they will be voted AGAINST the
proposed merger. If you return a GREEN proxy card, you will also
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.
Voting Requirements
If a quorum is not present at the meeting and any stockholder
proposes an adjournment of the meeting, the persons named as
proxies on the GREEN proxy card will vote for or against such
adjournment in their discretion. However, they do not intend to
propose an adjournment. Approval of the proposed merger requires
the affirmative vote of a majority of Captec's outstanding
shares.
Revocation of Proxies
You may revoke any GREEN proxy you give to us prior to its
exercise by (i) delivering a written revocation of your proxy to
us or to any person who will present it at the meeting; (ii)
executing and delivering a later dated proxy card to us or to any
person who will vote it at the meeting; or (iii) voting in person
at the meeting. 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 Stockholder
The stockholder making this solicitation is Opportunity Partners
L.P., 60 Heritage Drive, Pleasantville, NY 10570. As noted
above, I, Phillip Goldstein am the portfolio manager and
president of the general partner of Opportunity Partners. As of
October 25, 2001, I am deemed to be the beneficial owner of
384,648 shares of Common Stock, substantially all of which are
held in margin accounts at brokerage firms by my clients
(including Opportunity Partners) and me. These shares represent
approximately 4.0% of Captec's outstanding Common Stock. Our
first purchase of Common Stock occurred on February 15, 2000 and
our last on July 10, 2001. We purchased 333,298 shares in 2000
and 35,850 shares in 2001. There have been no sales.
REASON FOR THE SOLICITATION
We believe that the proposed merger (which is described in detail
in Captec's proxy statement) is unfair to stockholders primarily
because it includes a provision for management to acquire certain
assets of Captec for far less than their stated value. We
believe that the assets in question may be worth more than $2 per
share in excess of the price that management has agreed to pay
for them and that the consideration that NNN has agreed to pay to
Captec's stockholders reflects this disparity. If the merger is
not approved, we think it will demonstrate that stockholders are
dissatisfied with the level of oversight that the incumbent board
of directors has exercised over management. In that event, we
intend to conduct a proxy contest at the 2001 annual meeting to
elect directors who are totally independent of management and are
committed to maximizing stockholder value for all stockholders
and preventing the diversion of Captec's assets from stockholders
to management.
CERTAIN CONSIDERATIONS
We believe that all stockholders of Captec (except management)
will benefit if the proposed merger is not approved. I have a
financial incentive to increase Captec's stock price because my
clients who hold shares of Captec pay me fees. These fees are
based upon a share of the profits the client earns and will be
greater if the value of Captec's shares increases. In addition,
as stated above, if the proposed merger is not approved, we
intend to nominate persons for election as directors at the
annual meeting and to solicit proxies in that regard.
With respect to the excluded assets only, we would consider
investing in an entity that would seek to acquire them at a price
in excess of $7.5 million, the price being offered by Captec
management. We have had inquiries from other parties about
investing in such an entity but have made no determination to do
so. We have no intent to enter into any other transaction with
Captec
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 administratively 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
stockholders (except management) will benefit from this
solicitation, I intend to seek reimbursement of these expenses
from Captec. Stockholders will not be asked to vote on the
reimbursement of solicitation expenses incurred by either the
incumbent directors or me. I estimate that my expenses will be
about $15,000. As of October 25, 2001, my expenses have been
approximately $8,000. If Captec does not reimburse me, I may
seek reimbursement from one or more of my clients or from their
affiliates but any such reimbursement will not be sought until
after the meeting is held and is not assured.
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 Captec. In
addition, there is no arrangement or understanding involving
either myself or any affiliate that relates to future employment
by Captec or any future transaction with Captec.
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. If any other matters are properly presented for
consideration at the meeting, it is the intention of the persons
named as proxies on the enclosed GREEN proxy card to vote in
accordance with their own best judgment on such matters.
DATED: October 25, 2001
PROXY CARD / VOTING INSTRUCTIONS
PROXY SOLICITED IN OPPOSITION TO THE BOARD OF DIRECTORS OF CAPTEC
NET LEASE REALTY, INC. BY OPPORTUNITY PARTNERS L.P.
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 19, 2001
The undersigned hereby appoints Phillip Goldstein as the
undersigned's proxy, with full power of substitution, to attend
the Special Meeting of Stockholders of Captec Net Lease Realty,
Inc. ("Captec") to be held at 10:00 a.m. on Monday, November 19,
2001, at The Ritz-Carlton Hotel, 300 Town Center Drive, Fairlane
Plaza, Dearborn, Michigan 48126 (the "Meeting"), and any
adjournment or postponement thereof, and to vote on all matters
that may come before the Meeting 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(s) as may come before the Meeting and with
respect to any matter(s) incident to the conduct of the Meeting.
(INSTRUCTIONS:Mark vote by placing an "x" in the appropriate[ ].)
APPROVAL OF THE PROPOSED MERGER BETWEEN CAPTEC NET LEASE REALTY,
INC. AND COMMERCIAL NET LEASE REALTY, INC.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Important - - Please sign and date below and return promptly
in the enclosed envelope. Your shares will be voted as directed.
If no direction is made, this proxy will be voted AGAINST the
above Proposal. The undersigned hereby acknowledges receipt of
the proxy statement dated October 25, 2001 from Opportunity
Partners L.P. and revokes any proxy previously executed.
(Important - Please be sure to enter date.)
SIGNATURE(S)______________________________ Dated: _____________