<PAGE>
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the Appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 14a-11(c) or 14a-12
BODDIE-NOELL PROPERTIES, 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] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed per Exchange Act Rules 14a-6(i)(4) 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:
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>
BODDIE-NOELL PROPERTIES, INC.
May 25, 1995
Fellow Shareholders:
You are cordially invited to attend the annual meeting of
shareholders of Boddie-Noell Properties, Inc. (the "Company"), to be
held at the Omni Hotel, 222 East Third Street in Charlotte, North
Carolina, on Thursday, June 29, 1995 at 10:00 a.m. The business to be
conducted at the meeting is set forth in the formal notice that follows.
Management and the Board of Directors of the Company strongly
recommend that you vote FOR each of the proposals to be voted upon at
the annual meeting as set forth in the formal notice and Proxy Statement
that follows.
The Company relies on all shareholders to promptly execute and
return their proxies in order to avoid costly proxy solicitation.
Accordingly, please complete, date and sign the enclosed proxy and
return it promptly in the enclosed envelope (which requires no postage
if mailed in the United States). If you attend the annual meeting, as
we hope you do, you may withdraw your proxy at the meeting and vote your
shares in person from the floor. Your vote is important.
Sincerely,
BODDIE-NOELL PROPERTIES, INC.
D. Scott Wilkerson
President and Chief Executive Officer
3710 One First Union Center Charlotte, North Carolina 28202 (704) 333-1367
<PAGE>
Preliminary Proxy
BODDIE-NOELL PROPERTIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held June 29, 1995
TO THE SHAREHOLDERS OF BODDIE-NOELL PROPERTIES, INC.
NOTICE is hereby given that an Annual Meeting (the "Meeting") of
shareholders of Boddie-Noell Properties, Inc. (the "Company"), whose
principal executive offices are located at 3710 One First Union Center,
Charlotte, North Carolina 28202, will be held on June 29, 1995, at 10:00
a.m. at the Omni Hotel, 222 East Third Street, Charlotte, North
Carolina 28202 for the following purposes:
1. To elect five directors.
2. To grant the Company's Board of Directors the authority to
reorganize the Company through the transfer of all of its assets and
liabilities to an umbrella partnership (an "UPREIT"), which the Company
would initially own substantially all of the economic interest of and
would control as the sole general partner.
3. To amend the Certificate of Incorporation to (i) authorize the
issuance of 10 million shares of preferred stock (the "Preferred
Stock"), issuable in series the characteristics of which would be set by
the Board of Directors, and (ii) increase the number of shares of common
stock that the Company has authority to issue from 10 million to 100
million shares.
4. To amend the bylaws to eliminate the restriction on the
issuance of redeemable equity securities.
5. To amend the bylaws to eliminate Section 3.12 thereof, which
imposes various restrictions on the Company's investments, security
issuances and borrowings.
6. To approve issuances of Preferred Stock or other securities
convertible into Common Stock in connection with acquisitions resulting
in a person or group becoming the beneficial owner of twenty percent of
the Company's outstanding common stock.
7. To transact such other business that may properly come before
the Meeting or any adjournment or adjournments thereof.
Pursuant to the Delaware General Corporation Law and provisions of
the Company's bylaws, May 15, 1995 has been fixed as the record date for
determination of the shareholders entitled to notice of and to vote at
the Meeting, and accordingly, only such persons as are holders of record
of common stock at the close of business on such date will be entitled
to notice of and to vote at such meeting and any adjournments thereof.
You are invited to attend this Meeting. In the event you are
unable to attend, please sign, date and return the accompanying proxy
promptly so that your shares may be represented and voted at the
Meeting. If you desire to vote at the Meeting in person, you may revoke
your proxy at that time. In the meantime, the prompt return of your
proxy, properly dated and signed, will ensure the presence of a quorum
at the Meeting. A return envelope is enclosed for your convenience.
By order of the Board of Directors.
Philip S. Payne
Executive Vice President and Chief
Financial Officer Date: May 25, 1995
YOUR PROXY IS IMPORTANT, PLEASE VOTE PROMPTLY.
<PAGE>
Preliminary Proxy
BODDIE-NOELL PROPERTIES, INC.
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
to be held June 29, 1995
The following proxy statement is furnished to the shareholders of
Boddie-Noell Properties, Inc. (the "Company") in connection with the
solicitation by the Board of Directors of proxies for use at an annual
meeting of shareholders (the "Meeting") of the Company for the purposes
set forth in the accompanying Notice of Annual Meeting of Shareholders.
The Meeting will be held Thursday, June 29, 1995 at 10:00 a.m. eastern
daylight savings time at the Omni Hotel, 222 East Third Street,
Charlotte, North Carolina. The Company's principal executive offices
are located at 3710 One First Union Center, Charlotte, North Carolina,
28202. The Company's telephone number is (704) 333-1367. It is
anticipated that the proxy, Proxy Statement and Notice of Annual Meeting
of Shareholders will be mailed to shareholders on May 25, 1995.
All costs of solicitation will be borne by the Company. In
addition to the use of mails, proxies may be solicited by personal
interview, telephone or telegraph, by directors or officers of the
Company and certain independent solicitation agents as discussed below.
The Company has retained Corporate Communications, Inc., Depository
Trust Company, Independent Election Corporation of America, and First
Union National Bank (collectively, the "Consultants") to assist in the
process of identifying and contacting shareholders for the purpose of
soliciting proxies. The entire expense of engaging the services of the
Consultants to assist in proxy solicitation is projected to be $3,500 in
fees paid to them, exclusive of certain other fees paid to First Union
National Bank in connection with the operation of the Meeting.
Any shareholder giving a proxy has the right to revoke it at any
time before it is exercised by giving notice of such revocation in
writing or by telegraph to the Company prior to the date of the Meeting
or by attending the Meeting and requesting such revocation.
Consequently, execution of the proxy will not in any way affect a
shareholder's right to attend the Meeting, revoke his or her proxy, and
vote in person.
Shares represented by proxies in the form enclosed, if such proxies
are properly executed and returned and not revoked, will be voted as
specified. Where no specification is made on a properly executed and
returned proxy, the shares will be voted FOR each of the proposals
to be voted upon at the Meeting as set forth in the formal notice
attached and as described in this Proxy Statement.
Holders of record of shares of common Stock (the "Common Stock") of
the Company as of the close of business on the record date, May 15,
1995, are entitled to receive notice of, and to vote at, the Meeting.
At the close of business on May 15, 1995, 2,990,990 shares of Common
stock were issued and outstanding. A shareholder of record on the
record date is entitled to one vote for each share then held. The
holders, present in person or by proxy, of a majority of the total
number of outstanding shares of the Common Stock entitled to vote at the
Meeting will constitute a quorum.
Shares represented by proxies that reflect abstention or "broker
non-votes" (i.e. shares held by a broker or nominee that are represented
at the Meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal) will be counted as shares
that are present and entitled to vote for purposes of determining the
presence of a quorum. Directors will be elected by a favorable vote of
a plurality of the voting shares of Common Stock present and entitled to
vote, in person or by proxy, at the Meeting. Accordingly, abstentions
or broker non-votes
<PAGE>
as to the election of directors will not affect the election of the
candidates receiving the most votes. The affirmative vote of a majority
of the shares of Common Stock outstanding is required to authorize the
Company to reorganize itself as an UPREIT and to approve the amendment
to the Company's Certificate of Incorporation; therefore, abstentions and
broker non-votes will have the same effect as votes against such proposals.
Other proposals to come before the Meeting require the approval of a
majority of the shares of Common Stock present and entitled to vote on
such proposals. Abstentions as to such proposals will have the same
effect as votes against such proposals. Broker non-votes, however, will
be treated as unvoted for purposes of determining approval of such proposals
and will not be counted as votes for or against such proposals.
<PAGE>
PROPOSAL ONE:
ELECTION OF DIRECTORS
Pursuant to the Certificate of Incorporation and Article III of the
Company's bylaws, the Board of Directors consists of five directors,
whose terms of office expire annually. At each annual meeting the
shareholders shall elect directors to hold office until the next annual
meeting. Those directors whose terms expire at the 1995 annual meeting
of shareholders, or until their successors are elected and qualified,
are B. Mayo Boddie, Nicholas B. Boddie, James B. Powers, William H.
Stanley and Richard A. Urquhart, Jr., all of whom have been nominated
for election at the Meeting as directors to hold office until the 1996
Annual Meeting of Shareholders and until their successors are elected
and qualified.
The Board of Directors of the Company recommends a vote FOR B. Mayo
Boddie, Nicholas B. Boddie, James B. Powers, William H. Stanley and
Robert A. Urquhart, Jr. as directors to hold office until the 1996
Annual Meeting of Shareholders and until their successors are elected
and qualified. Should any of these persons become unable to accept
nomination or election, which management has no reason to expect, it is
the intention of the persons appointed as proxy agents in the enclosed
proxy to vote for the substitute in each case.
The names of the five persons nominated for election to the Board
of Directors, their principal occupations or employment, and certain
other information with respect to each of them are set forth below. All
of the individuals named below have been directors of the Company since
its formation in 1987.
Mr. B. Mayo Boddie (age 65) is Chairman of the Board of Directors
of the Company and was formerly its Chief Executive Officer. Mr. Boddie
was a co-founder of Boddie-Noell Enterprises ("BNE") in 1961 and is
currently Chairman of the Board and Chief Executive Officer of BNE. Mr.
Boddie serves as a director of First Union National Bank of North
Carolina and Factory Stores of America. B. Mayo Boddie is the brother
of Nicholas B. Boddie.
Mr. Nicholas B. Boddie (age 67) is Vice Chairman of the Board of
Directors of the Company. Mr. Boddie was a co-founder of BNE in 1961
and is currently Vice Chairman and a director of BNE. Nicholas B.
Boddie is the brother of B. Mayo Boddie.
Mr. James B. Powers (age 70) was Chairman of the Board of Directors
and Chief Executive Officer of The Planters Corporation and The Planters
National Bank and Trust Company in Rocky Mount, North Carolina from 1984
to 1989. Prior to his election as Chief Executive Officer in 1984, he
served as President for 10 years. Planters National Bank and Peoples
Bank merged in 1990 to form Centura Bank and Trust Company.
Mr. William H. Stanley (age 70) was Chairman of the Board of
Directors of Peoples Bank and Trust Company in Rocky Mount, North
Carolina from 1975 to 1985 and Chairman of the Board and Chief Executive
Officer of Peoples Bancorporation from 1982 to 1985. Mr. Stanley is
also a director of Rocky Mount Mills.
Mr. Richard A. Urquhart, Jr. (age 76), a retired certified public
accountant, was a partner in the public accounting firm of KMPG Peat
Marwick from 1965 to 1979. From 1965 to 1988, Mr. Urquhart was a
trustee of Rex Hospital, Raleigh, North Carolina and was the Chairman of
the Board of Trustees at the time of his retirement. From 1984 to 1992,
Mr. Urquhart was a director of Golden Corral Realty Corporation, a
qualified real estate investment trust.
Mr. Powers, Mr. Stanley and Mr. Urquhart are, and are standing for
re-election as, independent directors of the Company. Under the
Company's Certificate of Incorporation, a majority of the directors must
be independent.
Committees of the Board of Directors; Meetings
The Audit Committee consists of Messrs. Powers, Stanley and
Urquhart. The committee recommends to the Board of Directors the
engagement of the independent public accountants of the Company and
reviews with the independent public accountants the scope and results of
the Company's audits and the Company's internal accounting
<PAGE>
controls. During 1994, the Audit Committee held one meeting. Mr. Stanley
serves as Chairman of the Audit Committee.
The Board of Directors has established a Compensation Committee to
administer the Company's executive compensation plan. The Compensation
Committee consists of the Company's three independent directors and
Douglas E. Anderson, who is a non-compensated officer of the Company.
The Compensation Committee did not meet in 1994.
The Board of Directors met nine times during the year ended
December 31, 1994.
Compensation of Directors
During the year ended December 31, 1994, Mr. James B. Powers, Mr.
William H. Stanley and Mr. Richard A. Urquhart, Jr. were paid $7,500
each for serving on the Board of Directors, plus a fee of $750 for each
of nine Board meetings attended in person during the period. Mr. B.
Mayo Boddie and Mr. Nicholas B. Boddie did not receive any compensation.
On April 18, 1995, the Board of Directors approved an increase in
the fees payable to Independent Directors. Under the new fee schedule,
each Independent Director will receive $10,000 for serving on the Board
of Directors during 1995, as well as $800 per meeting attended.
Independent Directors will also be paid $500 for each committee meeting
attended unless it is held on the same day as a regular board meeting in
which case the compensation will be $100. B. Mayo Boddie and Nicholas
B. Boddie will receive no compensation.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
the executive officers of the Company as of December 31, 1994:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Age Position Officer Since
D. Scott Wilkerson 37 President, Chief Executive Officer October 1994
Philip S. Payne 43 Executive Vice President, Chief Financial Officer October 1994
Douglas E. Anderson 47 Vice President, Secretary 1987
W. Craig Worthy 42 Vice President, Treasurer 1987
Lisa K. McCourt 31 Vice President, Property Management Services October 1994
Pamela B. Novak 41 Vice President, Controller October 1994
</TABLE>
Set forth below is a summary of the business experience of the
executive officers of the Company:
D. Scott Wilkerson - President and Chief Executive Officer. From
1980 to 1986, Mr. Wilkerson was with Arthur Andersen LLP, Charlotte,
North Carolina, serving as Tax Manager from 1985 to 1986. His
specialization was in the representation of real estate syndicators,
developers and management companies. He joined BT Venture Corporation
("BTVC") in 1987 and served in various officer level positions,
including vice president of administration and finance and vice
president for acquisitions and development before becoming president in
January 1994. Mr. Wilkerson received a B.S. degree in accounting from
the University of North Carolina at Charlotte in 1980. He is a C.P.A.
and licensed real estate broker. He has been active in various
professional, civic and charitable activities.
Philip S. Payne - Executive Vice President and Chief Financial
Officer. Mr. Payne joined BTVC in 1990 as vice president of capital
market activities and became executive vice president and chief
financial officer in January 1993. From 1987 to 1990 he was a principal
in Payne Knowles Investment Group, a financial planning firm. From 1983
to 1987 he was a registered representative with Legg Mason Wood Walker.
From 1978 to 1983, Mr. Payne practiced law. He received a B.S. degree
from the College of William and Mary in 1973 and a J.D. degree in 1978
from the same institution.
<PAGE>
Douglas E. Anderson - Vice President and Secretary. Mr. Anderson
has served as vice president and secretary of the Company since its
inception in 1987. He has been with BNE since 1977 and is currently a
director, executive vice president and secretary of BNE, primarily
responsible for supervising financial and other administrative
activities. Mr. Anderson is also president of BNE Land and Development
Company, the real estate development division of BNE. He serves as a
director of Wachovia Bank of Rocky Mount, North Carolina, the
Educational Foundation of the University of North Carolina and is a
former director of Golden Corral Realty Corporation. He received a B.S.
degree in accounting from the University of North Carolina at Chapel
Hill in 1970.
W. Craig Worthy - Vice President and Treasurer. Mr. Worthy has
served as vice president and treasurer of the Company since its
inception in 1987. He is a certified public accountant and has been
employed by BNE since 1979. Mr. Worthy is currently senior vice
president and chief financial officer of BNE. He serves as a director
of First Union Bank of Rocky Mount, North Carolina. He received a B.A.
degree from the University of Virginia in 1974 and a Master of
Accountancy and of Business Administration from the University of South
Carolina in 1977.
Lisa K. McCourt - Vice President, Property Management Services.
Ms. McCourt became vice president of property management of BTVC in
1993. She joined BTVC in 1989 as a community manager and was promoted
to regional property manager and oversaw all apartment and shopping
center operations in the Raleigh-Durham-Chapel Hill area of North
Carolina and Virginia Beach, Virginia. Prior to joining the Company,
she worked for eight years in property management with fee-managed
properties for Boyd & Hassell Property Management Company.
Pamela B. Novak - Vice President and Controller. A certified
public accountant, Ms. Novak joined BTVC in 1993 as controller. From
1984 to 1993, she was employed by Ernst & Young as an audit manager.
She received a B.S. in accounting from the University of North Carolina
at Charlotte in 1984.
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation paid to Messrs. B. Mayo Boddie and D. Scott Wilkerson (the
"Named Executive Officers") for the year ended December 31, 1994:
Summary Compensation Table
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Long-Term
Annual Compensation Compensation
All Other
Name and Principal Position Year Salary Bonus Compensation Options(#)
B. Mayo Boddie, Chief Executive Officer(1) 1994 --- --- --- ---
1993 --- --- --- ---
1992 --- --- --- ---
D. Scott Wilkerson, President(2) 1994 $27,692(3) --- --- 50,000(4)
</TABLE>
(1) Mr. Boddie received no compensation from the Company.
(2) Mr. Wilkerson was named Chief Executive Officer of the Company in April
1995.
(3) Mr. Wilkerson's base salary on an annualized basis is $120,000.
(4) These options will vest in four equal annual installments
commencing October 1995.
The following tables set forth certain information with respect to
options granted in 1994 to the Named Executive Officers:
Options Grants in Fiscal Year 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Potential Realizable
Value at Assumed
Annual Rates of Stock Price
Appreciation
for Option Term(2)
Percent of Total
Options Granted Exercise
Options to Employee Price Expiration
Name Granted(1) in Fiscal Year Per Share Date 5% 10%
B. Mayo Boddie(3) --- --- --- --- --- ---
D. Scott Wilkerson 50,000 31.3% $13.75 October 2004 $432,365 $1,095,698
</TABLE>
(1) These options will vest in four equal annual installments
commencing October 1995.
(2) Realizable values have been reduced by the $13.75 per share option
exercise price that the optionee will be required to pay to the Company
in order to exercise the options.
(3) Mr. Boddie received no compensation from the Company.
<PAGE>
FISCAL-YEAR END OPTION VALUE
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Securities Underlying Value of Unexercised in-the-Money
Unexercised Options at Fiscal Year-End(#) Options at Fiscal Year-End($)
Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
B. Mayo Boddie ---/--- $---/---
D. Scott Wilkerson ---/50,000 $---/---
</TABLE>
(1) Based on a closing price of $12.50 per share of Common Stock on
December 31, 1994.
Employment Contracts
Mr. Wilkerson entered into a three-year employment contract with
the Company in 1994. This contract provides for annual compensation of
$120,000. The contract includes provisions restricting competition with
the Company during employment and, except in certain circumstances, for
a limited period of time after termination of employment. Under the
employment contact, Mr. Wilkerson is entitled to his base salary for the
later of six months or the remaining period of his contract in the event
of a change of control of the Company. If the Company terminates Mr.
Wilkerson without cause, his severance payment would equal his base
salary for six to twelve months depending on the number of months
remaining under his employment contract.
Executive Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee is or was a paid
officer or employee of the Company. One member, Douglas E. Anderson, is
Vice President and Secretary of the Company but receives no
compensation.
Committee Report on Executive Compensation
This report is provided by the Management Compensation Committee of
the Board of Directors (the "Committee") to assist shareholders in
understanding the Committee's objectives and procedures in establishing
the compensation of the Company's executive officers.
The Committee is responsible for establishing and administering the
Company's executive compensation plan. It is made up of the Company's
three outside directors and Douglas E. Anderson, who is non-compensated
officer of the Company.
Prior to the acquisition of BTVC, the Company had no paid officers
or employees. Upon the acquisition of BTVC, the executive officers of
BTVC became the executive officers of the Company with the terms and
conditions of their employment remaining substantially the same as those
that were in place with BTVC.
The Committee is currently developing a comprehensive compensation
plan for its executive officers. The Committee believes that
compensation of the Company's executive officers should link rewards to
business results and shareholder returns; encourage creation of
shareholder value and achievement of strategic objectives; maintain an
appropriate balance between base salary and short and long-term
incentive opportunity; attract and retain, on a long-term basis, high
caliber personnel; and provide total compensation opportunity that is
competitive with other REITs, taking into account relative company size
and performance as well as individual responsibilities and performance.
It is expected that this plan will consist of three key elements: base
salary, short-term incentives and long-term incentives.
Base Salary. Base salary for the Company's executive officers is
expected to be in line with that paid by other REITs, taking into
account the size of the Company and individual responsibilities and
performance, and will be reviewed annually.
<PAGE>
Short-term Incentives. Short-term incentives, generally cash
payments, will be based on the attainment of certain targeted
performance results. Such targets may include measures such as total
shareholder return, reported and operating earnings, funds from
operations and cash flow. Actual individual awards will depend on
assessments of individual and Company success in meeting the specified
targets.
Long-term Incentives. Long-term incentives may include a variety
of incentives including stock options, stock appreciation rights and
direct grants of the Company's stock. The Company, with the approval of
its shareholders, adopted a Stock Option and Incentive Plan on August 4,
1994. The Company has reserved 280,000 shares of Common Stock for
issuance under the plan. On October 17, 1994, options to purchase
160,000 shares at $13.75 per share (the fair market value of the stock
on the grant date) were granted to certain executive officers. The
options vest in equal annual installments beginning October 1995. The
granted options have a ten-year term.
Compensation of D. Scott Wilkerson
D. Scott Wilkerson became President of the Company on October 1,
1994 and Chief Executive Officer on April 18, 1995. Mr. Wilkerson's
employment contract provides for a base salary of $120,000 per year with
provision for short- term incentive compensation of up to 50 percent of
base salary. For the period October 1, 1994, to December 31, 1994, Mr.
Wilkerson received compensation of $27,900. This was comprised entirely
of base salary. No short-term incentive compensation was provided. As
long-term incentive compensation, Mr. Wilkerson was granted options to
purchase 50,000 shares of the Company's stock at $13.75 per share (the
fair market value of the stock on the grant date). The options vest in
four equal annual installments beginning October 1995 and have a
ten-year term.
March 24, 1995
Management Compensation Committee
James B. Powers
William H. Stanley
Richard A. Urquhart, Jr.
Douglas E. Anderson
The foregoing report should not be deemed incorporated by reference
by any general statement incorporating by reference this Proxy Statement
into any filing under the Securities Act of 1933 or under the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be
deemed filed under such Acts.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of February 13,
1995 for (i) each person who is known by the Company to own beneficially
more than five percent of the Company's Common Stock, (ii) the president
and each director of the Company and (iii) by all directors and
executive officers as a group. The address of each individual is c/o
3710 One First Union Center, Charlotte, North Carolina 28202.
<TABLE>
<CAPTION>
<S> <C> <C>
Shares Beneficially Owned
Name of Beneficial Owner Number Percent
B. Mayo Boddie 73,551(1) 2.5%
Nicholas B. Boddie 73,551(1) 2.5
James B. Powers 3,500 *
William H. Stanley 3,000 *
Richard A. Urquhart, Jr. 100 *
D. Scott Wilkerson 39,570 1.3
All directors and executive
officers as a group (11 persons) 405,125(2) 13.5
</TABLE>
* Represents less than 1% of the outstanding Common Stock.
(1) Includes 1,856 shares each to be issued as part of the acquisition of
BTVC.
(2) Includes 89,250 shares owned by Boddie-Noell Enterprises, Inc.
Savings and Employee Retirement Plan. Mr. Douglas E. Anderson and
Mr. W. Craig Worthy, both of whom are executive officers of the Company
and Boddie-Noell Enterprises, maintain shared voting control and
investment powers with respect to these shares. The address of
Boddie-Noell Enterprises, Inc. Savings and Employee Retirement Plan is
1021 Noell Lane, Rocky Mount, North Carolina 27802.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
B. Mayo Boddie and Nicholas B. Boddie
B. Mayo Boddie, Chairman of the Board of Directors of the Company,
is Chairman of the Board of Directors and Chief Executive Officer of
BNE. Nicholas B. Boddie is Vice Chairman and director of both the
Company and BNE. The Boddies and certain family members are the sole
owners of BNE. The Company leases 47 Hardee's restaurant properties to
BNE. See "The Company and BNE" below.
B. Mayo Boddie and Nicholas B. Boddie were Chairman and Vice
Chairman, respectively, directors and sole shareholders of BNE Advisory
Group, Inc., an affiliate of BNE. From the inception of the Company
until October 1, 1994, BNE Advisory Group was the advisor to the
Company. See "The Company and BNE Advisory Group" below.
The Boddies were the sole shareholders and directors of BTVC. From
June 1993 until October 1, 1994, BTVC was the management agent for the
Company's apartment properties. On October 1, 1994, the Company
acquired BTVC. See "The Company and BTVC" below.
<PAGE>
The Boddies are the sole shareholders and directors of Boddie
Investment Company ("BIC"). BIC is the general partner of the various
limited partnerships that own nine of the apartment properties and three
shopping centers managed on a fee basis by the Company. See "The
Company and BIC" below.
The Company did not pay the Boddies as directors for their services
during the period of 1994 that they were executive officers of the
Company.
The Company and BNE
In 1987, the Company purchased 47 existing Hardee's restaurant
properties from BNE Realty Partners, Limited Partnership, an affiliate
of BNE, for an aggregate purchase price of $43,243,000, or an average
purchase price of $920,000 per property. The restaurants are operated
by BNE under franchise agreements with Hardee's Food Systems, Inc.
Concurrent with the acquisition of the properties, the properties were
leased to BNE under a triple net lease (the "Master Lease"). The Master
Lease has a primary term of 15 years, grants BNE three five-year renewal
options and provides for rent equal to 9.875 percent of net restaurant
sales, subject to a minimum annual rent of eight percent of the purchase
price.
For the period ended December 31, 1994, the Master Lease with BNE
resulted in rental income of $5,047,000. Because the Master Lease is a
triple net lease, BNE is responsible for all taxes, utilities,
insurance, maintenance and alteration expenses relating to the operation
of the restaurant properties.
BNE has extended to the Company an unsecured revolving line of
credit of up to $2,000,000. The line of credit bears interest at a
floating rate per annum equal to the prime rate of First Union National
Bank of North Carolina. During 1994, draws of $1,100,000 were made and
repaid. Interest paid under this line in 1994 was $18,000. At December
31, 1994, there were no draws against this line.
With the acquisition of BTVC in October 1994 the Company assumed a
note payable to BNE in the amount of $6,100,000. The note bears
interest at a floating rate equal to the 30-day LIBOR rate plus 150
basis points capped at eight percent. Payments are interest only and
paid quarterly. The note is due in full on May 1, 1999. During 1994,
the Company recorded interest in this note to BNE in the amount of
$105,500.
The Company and BNE Advisory Group
From the inception of the Company until October 1, 1994, BNE
Advisory Group, an affiliate of BNE, served as the advisor to the
Company. BNE Advisory Group provided administrative services to the
Company and managed the day- to-day operations of the Company. In
addition, BNE Advisory Group provided executive and administrative
personnel and office space for such personnel to the Company. As
compensation for such services, the Company agreed to pay BNE Advisory
Group an annual fee equal to 4.65 percent of the Company's net cash
available from operations.
During the first three quarters of 1994, the Company paid BNE
Advisory Services fees in the amount of $153,000. With the acquisition
of BTVC on October 1, 1994, the Company terminated its advisory contract
with BNE Advisory Services.
The Company and BIC
With the acquisition of BTVC, the Company assumed fee management of
ten apartment properties and three shopping centers on October 1, 1994.
BIC is the general partner of the various limited partnerships that own
nine apartment properties and three shopping centers managed by the
Company. For its management, services the Company receives certain
property management and administrative fees (generally five percent of
apartment revenues collected and three percent of shopping center
revenues collected) from those limited partnerships. In addition, the
Company receives reimbursement for certain expenses. For the period of
October 1, 1994 to December 31, 1994, the Company received management
fees of $276,000 and expense reimbursement of $39,000.
<PAGE>
With the acquisition of BTVC, the Company assumed a note payable to
BIC in the amount of $956,000. The note bears interest at a floating
rate equal to the 30-day LIBOR rate plus 150 basis points capped at
eight percent. Payments are interest only and paid quarterly. The note
is due in full on May 1, 1999. During 1994, the Company recorded
interest on this note to BIC in the amount of $16,900.
The Company and BTVC
Prior to the acquisition of BTVC on October 1, 1994, the Company
contracted with BTVC to provide management services for its two
apartment properties, Paces Commons and Oakbrook. Under the management
agreement, BTVC was responsible for the leasing, maintenance, rent
collection, property accounting and day-to-day operations of these
properties. As compensation for these services, the Company agreed to
pay a management fee equal to five percent of the rental and other
revenue collected and to reimburse BTVC for certain expenses. For the
first three quarters of 1994, the Company paid BTVC property management
fees of $112,000 and expense reimbursements of $23,000. With the
acquisition of BTVC on October 1, 1994, the Company began to manage its
own properties.
BTVC was an integrated real estate management, development and
acquisition Company that owned one apartment property and managed an
additional 12 apartment communities, including two owned by the Company,
and three shopping centers. As result of the acquisition, the Company
succeeded to BTVC's third-party management business. The acquisition of
BTVC was made pursuant to a Proxy Statement, which was filed with the
Securities and Exchange Commission on June 15, 1994. The acquisition
was approved by the Company's shareholders at its Annual Meeting on
August 4, 1994, and was also approved by the Company's debt holders.
B. Mayo Boddie and Nicholas B. Boddie were the sole shareholders of
BTVC. As a result of the acquisition, the Boddies received substantial
compensation comprised of cash, shares of the Company's common stock and
relief from certain debt and contractual and contingent obligations. In
addition, they are entitled to receive additional shares of the Common
Stock in the event the Company meets certain performance standards.
The contract purchase price for BTVC was $23,112,000 (the "Initial
Consideration"). The Initial Consideration was paid by the Company as
follows: (i) $91,000 in cash; (ii) assumption of $21,251,000 in
indebtedness and other liabilities (including the current liability for
outstanding accounts payable, accrued expenses, and tenant security
deposits as of September 30, 1994); and (iii) 134,610 shares of Common
Stock valued at $1,899,000 (value based on a price of $14.1125 per
share, which was the average closing price for the 20 trading days
ending on the third business day prior to the closing of the
acquisition).
The acquisition agreement, provides for additional consideration of
up to $1,700,000 if the Company meets or exceeds certain performance
standards in the future (the "Additional Consideration"). The
Additional Consideration will be payable in shares of Common Stock or
cash, at the option of the Company, on a quarterly basis over a period
of up to 14 quarters commencing with the quarter ended December 31,
1994. The Additional Consideration is contingent upon the Company
generating funds from operations, as adjusted for additional non-cash
items such as acquisition expenses and loan cost charge-offs ("Adjusted
FFO"), which equals or exceeds certain agreed upon levels. Quarterly
targets for Adjusted FFO range from $1,134,000 to $1,264,00 with a total
cumulative target of $16,507,000 over the 14-quarter period.
The performance targets are cumulative. If the Company fails to
meet a target in any particular quarter, the Additional Consideration
will be deemed to be earned in a subsequent quarter if the cumulative
Adjusted FFO meets or exceeds the cumulative Adjusted FFO specified in
the schedule. To the extent the issuance of shares of Common Stock to
Messrs. Boddie and Boddie as Additional Consideration would cause the
Company to become disqualified as a REIT, they will be paid cash in lieu
of the shares that would result in the disqualification.
On October 1, 1994, the Company issued a total of 140,990 shares to
Messrs. Boddie and Boddie as part of the Initial Consideration. This
number of shares was issued on a preliminary estimate of the outstanding
accounts payable, accrued expenses, and tenant security deposits as of
September 30, 1994. Upon further review, it was determined that 6,380
shares had been issued in excess of the amount required by the
acquisition agreement ("excess
<PAGE>
shares"). During the fourth quarter of 1994, the Company attained the
financial targets specified for Additional Consideration. At December
31, 1994, Messrs. Boddie and Boddie are entitled to Additional Consideration,
net of the excess shares previously paid, of $49,647 ($141,667 less the
value of excess shares previously issued), to be paid in the form 3,712
shares of Common Stock during the first quarter of 1995.
Assuming the maximum amount of Additional Consideration is earned
and paid, the Company will issue approximately 121,000 additional
shares. This would result in total consideration for the acquisition of
BTVC, including the assumption of debt and liabilities, of approximately
$24,941,000.
<PAGE>
PROPOSAL TWO:
REORGANIZATION AS AN UPREIT
General
As evidenced by the Company's acquisition of BTVC, the Company is
committed to a strategy of changing its emphasis from restaurants to
apartment properties. The Company believes that this change in property
emphasis will increase the likelihood of shareholders realizing an
increase in stock value while receiving a competitive rate of return.
To this end the Company will seek to acquire properties from
unaffiliated third parties and some or all of the properties it
currently manages for third parties (the "Managed Properties").
Although a decision as to which, if any, of the Managed Properties the
Company might target for acquisition has not been made at this time, the
Company remains interested in acquiring all or some of these properties,
provided they can be obtained at an acceptable price and a beneficial
structure for such an acquisition can be found. The Company's ability
to acquire additional properties has been hindered as a result of its
inability to access sufficient sources of acquisition financing and its
high level of debt.
As a component of its growth strategy, the Company has explored a
variety of structures it could use to acquire additional apartment
properties, particularly structures that would allow the Company to
acquire properties without significant outlays of cash. As a result of
this review, the Company has considered the creation of an umbrella
partnership (the "Operating Partnership") that would own the Company's
properties, including the restaurant properties. In forming the
Operating Partnership the Company would contribute all of its properties
and other assets and liabilities to the Operating Partnership in
exchange for equity interests in the Operating Partnership. Upon
formation of the Operating Partnership, the Company would be the sole
general partner and a majority limited partner of the Operating
Partnership and all of the Company's day-to-day operations would be
conducted at the Operating Partnership level. As the sole general
partner, the Company would control the operations of the Operating
Partnership.
Reasons For Creation Of An Umbrella Partnership
Management of the Company believes that an umbrella partnership
structure, known as an "UPREIT," offers advantages over the Company's
current structure. The primary advantage is that the structure would
enable the Company to acquire additional multi-family properties through
the exchange of limited partnership interests ("Units") in the Operating
Partnership for partnership interests of other partnerships that own
multi-family properties (such as the Managed Properties) on a
tax-deferred basis. By acquiring properties in exchange for Units, the
Company could also minimize the amount of cash necessary to acquire
additional properties, thereby providing the Company with a means to
increase its portfolio at a faster rate. The Company believes that this
structure may enable the Company to make more attractive offers to the
partners of the Managed Properties (without the need to increase the
purchase price), as well as to partners of other non-affiliated
partnerships that own multi-family properties. While the Board of
Directors has not determined to restructure the Company as an UPREIT at
this time, by giving the Company the authority to restructure itself as
an UPREIT at the discretion of the Board of Directors, the shareholders
will provide the Company with significantly greater flexibility to
acquire additional properties at such time as an attractive acquisition
opportunity presents itself to the Company.
The Proposal
The Board of Directors by unanimous vote has adopted resolutions
approving and recommending that the shareholders authorize the Board of
Directors, at their sole discretion, to reorganize the Company as an
UPREIT, if and at such time as the Board determines that such
reorganization is in the best interests of the Company.
Proposed Structure of the Company
If the shareholders approve this proposal and the Board of
Directors determine to implement the restructuring, the Company would
form the Operating Partnership under the laws of the State of North
Carolina and would transfer
<PAGE>
substantially all of its assets and liabilities to such partnership in
exchange for a 1% interest in the Operating Partnership as the sole
general partner and an approximately 98.9% interest in the Operating
Partnership as a limited partner, representing collectively approximately
99.9% of the economic interest in the partnership. The other approximately
0.1% interest in the partnership would be held by certain officers of the
Company to enable the entity to qualify as a limited partnership under
North Carolina law. In the event the Company were to acquire additional
properties in exchange for Units in the Operating Partnership, the sellers
of such properties would become limited partners in the Operating
Partnership and the Company's limited partner interest would be reduced
proportionately based on the relative value of the sellers' equity in
the properties they contributed to the Operating Partnership as compared
to the value of the Company's existing assets. The Operating
Partnership's partnership agreement would provide that the Company would
always remain as the sole general partner and the majority limited
partner of the Operating Partnership. The Operating Partnership would be
structured to provide that distributions of cash from the partnership's
operations would be allocated between the Company and the other limited
partners based upon their respective equity ownership.
Units received by sellers of properties to the Operating
Partnership would generally be exchangeable into shares of Common Stock
of the Company on a one-for-one basis upon the request of the holder
after one year from receipt or, at the election of the Company, for cash
equal to the Units' fair market value. With each redemption of Units
for cash or Common Stock, the Company's percentage ownership interest in
the Operating Partnership would increase. In addition, whenever the
Company issued additional Common Stock, it would be obligated to
contribute the net proceeds therefrom to the Operating Partnership and
the Operating Partnership would be obligated to issue an equivalent
number of Units to the Company.
The Company currently provides management services for the Managed
Properties. Income earned by the Company from these third-party
management services is not considered to be "rents from real property"
and, thus, may adversely affect the characterization of the Company as a
REIT. See "--Federal Income Tax Considerations" for a discussion of the
limitations on revenue derived from third-party services. Although the
Company's third-party revenues to date have not exceeded the permissible
level, the Board of Directors have decided to restructure the Company's
third-party management services to alleviate the risk that the Company's
third-party revenues may do so in the future. As such, the Company will
transfer all of its third-party management contracts to a newly formed
taxable subsidiary (the "Management Company") of which 99% of the
economic interest would be owned by the Company directly, or through the
Operating Partnership if the UPREIT structure if implemented. TO enable
the Company to maintain its status as an REIT, the Company will own 100%
of the non-voting common stock and 1% of the voting stock of the
Management Company (representing 1% of the economic interest) will be
owned by officers of the Management Company, who will also be officers
of the Company. The shares held by these officers will be subject to a
provision in the Management Company's bylaws that will be designed to
ensure that such stock will be always be held by an officer of the
Management Company. The restructuring of the Company's third- party
management business through the creation of the Management Company is
not subject to approval by the Company's shareholders nor is it
conditioned upon the approval by the shareholders of the UPREIT
structure proposal. See "--Federal Income Tax Considerations" for a
further discussion of the Management Company.
Comparison of Common Stock and Units
Conducting the Company's operations through the Operating
Partnership allows the potential sellers of properties to defer certain
tax consequences by contributing the properties to the Operating
Partnership rather than to the Company and also offers favorable methods
of accessing capital markets. The restructuring of the Company to an
UPREIT would be designed to result in a distribution per Unit equal to a
distribution per share of Common Stock. Each Unit would be exchangeable
for one share of Common Stock or cash at the option of the Company
(subject to certain antidilution adjustments and certain limitations on
exchange to preserve the Company's status as a REIT). There are,
however, certain differences between the ownership of Common Stock and
Units, including:
Voting Rights. Holders of the Common Stock may elect the Board of
Directors of the Company, which as the general partner of the Operating
Partnership, controls the business of the Operating Partnership. Unit
holders may not elect directors of the Company, or elect or remove the
general partner without the consent of the Company.
<PAGE>
Transferability. The publicly held shares of Common Stock of the
Company are freely transferable under the Securities Act of 1933 by
holders who are not affiliates of the Company. The Units and the shares
of Common Stock into which they would be convertible would be subject to
transfer restrictions under applicable securities laws and under the
partnership agreement, including the required consent of the general
partner to the admission of any new limited partner.
Proposed Partnership Agreement of the Operating Partnership
In the event that the Company's shareholders approve the
restructuring of the Company as an UPREIT and that the Company
restructures, the Company will become the sole general partner and a
limited partner in the Operating Partnership. Following is a summary of
the key provisions that are expected to be included in the partnership
agreement of the Operating Partnership (the "Operating Partnership
Agreement"). The Operating Partnership would be formed under the North
Carolina Revised Uniform Limited Partnership Act, as amended.
Allocation of Distributions, Profits and Losses. The Operating
Partnership Agreement will provide that the net operating cash of the
Operating Partnership available for distribution, as well as net sales
or refinancing proceeds, will be distributed from time to time, as
determined by the Company (but not less frequently than quarterly), pro
rata in accordance with the partners' percentage interests. Profits and
losses for tax purposes will also generally be allocated among the
partners in accordance with their percentage interests, subject to
compliance with the provisions of Section 704(b) and 704(c) of the Code
and the Treasury Regulations thereunder. See "--Federal Income Tax
Considerations--Other Tax Considerations."
Management. As the sole general partner of the Operating
Partnership, the Company will generally have the exclusive right,
responsibility and discretion in the management and control of the
Operating Partnership. The Company will receive no compensation for its
services as general partner. The limited partners of the Operating
Partnership will generally have no authority to transact business or
take any action on behalf of, or make any decision for, the Operating
Partnership.
The Operating Partnership Agreement will provide that the Company
shall not, without the consent of a majority of the holders of the
Units, engage in any transaction or, in its capacity as the general
partner, authorize the Operating Partnership to take any action to amend
or terminate the Operating Partnership Agreement other than amendments
which do not adversely affect any limited partner, to make a general
assignment for the benefit of creditors, to hold any property other than
partnership interests in the Operating Partnership or property
incidental to carrying out its responsibilities as general partner, to
institute any proceeding for bankruptcy, to be dissolved or liquidated,
or to sell, transfer or otherwise dispose of all or substantially all of
the assets of the Operating Partnership.
Transferability of Interests. The Operating Partnership Agreement
generally will provide that the Company may not withdraw from the
Operating Partnership, or transfer or assign its interest in the
Operating Partnership. The limited partners generally may transfer all
or a portion of their interests in the Operating Partnership to a
transferee. No transferee, however, will be admitted to the Operating
Partnership as a substitute limited partner having the rights of a
limited partner without the consent of the Company and provided that
certain other conditions are met, including a written agreement that the
transferee be bound by the terms and conditions of the Operating
Partnership Agreement.
Initial Capital Contributions. Upon formation of the Operating
Partnership, the Company will transfer all of its assets to the
Operating Partnership and the Operating Partnership will assume all of
the liabilities of the Company in exchange for Units. For purposes of
this exchange, each Unit will have an initial value equal to the fair
market value of a share of Common Stock at the time of the formation of
the Operating Partnership. The limited partners upon formation will
contribute cash or property and receive the number of Units having a
fair market value equal to the fair market value of the cash or property
that they contribute.
Additional Capital Contributions; Issuance of Additional
Partnership Interests. No limited partner will be required under the
terms of the Operating Partnership Agreement to make additional capital
contributions to the Operating Partnership. The Company will be obligated
to make additional capital contributions to the Operating
<PAGE>
Partnership (i) as described below in connection with the issuance of
additional partnership interests to the Company and (ii) as specified
below under "--Awards Under Stock Option Plan."
The Operating Partnership Agreement will authorize the Company to
issue from time to time on behalf of the Operating Partnership
additional Units in the Operating Partnership to any person other than
the Company for any such partnership purpose, for such capital
contributions and other consideration and on such terms and with such
designations, preferences and rights as the Company shall determine.
Such additional interests in the Operating Partnership may not be issued
to the Company except in connection with an issuance of capital stock by
the Company with designations, preferences and rights similar to the
additional partnership interests that are issued, and the Company must
make a capital contribution to the Operating Partnership in an amount
equal to the proceeds received by the Company in connection with the
issuance of such stock. If additional Units are issued, the partnership
interests of all existing partners of the Operating Partnership,
including the Company, will be diluted proportionately.
Except in connection with the redemption rights described below,
the Company will not be allowed to issue additional capital stock except
on a pro rata basis to all shareholders, unless the proceeds of the
issuance are contributed to the Operating Partnership as an additional
capital contribution.
Redemption of Partnership Units. The Operating Partnership will be
obligated to redeem each Unit at the request of the holder thereof after
one year from the issuance of the Unit for cash equal to the fair market
value of one share of Common Stock at the time of such redemption,
provided that the Company may elect to acquire any such Unit presented
for redemption for either one share of Common Stock or an amount of cash
of the same value. The Company presently anticipates that it will elect
to issue Common Stock in connection with each such redemption, rather
than having the Operating Partnership pay cash. With each such
redemption, the Company's percentage ownership interest in the Operating
Partnership would increase.
Indemnifications and Fiduciary Standards. The Operating
Partnership Agreement will provide that the general partner and each
person designated or delegated by the general partner will discharge its
duties in a manner reasonably believed to be in the best interest of the
Operating Partnership as an entity distinct from the individual
interests of the partners, and, in general, in a manner consistent with
the fiduciary duties of care and loyalty. The Operating Partnership
Agreement also will provide that all such persons will be indemnified
and held harmless by the Operating Partnership for any act performed for
or on behalf of the Operating Partnership or in furtherance of the
Operating Partnership's business, provided that such person acted in a
manner he believed to be in or not opposed to the best interests of the
Operating Partnership, and with respect to any criminal action, as to
which such person had no reasonable cause to believe his conduct was
unlawful. No indemnification will be made if such person is adjudged
liable to the Operating Partnership unless a court shall determine that
such person is nevertheless entitled to indemnity. The Operating
Partnership Agreement also will provide that no such person will have
personal liability to the Operating Partnership and its partners for
monetary damages for breach of fiduciary duty except: (i) for a breach
of a duty of loyalty, or (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law.
Tax Matters Partner. The Operating Partnership Agreement will
provide for the Company to be the tax matters partner of the Operating
Partnership and, as such, to have authority to make tax elections under
the Internal Revenue Code (the "Code") on behalf of the Operating
Partnership.
Operations. The Operating Partnership Agreement will require the
Operating Partnership to be operated in a manner that will enable the
Company to satisfy the requirements for being classified as REIT and to
avoid any Federal income tax liability.
Pursuant to the Operating Partnership Agreement, the Operating
Partnership will assume and pay when due, or reimburse the Company for
payment of, all expenses it might incur relating to the ownership and
operation of, or for the benefit of, the Operating Partnership and all
costs and expenses relating to the formation, continuity of existence
and operations of the Company.
<PAGE>
Term. The term of the Operating Partnership will continue until
December 31, 2094, or until sooner dissolved pursuant to the terms of
the Operating Partnership Agreement.
Awards Under Stock Option Plan. If options granted in connection
with the Company's Stock Option and Incentive Plan are exercised at any
time or from time to time, the Partnership Agreement will require the
Company to contribute to the Operating Partnership as an additional
capital contribution the exercise price received by the Company in
connection with the issuance of Common Stock to such participant.
Although the Company will contribute to the Operating Partnership an
amount equal to the exercise price received by the Company, the Company
will be considered to have contributed an amount equal to the fair
market value of the Common Stock issued to the exercising participant
for purposes of increasing the partnership interests of the Company (and
diluting the interests of the limited partners) in connection with
additional capital contributions of the Company.
Other. The Operating Partnership Agreement will provide that all
business activities of the Company must be conducted through the
Operating Partnership or subsidiary partnerships or corporations.
The Operating Partnership will be authorized to enter into
transactions with partners or their affiliates, as long as the terms of
such transactions are fair and reasonable, and no less favorable to the
Operating Partnership than would be obtained from an unaffiliated third
party.
Except for certain conflicts of interest relating primarily to
employees or directors of the Company or its affiliates, any limited
partner of the Operating Partnership will be able to engage in other
business activities outside the Operating Partnership, including
business activities that directly compete with the Operating
Partnership.
Federal Income Tax Considerations
The Company is seeking shareholder approval to restructure as an
UPREIT with all of the assets and activities of the Company being
transferred to the Operating Partnership and with all of the liabilities
of the Company being assumed by the Operating Partnership. In the event
that the shareholders approve the restructuring and the Company does, in
fact, restructure, the following is a discussion of the material Federal
income tax considerations to the Company and its shareholders relative
to the UPREIT structure. This discussion is not intended to represent a
detailed description of the Federal income tax consequences applicable
to a particular shareholder of the Company in view of a shareholder's
particular circumstances, or to certain types of shareholders subject to
special treatment under the Federal income tax laws (including insurance
companies, tax-exempt organizations, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States). The discussion in this section is
based on current provisions of the Code, current and proposed Treasury
Regulations, court decisions and other administrative rulings and
interpretations, all of which are subject to change that may be
retroactively applied. There can be no assurance that any such change,
future Code provisions or other legal authorities will not alter
significantly the tax considerations described herein.
General. The Company has elected and has qualified to be taxed as
a REIT since its formation. The Company intends to continue to be
organized and to operate in such a manner so as to qualify for taxation
as a REIT under the Code. No assurance can be given, however, that the
Company will operate in a manner so as to remain qualified as a REIT.
Taxability of the Restructuring into an UPREIT. The proposed
restructuring of the Company into an UPREIT structure will be
accomplished by a transfer of all of the assets of the Company,
including the stock in the Management Company as discussed above, to the
Operating Partnership and an assumption by the Operating Partnership of
all of the liabilities of the Company. The contribution of assets and
assumption of liabilities by the Company in exchange for partnership
interests in the Operating Partnership should be a nontaxable
transaction and the Company's historical tax basis in the assets
contributed will carry over to the Operating Partnership. (See also
"--Other Tax Considerations" below.)
<PAGE>
Federal Income Taxation of the Company. Since the Company
qualifies for taxation as a REIT, it generally is not and will not be
subject to Federal corporate income tax on that portion of its ordinary
income or capital gain that is currently distributed to shareholders.
The conversion to an UPREIT structure should not alter the Company's
taxation as a REIT. The REIT provisions of the Code generally allow a
REIT to deduct distributions paid to its shareholders, substantially
eliminating the Federal "double taxation" on earnings (once at the
corporate level when earned and once again at the shareholder level when
distributed) that usually results from investments in a corporation.
Nevertheless, the Company will be subject to Federal income tax,
including tax (i) on its undistributed REIT taxable income, including
undistributed net capital gains, (ii) on net income from prohibited
transactions (which are, in general, certain sales or other dispositions
of property held primarily for the sale to customers in the ordinary
course of business), (iii) on a percentage of its net income
attributable to a failure to meet certain gross income requirements
relative to the nature of that income, and (iv) on any built- in gain
from assets acquired from a C corporation (i.e., a corporation generally
subject to full corporate-level tax) in a carryover-basis transaction if
the Company recognizes gain on the disposition of such assets during the
ten-year period beginning on the date on which the asset was acquired by
the Company.
Requirements for Qualification -- Impact of Restructuring. To
qualify as a REIT, the Company has elected to be taxed as a REIT and has
heretofore met the requirements relating to the Company's organization,
sources of income, nature of assets and distributions of income to
shareholders.
In the case of a REIT that is a partner in a partnership, such as
the Operating Partnership, Treasury Regulations provide that the REIT
will be deemed to own its proportionate share of the assets of the
partnership and will be deemed to be entitled to the income of the
partnership attributable to such share. In addition, the character of
the assets and gross income of the partnership will retain the same
character in the hands of the REIT for purposes of Section 856 of the
Code, including satisfying the gross income tests and asset tests.
Thus, the Company's proportionate share of the assets, liabilities and
items of income of the Operating Partnership (including the Operating
Partnership's share of the assets and liabilities and items of income
with respect to any partnership in which it holds an interest) will be
treated as assets, liabilities and items of income of the Company for
purposes of applying the REIT qualification requirements.
At the close of each quarter of its taxable year, the Company must
satisfy three tests relating to the nature and diversification of its
assets. First, at least 75% of the value of the Company's total assets
must be represented by real estate assets, cash, cash items and
government securities. Second, no more than 25% of the Company's total
assets may be represented by securities other than those in the 75%
asset class. Third, of the investments included in the 25% asset class,
the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets, and the Company
may not own more than 10% of any one issuer's outstanding voting
securities.
Currently, the Company receives significant fee income for
management of and services rendered to third-party- owned properties.
Prior to this proposed restructuring, a substantial portion of the
activities and, therefore, the income and assets of these third-party
services will have been contributed to a newly created corporation, the
Management Company. Due to the restrictions discussed above relative to
the Company's ownership of corporate securities, in order to avoid
possible negative consequences on the Company's REIT qualification, the
Company prior to the restructuring and the Operating Partnership after
the restructuring will own 100% of the nonvoting stock and 5% of the
voting stock of the Management Company. The remaining 95% of the voting
stock will be owned by the officers of the Management Company with
restrictions requiring that such stock be owned at all times by officers
of the Management Company. Also by virtue of its ownership of Units in
the Operating Partnership, the Company will be considered to own its pro
rata share of such stock. The value of such pro rata share cannot exceed
5% of the value of the total assets of the Company. The Company and its
senior management do not believe that the Company's pro rata share of
the value of the securities of the Management Company, after the
proposed restructuring is complete will exceed 5% of the total value of
the Company's assets. The Company's belief is based in part upon its
analysis of the estimated value of the securities of the Management
Company to be owned by the Operating Partnership relative to the
estimated value of the other assets to be owned by the Operating
Partnership. No independent appraisals will be obtained to support this
conclusion. There can be no assurance, however, that the IRS might not
contend that the value of such securities of the Management Company held
by the Company (through the Operating Partnership) exceeds the 5% value
limitation.
<PAGE>
The 5% test must generally be met for any quarter in which the
Company acquires securities of an issuer. Thus, this requirement must
be satisfied not only on the date the Company acquires securities of the
Management Company, but also each time the Company increases its
ownership of its securities (including as a result of increasing its
interest in the Operating Partnership as limited partners might exercise
their redemption rights under the terms of the Operating Partnership
Agreement. See "Proposed Partnership Agreement of the Operating
Partnership --Redemption of Partnership Units"). Although the Company
will continue to take steps to ensure that it satisfies the 5% value
test for any quarter with respect to which retesting is to occur, there
can be no assurance that such steps will always be successful or will
not require a reduction in the Company's overall interest in the
Management Company.
After initially meeting the asset tests at the close of any
quarter, the Company will not lose its status as a REIT for failure to
satisfy the asset tests at the end of a later quarter solely by reason
of changes in asset value. If the failure to satisfy the asset tests
results from an acquisition of securities or other property during a
quarter, the failure can be cured by disposition of sufficient
non-qualifying assets within 30 days after the close of that quarter.
The Company intends to maintain adequate records of the value of its
assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required
to cure any noncompliance.
The Company intends to make timely distributions sufficient to
satisfy the annual distribution requirements. In this regard, the
Operating Partnership Agreement authorizes the Company, as general
partner, to take such steps as may be necessary to cause the operating
Partnership to distribute to its partners in amount sufficient to permit
the Company to meet these distribution requirements.
Failure to Qualify. If the Company fails to qualify for taxation
as a REIT in any taxable year and the relief provisions do not apply,
the Company will be subject to tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates.
Distributions to shareholders in any year in which the Company fails to
qualify will not be deductible by the Company nor will they be required
to be made. In such event, to the extent of current or accumulated
earnings and profits, all distributions to shareholders will be
dividends, taxable as ordinary income, except that, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends-received deduction. Unless the Company is entitled to relief
under specific statutory provisions, the Company also will be
disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not
possible to state whether in all circumstances the Company would be
entitled to such statutory relief. For example, if the Company fails to
satisfy the gross income tests because non-qualifying income that the
Company intentionally incurs exceeds the limit on such income, the IRS
could conclude that the Company's failure to satisfy the tests was not
due to reasonable cause.
Other Tax Considerations
Effect of Tax Status of Operating Partnership on REIT
Qualification. All of the Company's investments will be through the
Operating Partnership. The Operating Partnership will involve special
tax considerations. Such considerations include (i) the allocations of
income and expense items of the Operating Partnership, which could
affect the computation of taxable income of the Company, (ii) the status
of the Operating Partnership as a partnership (as opposed to an
association taxable as a corporation) for income tax purposes, and (iii)
the taking of actions by the Operating Partnership that could adversely
affect the Company's qualifications as a REIT. It is expected that the
Operating Partnership will be treated for Federal income tax purposes as
a partnership (and not as an association taxable as a corporation). If,
however, the Operating Partnership were treated as an association
taxable as a corporation, the Company would fail to qualify as a REIT
for a number of reasons.
Tax Allocations with Respect to the Properties. When property
is contributed to a partnership in exchange for an interest in the
partnership such as the contribution by the Company of its assets upon
formation of the Operating Partnership, the partnership generally takes
a carryover basis in that property for tax purposes equal to the
adjusted basis of the contributing partner in the property, rather than
a basis equal to the fair market value of the property at the time of
contribution. Pursuant to section 704(c) of the Code, income, gain,
loss and deduction attributable to such contributed property must be
allocated in a manner such that the contributing partner is charged
with, or benefits from, respectively, the unrealized gain or unrealized
loss associated with the property at the time of
<PAGE>
the contribution. The amount of such unrealized gain or unrealized loss
is generally equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis
of such property at the time of contribution (a "Book-Tax Difference").
Such allocations are solely for Federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. Since the Operating Partnership will be formed by way of
contributions of appreciated property, the Operating Partnership Agreement
will require tax allocations to be made in a manner consistent with section
704(c) of the Code.
The final and temporary Regulations under Section 704(c) of the
Code provide partnerships with a choice of several methods of accounting
for Book-Tax Differences for property contributed on or after December
21, 1993. Although certain tax elections are available that might
eliminate distortions created in accounting for Book-Tax Difference by
increasing the taxable income (but not the economic income) allocated to
partners other than the Company, the Operating Partnership might not
make such elections. This could cause a greater portion of the
Company's distributions to be taxable to shareholders rather than
treated as a return of capital and may cause the Company to recognize
taxable income in excess of cash proceeds, which might adversely affect
the Company's ability to comply with REIT distribution requirements.
Management Companies. A portion of the amounts to be used to
fund distributions to shareholders is expected to come from the
Operating Partnership from distributions on stock of the Management
Company held by the Operating Partnership. The Management Company will
not qualify as a REIT, and the Management Company will pay Federal,
state and local income taxes on its taxable income at normal corporate
rates. Any Federal, state or local income taxes that the Management
Company is required to pay will reduce the cash available for
distribution by the Company to its shareholders.
As described above, the value of the equity and debt securities of
the Management Company held by the Company cannot exceed 5% of the value
of the Company's assets at a time when a Unit holder in the Operating
Partnership exercises his redemption right (or the Company otherwise is
considered to acquire additional securities of the Management Company).
See "Requirements for Qualification -- Impact of Restructuring". This
limitation may restrict the ability of the Management Company to
increase the size of its business unless the value of the assets of the
Company is increasing at a commensurate rate.
<PAGE>
PROPOSAL THREE:
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Proposed Amendment
The Board of Directors by unanimous vote has adopted resolutions
approving and recommending that the shareholders adopt an amendment to
Article IV of the Company's Certificate of Incorporation to (i)
authorize the issuance of 10 million shares of preferred stock, issuable
in series the characteristics of which would be set by the Board of
Directors, and (ii) to increase the total number of shares of Common
Stock the Company is authorized to issue from 10 million to 100 million.
The proposed amendment would delete the present Article IV in its
entirety and replace said Article with the following:
ARTICLE IV
(a) Shares and Par Value. The total number of shares of
stock of all classes that the Corporation has authority to issue is
110,000,000 shares of capital stock (par value $.01 per share),
amounting in aggregate par value to $1,100,000, of which 10,000,000
shares are classified as Preferred Stock (par value $.01 per share)
and 100,000,000 shares are classified as Common Stock (par value
$.01 per share).
(b) Preferred Stock. Subject to the limitations prescribed
by law and the provisions of this Article IV, the Board of
Directors may classify and reclassify any unissued shares of
Preferred Stock by setting or changing in any one or more respects,
from time to time before issuance of such shares, the preferences,
conversion or other rights, voting powers, restrictions (including
restrictions on transfers of shares), limitations as to dividends,
qualifications or terms or conditions of redemption of such shares
of Preferred Stock. The power of the Board of Directors to
classify and reclassify any of the shares of Preferred Stock shall
include, without limitation, authority to determine, fix, or alter
one or more of the following:
(i) The distinctive designation of such class or series
and the number of shares to constitute such class or series;
provided that, unless otherwise prohibited by the terms of
such or any other class or series, the number of shares of any
class or series may be decreased by the Board of Directors in
connection with any classification or reclassification of
unissued shares and the number of shares of such class or
series may be increased by the Board of Directors in
connection with any such classification or reclassification,
and any shares of any class or series which have been
redeemed, purchased, otherwise acquired or converted into
shares of Common Stock or any other class or series shall
become part of the authorized capital stock and be subject to
classification and reclassification as provided in this
sub-paragraph.
(ii) Whether or not and, if so, the rates, amounts and
times at which, and the conditions under which, dividends
shall be payable on shares of such class or series, whether
any such dividends shall rank senior, or junior to or on a
parity with the dividends payable on any other class or series
of stock, and the status of any such dividends as cumulative,
cumulative to a limited extent or non-cumulative and as
participating or non-participating.
<PAGE>
(iii) Whether or not shares of such class or series
shall have voting rights, in addition to any voting rights
provided by law and, if so, the terms of such voting rights.
(iv) Whether or not shares of such class or series shall
have conversion or exchange privileges and, if so, the terms
and conditions thereof, including provision for adjustment of
the conversion or exchange rate in such events or at such
times as the Board of Directions shall determine.
(v) Whether or not shares of such class or series shall
be subject to redemption and, if so, the terms and conditions
of such redemption, including the date or dates upon or after
which they shall be redeemable and the amount per share
payable in case of redemption, which amount may vary under
different conditions and at different redemption dates; and
whether or not there shall be any sinking fund or purchase
account in respect thereof, and if so, the terms thereof.
(vi) The rights of the holders of shares of such class or
series upon the liquidation, dissolution or winding up of the
affairs of, or upon any distribution of the assets of, the
Corporation, which rights may vary depending upon whether such
liquidation, dissolution or winding up is voluntary or
involuntary and, if voluntary, may vary at different dates,
and whether such rights shall rank senior or junior to or on a
parity with such rights of any other class or series of stock.
(vii) Whether or not there shall be any limitations
applicable, while shares of such class or series are
outstanding, upon the payment of dividends or making of
distributions on, or the acquisition of, or the use of moneys
for purchase or redemption of, any stock of the Corporation,
or upon any other action of the Corporation, including action
under this sub-paragraph, and, if so, the terms and conditions
thereof.
(viii) Any other preferences, rights, restrictions,
including restrictions on transferability, and qualifications
of shares of such class or series, not inconsistent with law
and the Certificate of Incorporation.
Issuance of Preferred Stock
Approval of the proposed amendment to the Company's Certificate of
Incorporation would authorize the Company to issue 10 million shares of
preferred stock, par value $.01 per share (the "Preferred Stock"). The
powers, preferences and rights and qualifications, limitations and
restrictions of the Preferred Stock would be determined by resolution of
the Board of Directors. The Board of Directors would he authorized to
issue Preferred Stock in series and vary the powers, preferences and
rights, and the qualifications, limitations and restrictions thereof as
between series. See "--The Proposed Amendment."
The terms of the Preferred Stock cannot be stated or estimated at
this time. At present the Board has not proposed to fix the
characteristics of any series of Preferred Stock in anticipation of
issuing shares of that series nor has it approved specific financing or
acquisition plans involving the issuance of Preferred Stock. The
Company has engaged Craigie Incorporated to place an issuance of
Preferred Stock, but no agreement has been reached with any prospective
purchaser regarding the terms thereof. The Company has identified
potential acquisitions in the event Preferred Stock is issued; however,
the Company has not entered into negotiations with the owners of such
potential acquisition targets nor has it determined the form of
consideration the Company might offer, e.g., Units or the cash proceeds
of a Preferred Stock offering.
<PAGE>
The issuance of Preferred Stock could affect the rights of holders
of the Common Stock. Dividends on Preferred Stock may be required to be
paid prior to any dividends on Common Stock. Preferred stockholders may
be given priority in the event of a liquidation, dissolution or winding
up of the Company. In addition, Preferred Stock may also be convertible
into shares of Common Stock at a conversion rate set by the Board of
Directors. Such conversion could have a dilutive effect on the holders
of Common Stock. The Company intends to issue the Preferred Stock in
private offerings and does not intend to seek additional shareholder
approval prior to its issuance.
The Board of Directors recommends authorizing the Company to issue
Preferred Stock. Such authority would provide the Company greater
flexibility with respect to future financings and acquisitions and allow
greater flexibility in carrying out general corporate purposes.
Although Preferred Stock might be utilized to resist an attempted
change of control of the Company, the Board of Directors does not intend
to utilize it for this purpose. As a qualified real estate investment
trust, the Company is subject to provisions of the Internal Revenue Code
that limit concentration of ownership of its shares, and the Board
believes that these provisions and provisions of the Articles of
Incorporation of the Company, which authorize the Company to redeem and
stop transfer of shares to preserve its qualification, make any attempt
to change control unlikely.
Increasing the Number of Authorized Shares of Common Stock
Approval of the proposed amendment to the Company's Certificate of
Incorporation would increase the total number of shares of Common Stock
that the Company is authorized to issue from 10 million to 100 million.
The Board of Directors recommends such an increase to offer the Company
greater flexibility in setting the conversion rate of the Preferred
Stock. The amendment would also increase the number of Units (which
would be redeemable for shares of Common Stock) that the Company could
cause the Operating Partnership to issue, if the Company is restructured
as an UPREIT. See "Reorganization as an UPREIT." In addition, an
increase in the number of shares of Common Stock the Company is
authorized to issue would allow the Company to consider such options as
a secondary offering of Common Stock, a stock split or stock dividend
and other forms of recapitalization. The Company is not considering any
recapitalization presently but believes that such flexibility is in the
Company's best interest.
<PAGE>
PROPOSAL FOUR:
AMENDMENT OF BYLAWS TO ELIMINATE THE RESTRICTION ON THE
ISSUANCE OF REDEEMABLE EQUITY SECURITIES
The Board of Directors by unanimous vote has adopted a resolution
approving and recommending that the shareholders adopt an amendment to
the bylaws to eliminate the restriction on the issuance of equity
securities that are redeemable by the holder thereof. Section 3.12
presently includes the following restriction:
The Company shall not: . . . (d) issue equity securities
which are redeemable at the option of the holder thereof;
The proposed amendment would delete all of clause (d) from section 3.12.
The proposed amendment is necessary to allow the Company to issue
preferred stock with redemption rights. The Board of Directors believes
that such flexibility in setting the rights of the Preferred Stock
should increase the likelihood that the Company can raise funds through
the issuance of Preferred Stock on attractive terms. See "Amendment of
Certificate of Incorporation--Issuance of Preferred Stock." In
addition, without eliminating the restriction on the issuance of
redeemable equity securities, the Company might also be precluded from
converting to an UPREIT because the interests in the Operating
Partnership would be redeemable for shares of Common Stock. See
"Reorganization as an UPREIT."
<PAGE>
PROPOSAL FIVE:
AMENDMENT OF BYLAWS TO ELIMINATE RESTRICTIONS ON
INVESTMENTS, SECURITY ISSUANCES AND BORROWINGS
The Board of Directors by unanimous vote has adopted resolutions
approving and recommending that the shareholders amend the bylaws to
eliminate Section 3.12, which imposes various restrictions on the
Company's investments, security issuances and borrowings. Section 3.12
presently states:
Section 3.12 Investment Policies and Restrictions. It shall
be the duty of the Board of Directors to ensure that the purchase,
sale, retention and disposal of the Corporation's assets, and the
investment policies of the Corporation and the limitations thereon
or amendment thereto are at all times:
(a) consistent with such policies, limitations and
restrictions as are contained in this Section 3.12, or recited
in the Registration Statement on Form S-11 (the "Registration
Statement") filed with the Securities and Exchange Commission
in connection with this Corporation's initial offering of
common stock (the "Initial Offering"); and
(b) in compliance with the restrictions applicable to
real estate investment trusts pursuant to the Internal Revenue
Code of 1986, as amended.
The Corporation shall not:
(a) invest in mortgage loans unless an appraisal is
obtained concerning the underlying property;
(b) invest more than 10% of the Company's total assets
in unimproved real property or mortgage loans on unimproved
real property;
(c) invest in commodity or commodity future contracts
other than interest rate futures used solely for hedging
purposes;
(d) issue equity securities which are redeemable at the
option of the holders thereof;
(e) issue debt securities unless the historical debt
service coverage of the most recently completed fiscal year,
as adjusted for known changes, is sufficient to service the
higher level of debt (without regard to any applicable balloon
principal payments);
(f) issue options or warrants to purchase shares of the
Company at an exercise price less than the fair market value
of such shares or which are for more than 10% of the
outstanding shares;
(g) invest in real estate contracts for sale, unless
such real estate contracts are recordable in the chain of
title; or
(h) act in any way that would disqualify the Company as
a real estate investment trust under the provisions of the
Code.
<PAGE>
The Corporation does not intend to invest in the securities of
other issuers for the purposes of exercising control (other than
with respect to wholly owned subsidiaries), to engage in the
trading of or to underwrite securities for other issuers, to engage
in the purchase and sale (or turnover) of investments other than as
described in the Registration Statement, to offer securities in
exchange for property unless deemed prudent by a majority of the
Directors, to repurchase or otherwise reacquire shares of the
Corporation except as may be necessary to maintain qualification as
a real estate investment trust, to issue senior securities or to
make loans to other persons.
The Independent Directors shall review the investment policies
of the Corporation at least annually to determine that the policies
then being followed by the Corporation are in the best interests of
its Stockholders. Each such determination and the basis therefore
shall be set forth in the minutes of the Board of Directors.
The Directors shall review the borrowings of the Corporation
quarterly for reasonableness in relation to the Corporation's net
assets. The Corporation shall not incur indebtedness if, after
giving effect to the incurrence thereof, aggregate indebtedness,
secured and unsecured, would exceed three hundred percent (300%) of
the Corporation's net assets, on a consolidated basis, unless
approved by a majority of the Directors, including a majority of
the Independent Directors, and disclosed to the Stockholders in the
next quarterly report of the Corporation, along with justification
for such excess. For this purpose, the term "Net Assets" means the
total assets (less intangibles) of the Corporation at cost, before
deducting depreciation or other non-cash reserves, less total
liabilities, as calculated at the end of each quarter on a basis
consistently applied.
The foregoing prohibitions and restrictions set forth in this
Section 3.12 shall not be changed without the approval of the
Stockholders of the Corporation.
The proposed amendment would delete all of Section 3.12.
The Board believes that Section 3.12 of the bylaws, which
restricts the Company's investments, security issuances and borrowings,
could limit the Board from pursuing matters that are in the best
interest of the Corporation. A review of recent security offerings of
real estate investment trusts reveals that the boards of such companies
are not restricted in the manner that the Company is restricted by
Section 3.12. The Board believes that the removal of these restrictions
will provide the Company with greater flexibility in raising capital,
which flexibility is needed as traditional sources of capital have
become harder to obtain.
Notwithstanding the Board's recommendation that the shareholders
vote to eliminate Section 3.12 from the bylaws, the Board has no plans
to invest, borrow or issue securities inconsistent with the current
bylaw limitations except for the possible issuance of redeemable
Preferred Stock and the possible formation of an UPREIT, involving
issuance by the Operating Partnership of Units that would be redeemable
for shares of Common Stock. See "Reorganization as an UPREIT" and
"Amendment of Certificate of Incorporation--Issuance of Preferred
Stock." The Company currently has a policy of incurring debt only if
upon such incurrence the ratio of debt to the Company's net assets would
be 300% or less. Although the Board of Directors has no present
intention to do so, if the stockholders approve the proposed amendment
to the bylaws, this and other policies may be amended or revised at any
time and from time to time at the discretion of the Board of Directors
without a vote of the stockholders of the Company. A change in the
Company's borrowing policies could cause the Company to become more
highly leveraged, resulting in an increase in debt service that could
adversely affect the Company's cash flow and, consequently, the amount
available for distribution to shareholders and could increase the risk
of default on the Company's indebtedness. A change in other policies
could also adversely affect the Company's financial condition, results
from operation or the market price of the Common Stock.
<PAGE>
PROPOSAL SIX:
APPROVAL OF LARGE PURCHASERS OF PREFERRED STOCK OR UNITS
Under the rules of the American Stock Exchange, shareholder
approval is required before the Company can list shares issued in
connection with an acquisition resulting in a person or group becoming a
beneficial holder of 20% or more of the outstanding shares of Common
Stock. Because the Preferred Stock may be convertible into shares of
Common Stock, a large issuance of Preferred Stock in connection with an
acquisition could require shareholder approval. In addition, were the
Company to form an UPREIT, the Units would be redeemable for shares of
Common Stock; therefore, the issuance to one person or group of a number
of Units redeemable for 20% or more of the Common Stock in connection
with an acquisition could also require shareholder approval. The
American Stock Exchange has informed the Company that such shareholder
approval requirement can be eliminated upon the approval of the
Company's shareholders.
The Board of Directors recommends that the shareholders vote FOR
the proposal authorizing the issuance to a single person or group of
Preferred Stock or Units redeemable for 20% or more of the Common Stock
from time to time in connection with acquisitions without further
shareholder approval. The Board believes that such flexibility will
increase the likelihood that the Company can raise funds or acquire
properties on attractive terms. Notwithstanding shareholder approval of
such an issuance of Preferred Stock or Units, the Company's Certificate
of Incorporation prohibits the issuance of capital stock causing a
person or group to own directly or indirectly more than 9.8% of the
outstanding shares of capital stock unless such person or group has
provided the Board of Directors with evidence and assurances acceptable
to the Board of Directors that the qualification of the Company as a
real estate investment trust under the Code would not be jeopardized.
<PAGE>
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company, upon the recommendation of
the Audit Committee, has appointed the accounting firm of Arthur
Andersen & Co. to serve as independent auditors of the Company for the
fiscal year ending December 31, 1995. Arthur Andersen & Co. has served
as independent auditors of the Company since its commencement of
operations and is considered by management of the Company to be well
qualified. The Company has been advised by that firm that neither it
nor any member thereof has any financial interest, direct or indirect,
in the Company or any of its subsidiaries in any capacity.
Representatives of Arthur Andersen & Co. will be present at the
Meeting, will have the opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
STOCK PRICE PERFORMANCE GRAPH
The following stock price performance graph compares the Company's
performance to the S&P 500 and the index of equity real estate
investment trusts prepared by the National Association of Real Estate
Investment Trusts ("NAREIT") for the last five years. The stock price
performance graph assumes an investment of $100 in the Company and the
two indexes on December 31, 1989 and further assumes the reinvestment of
all dividends. Equity real estate investment trusts are defined as
those which derive more than 75% of their income from equity investments
in real estate assets. The NAREIT equity index includes all tax
qualified real estate investment trusts listed on the New York Stock
Exchange, the American Stock Exchange or Nasdaq National Market System.
Stock price performance is not necessarily indicative of future results.
[stock price performance graph appears here, a description of which is
set forth as an appendix hereto]
The stock price performance graph shall not be deemed incorporated
by reference by any general statement incorporating by reference this
Proxy Statement into any filing under the Securities Act of 1933 or
under the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such Acts.
PROPOSALS OF SHAREHOLDERS
If the 1996 Annual Meeting is held on a date between May 30, 1996
and September 27, 1996, then any proposal by a shareholder for a matter
to be presented at that meeting must be received for inclusion in the
proxy statement and form of proxy at the Company's executive offices at
3710 One First Union Center, Charlotte, North Carolina, 28202 no later
than January 26, 1996, in a form consistent with the regulations of the
Securities and Exchange Commission governing the inclusion of such
proposals in proxy statements and forms of proxy.
<PAGE>
GENERAL
The Board of Directors knows of no other matter to be acted upon at
the Meeting. However, if any other matter is lawfully brought before
the Meeting, the shares covered by such proxy will be voted thereon in
accordance with the best judgment of the persons acting under such proxy
unless a contrary intent is specified by the shareholder.
Your vote is important. If you cannot attend the Meeting, please
take time to complete the enclosed proxy card and return it in the
envelope provided.
By order of the Board of Directors.
Philip S. Payne,
Executive Vice President and
Chief Financial Officer
Date: May 25, 1995
<PAGE>
****************************************************************************
APPENDIX
BODDIE-NOELL PROPERTIES, INC.
P R O X Y
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 29, 1995
The undersigned hereby (a) acknowledges receipt of the Notice of Annual
Shareholders Meeting of Boddie-Noell Properties, Inc. (the "Company") to be held
on June 29, 1995, and the Proxy Statement in connection therewith; (b) appoints
D. Scott Wilkerson and Philip S. Payne, as Proxies (the "Proxies"), or either of
them, each with the power to appoint a substitute, and (c) authorizes the
Proxies to represent and vote, as designated below, all the shares of Common
Stock of the Company, held of record by the undersigned on May 15, 1995, at such
Annual Meeting and at any adjournment(s) thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THESE PROPOSALS:
1. ELECTION OF DIRECTORS
<TABLE>
<S> <C>
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY to vote
(except as indicated to the contrary for all nominees
below)
</TABLE>
NOMINEES: B. Mayo Boddie, Nicholas B. Boddie, James B. Powers, William H.
Stanley and Richard A. Urquhart, Jr.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
2. TO GRANT THE COMPANY'S BOARD OF DIRECTORS THE AUTHORITY TO REORGANIZE THE
COMPANY through the transfer of all of its assets and liabilities to an
umbrella partnership (an "UPREIT"), which the Company would initially own
substantially all of the economic interests of and control as the sole
general partner.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. TO AMEND THE CERTIFICATE OF INCORPORATION to (i) authorize the issuance
of 10 million shares of preferred stock, issuable in series the
characteristics of which would be set by the Board of Directors, and (ii)
increase the number of shares of Common Stock that the Company has
authority to issue from 10 million to 100 million shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. TO AMEND THE BYLAWS TO ELIMINATE THE RESTRICTION ON THE ISSUANCE OF
REDEEMABLE EQUITY SECURITIES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. TO AMEND THE BYLAWS TO ELIMINATE SECTION 3.12 THEREOF, which imposes
various restrictions on the Company's investments, security issuances and
borrowings.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(continued on reverse side)
<PAGE>
(continued from other side)
6. TO APPROVE ISSUANCES OF PREFERRED STOCK
OR UNITS in connection with acquisitions
resulting in a person or group becoming
the beneficial owner of twenty percent of
the Company's Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. OTHER BUSINESS: In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the meeting or any
adjournments thereof.
FOR WITHHOLD AUTHORITY
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" EACH OF THE PROPOSALS TO BE VOTED UPON AND IN THE DISCRETION OF THE
PROXIES ON ANY OTHER BUSINESS WHICH PROPERLY COMES BEFORE THE MEETING.
Dated , 1995
Signature
Please sign exactly as your name
appears hereon. When signing on
behalf of a corporation,
partnership, estate, trust or in
any other representative capacity,
please sign your name and title.
For joint accounts, each joint
owner must sign.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE SO AS TO ENSURE A QUORUM AT THE MEETING. THIS IS IMPORTANT WHETHER YOU
OWN FEW OR MANY SHARES. DELAY IN RETURNING YOUR PROXY MAY SUBJECT THE COMPANY TO
ADDITIONAL EXPENSE.
*******************************************************************************
The Performance Graph appears where indicated. The plot points
are listed below.
1989 1990 1991 1992 1993 1994
The Company 100 100 153 173 211 191
NAREIT 100 85 115 132 157 163
S&P 500 100 97 126 136 150 152
