UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 1-9496
BODDIE-NOELL PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
Maryland 56-1574675
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
3850 One First Union Center, Charlotte, NC 28202-6032
(Address of principal executive offices) (Zip Code)
704/944-0100
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of August 7, 1998 (the latest practicable date).
Common Stock, $.01 par value 5,955,933
(Class) (Number of shares)
Index to exhibits at page 22 Total number of pages: 33
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page No.
<S> <C> <C>
PART I - Financial Information
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II - Other Information
4 Submission of Matters to a Vote of Security Holders 19
5 Other Information 19
6 Exhibits and Reports on Form 8-K 20
</TABLE>
2
<PAGE>
PART I - Financial Information
Item 1. Financial Statements.
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
------------------- ------------------
(Unaudited)
<S> <C> <C>
Assets
Real estate investments at cost:
Apartment properties $142,654,641 $128,049,529
Restaurant properties 43,205,075 43,205,075
------------------- ------------------
185,859,716 171,254,604
Less accumulated depreciation (16,167,229) (14,146,933)
------------------- ------------------
169,692,487 157,107,671
Cash and cash equivalents 1,722,870 2,458,565
Rent and other receivables 168,405 65,537
Prepaid expenses and other assets 1,738,687 757,567
Investment in and advances to Management Company 423,631 214,761
Notes receivable 2,270,958 1,909,007
Intangible related to acquisition of
management operations, net 2,536,788 2,739,888
Deferred financing costs, net 828,617 858,687
------------------- ------------------
Total assets $179,382,443 $166,111,683
=================== ==================
Liabilities and Shareholders' Equity
Mortgage and other notes payable $ 94,893,979 $ 86,380,177
Notes payable to affiliates 6,100,000 7,056,300
Accounts payable and accrued expenses 1,700,252 930,342
Consideration due for acquisitions 2,600,000 3,172,136
Escrowed security deposits and deferred revenue 345,828 442,096
------------------- ------------------
Total liabilities 105,640,059 97,981,051
Minority interest in Operating Partnership 15,090,499 12,345,663
Shareholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized; issued and outstanding shares--
5,955,933 at June 30, 1998, and
5,630,775 at December 31, 1997 59,559 56,308
Additional paid-in capital 71,871,829 67,503,012
Dividends distributed in excess of net income (13,279,503) (11,774,351)
------------------- ------------------
Total shareholders' equity 58,651,885 55,784,969
------------------- ------------------
Total liabilities and shareholders' equity $179,382,443 $166,111,683
=================== ==================
</TABLE>
3
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Revenues
Apartment rental income $ 4,799,749 $ 2,638,539 $ 9,398,942 $ 5,226,276
Restaurant rental income 1,125,000 1,125,000 2,250,000 2,250,000
Equity in income of
Management Company 27,762 57,643 78,870 164,233
Interest and other income 131,728 45,157 272,684 78,445
---------------- ----------------- ---------------- -----------------
6,084,239 3,866,339 12,000,496 7,718,954
Expenses
Depreciation 1,018,113 639,207 2,021,031 1,278,414
Amortization 129,414 148,848 258,828 293,538
Apartment operations 1,591,247 811,782 3,040,027 1,645,491
Administrative 308,760 316,410 629,100 543,493
Interest 1,754,542 1,567,287 3,495,745 3,104,430
---------------- ----------------- ---------------- -----------------
4,802,076 3,483,534 9,444,731 6,865,366
---------------- ----------------- ---------------- -----------------
Income before minority
interest and
extraordinary item 1,282,163 382,805 2,555,765 853,588
Minority interest in
Operating Partnership 186,919 - 365,041 -
---------------- ----------------- ---------------- -----------------
Income before
extraordinary item 1,095,244 382,805 2,190,724 853,588
Extraordinary item - loss on
early extinguishment of debt - - 51,335 -
---------------- ----------------- ---------------- -----------------
Net income $ 1,095,244 $ 382,805 $ 2,139,389 $ 853,588
================ ================= ================ =================
Per share data:
Basic earnings per share -
Income before
extraordinary item $ 0.19 $ 0.12 $ 0.37 $ 0.28
Extraordinary item - - (0.01) -
---------------- ----------------- ---------------- -----------------
Net income $ 0.19 $ 0.12 $ 0.36 $ 0.28
================ ================= ================ =================
Diluted earnings per share -
Income before
extraordinary item $ 0.18 $ 0.12 $ 0.37 $ 0.27
Extraordinary item - - (0.01) -
---------------- ----------------- ---------------- -----------------
Net income $ 0.18 $ 0.12 $ 0.36 $ 0.27
================ ================= ================ =================
Dividends declared $ 0.31 $ 0.31 $ 0.62 $ 0.62
================ ================= ================ =================
Weighted average shares
outstanding 5,916,759 3,108,436 5,880,728 3,098,415
================ ================= ================ =================
</TABLE>
4
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Dividends
Additional distributed
Common Stock paid-in in excess of
Shares Amount capital net income Total
------------- ----------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 5,630,775 $56,308 $67,503,012 $(11,774,351) $55,784,969
Common stock issued, DRIP 8,161 82 120,493 120,575
Common stock issued, offering 200,000 2,000 2,622,516 2,624,516
Common stock issued, earnout 43,438 434 571,702 572,136
Dividends paid ($0.31) (1,821,005) (1,821,005)
Net income 1,044,145 1,044,145
------------- ----------- -------------- ---------------- ---------------
Balance at March 31, 1998 5,882,374 58,824 70,817,723 (12,551,211) 58,325,336
Common stock issued, DRIP 7,911 79 110,384 110,463
Common stock issued, other 65,648 656 943,722 944,378
Dividends paid ($0.31) (1,823,536) (1,823,536)
Net income 1,095,244 1,095,244
------------- ----------- -------------- ---------------- ---------------
Balance at June 30, 1998 5,955,933 $59,559 $71,871,829 $(13,279,503) $58,651,885
============= =========== ============== ================ ===============
</TABLE>
5
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30
1998 1997
---------------- -----------------
<S> <C> <C>
Operating activities:
Net income $ 2,139,389 $ 853,588
Adjustments to reconcile net income to
net cash provided by operations:
Extraordinary item - early
extinguishment of debt 51,335 -
Minority interest in Operating Partnership 365,041 -
Equity in income of Management Company (78,870) (164,233)
Depreciation and amortization 2,279,859 1,571,952
Changes in operating assets and liabilities:
Rent and other receivables (99,167) (4,760)
Prepaid expenses and other assets (694,750) (148,755)
Accounts payable and accrued expenses 640,171 299,895
Security deposits and deferred revenue (18,997) (45,782)
---------------- -----------------
Net cash provided by operating activities 4,584,011 2,361,905
Investing activities:
Acquisition of apartment properties (1,783,141) -
Additions to apartment properties (528,420) (313,416)
(Advances to) repayment from
Management Company (130,000) 100,000
Dividends from Management Company - 97,687
Investment in notes receivable (361,951) (843,920)
---------------- -----------------
Net cash used in investing activities (2,803,512) (959,649)
Financing activities:
Proceeds from issue of common stock,
net of costs 2,843,933 286,270
Distributions to Operating Partnership
minority unitholders (393,747) -
Dividends paid to common shareholders (3,644,541) (1,920,118)
Proceeds from notes payable 9,361,951 843,920
Principal payments on notes payable (10,598,450) (243,337)
Payment of deferred financing costs (85,340) -
---------------- -----------------
Net cash used in financing activities (2,516,194) (1,033,265)
---------------- -----------------
Net (decrease) increase in
cash and cash equivalents (735,695) 368,991
Cash and cash equivalents at
beginning of period 2,458,565 842,604
---------------- -----------------
Cash and cash equivalents at end of period $ 1,722,870 $ 1,211,595
================ =================
</TABLE>
6
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Financial Statements - June 30, 1998
(Unaudited)
Note 1. Interim financial statements
Our independent accountants have not audited the accompanying financial
statements of Boddie-Noell Properties, Inc. (the "Company"), except for the
balance sheet at December 31, 1997. We derived the amounts in the balance sheet
at December 31, 1997, from the financial statements included in our 1997 Annual
Report on Form 10-K. We believe that all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the financial position
and results of operations for the periods presented have been included.
We have condensed or omitted certain notes and other information from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
You should read these financial statements in conjunction with our 1997 Annual
Report on Form 10-K.
The results for the first six months of 1998 are not necessarily indicative of
future financial results.
Note 2. Acquisition of apartment community
Effective June 1, 1998, we acquired a majority interest in Woods Edge Apartments
Limited Partnership of Durham ("Woods Edge Partnership") in exchange for cash
payments totaling $2.3 million and the issuance of 191,031 units in Boddie-Noell
Properties Limited Partnership (the "Operating Partnership"). We conduct
substantially all of our activities through the Operating Partnership. Woods
Edge Partnership subsequently liquidated. We received a liquidating distribution
that included the Woods Edge apartment community, subject to a $9.75 million
first deed of trust loan, and operating assets and liabilities, including
$587,000 cash.
Note 3. Notes payable
In January 1998, we applied $1.9 million proceeds from a common stock offering
to pay off the outstanding balance of our fixed-rate $25.5 million line of
credit with a bank. These proceeds resulted from underwriters exercising their
over-allotment option. In June 1998, we modified this line of credit agreement
to make it a revolving line of credit and to provide for variable interest at
30-day LIBOR plus 1.75%. On June 4, 1998, we borrowed $2.0 million under this
line of credit, which remains outstanding at June 30, 1998.
In March 1998, we applied $7.0 million proceeds from a fixed-rate loan and
operating cash to retire an $8.5 million variable-rate mortgage note secured by
deeds of trust on and assignment of rents of three apartment communities. A deed
of trust on and assignment of rents of Paces Village Apartments secure the new
loan. The note payable provides for interest at 6.73% payable in monthly
installments of $39,000 and matures in 2008. In conjunction with these
transactions, we paid and recorded deferred loan costs of $100,000.
In the first quarter of 1998, we wrote off unamortized costs of $60,000 as a
result of early extinguishment of debt. We have reflected this write-off, net of
minority interests' share, in the financial statements as an extraordinary item.
7
<PAGE>
Effective June 1, 1998, in conjunction with the acquisition of Woods Edge
Apartments, we assumed a loan in the amount of $9.75 million that is secured by
a deed of trust on and assignment of rents of Woods Edge Apartments. The note
payable provides for interest at 6.95% payable in monthly installments of
$56,000 and matures in 2007.
Note 4. Shareholders' Equity
In January 1998, the underwriters exercised part of their over-allotment option
related to our December 1997 common stock offering and purchased 200,000 shares.
We received additional net proceeds of $2.6 million.
Also in January 1998, we issued 43,438 shares of our common stock to the former
shareholders of BT Venture Corporation in final payment of the additional
consideration due for that 1994 acquisition.
In May 1998, we issued 65,648 shares of our common stock to retire a $956,000
note payable to an affiliate.
In the six months ended June 30, 1998, we issued 11,255 shares of our common
stock in payment of dividends under our Dividend Reinvestment and Stock Purchase
Plan. We also issued 4,817 shares of our common stock for additional cash
investments under this plan.
On June 30, 1998, we granted stock options to certain executive officers for a
total of 120,000 shares at $13 1/8 per share, the fair market value on that
date. These options vest over a four-year period and expire in June 2008.
We calculated basic and diluted earnings per share using the following amounts:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Numerators:
For basic earnings per share -
Income before
extraordinary item $1,095,244 $382,805 $2,190,724 $853,588
Extraordinary item - - (51,335) -
---------------- ----------------- ---------------- -----------------
Net income $1,095,244 $382,805 $2,139,389 $853,588
================ ================= ================ =================
For diluted earnings per share -
Income before
extraordinary item (1) $1,282,163 $382,805 $2,555,765 $853,588
Extraordinary item (1) - - (59,682) -
---------------- ----------------- ---------------- -----------------
Net income (1) $1,282,163 $382,805 $2,496,083 $853,588
================ ================= ================ =================
Denominators:
Denominator for basic
earnings per share -
weighted average shares
outstanding 5,916,759 3,108,436 5,880,728 3,098,415
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Effect of dilutive securities:
Contingent stock, acquisition - 22,827 3,600 19,791
Convertible Operating
Partnership units 1,013,009 - 981,695 -
Stock options 29,955 1,544 33,794 1,686
---------------- ----------------- ---------------- -----------------
1,042,964 24,371 1,019,089 21,477
---------------- ----------------- ---------------- -----------------
Denominator for diluted
earnings per share - adjusted
weighted average shares and
assumed conversions 6,959,723 3,132,807 6,899,817 3,119,892
================ ================= ================ =================
<FN>
(1) Assumes conversion of Operating Partnership units to common shares; minority
interest in income before extraordinary item and minority interest in
extraordinary item have been eliminated.
</FN>
</TABLE>
We have restated the 1997 earnings per share amounts to comply with Statement of
Financial Accounting Standards No. 128, Earnings per Share.
Note 5. Subsequent events
On July 21, 1998, we declared a cash dividend of $0.31 per share, which we will
pay on August 17, 1998, to shareholders of record on July 31, 1998.
Effective July 27, 1998, we acquired a majority interest in Oak Hollow
Apartments Limited Partnership ("Oak Hollow Partnership") in exchange for cash
payments totaling $2.3 million and the issuance of 106,124 units in the
Operating Partnership. We also made additional cash investments in Oak Hollow
Partnership of approximately $850,000 to help fund liquidating distributions and
payment of certain existing liabilities. Oak Hollow Partnership will
subsequently liquidate. We will receive a liquidating distribution that includes
the Oak Hollow apartment community, subject to first and second deed of trust
loans totaling $7.5 million, and operating liabilities, net of operating assets.
Note 6. Recently Adopted Accounting Standards
We adopted Statement No. 130, Reporting Comprehensive Income, as of January 1,
1998. Statement No. 130 established requirements for reporting and displaying
comprehensive income and its components. Adoption of this Statement had no
impact on our net income or shareholders' equity, or the presentation of our
financial statements.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion contains forward-looking statements within the
meaning of federal securities law. Such statements can be identified by the use
of forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information. Although we believe that
the expectations reflected in such forward-looking statements are based on
reasonable assumptions, there are certain factors such as general economic
conditions, local real estate conditions, or weather conditions that might cause
a difference between actual results and those forward-looking statements. You
should read the following discussion in conjunction with the financial
statements and notes thereto included in this Quarterly Report and our Annual
Report on Form 10-K.
Company Profile
Boddie-Noell Properties, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust that owns and operates apartment
communities in North Carolina and Virginia. We currently own and operate 11
apartment communities containing 2,692 units (including Oak Hollow Apartments
acquired July 27, 1998), and have the right to acquire three additional
apartment communities containing 476 units. We also own 47 restaurant
properties, which we lease to a third party under a master lease on a triple-net
basis. We also manage five other apartment communities through an unconsolidated
subsidiary. Our executive offices are located at 3850 One First Union Center,
Charlotte, North Carolina 28202-6032, telephone 704/944-0100.
The Company is structured as an UPREIT, or umbrella partnership real
estate investment trust. We are the sole general partner and own a controlling
interest in Boddie-Noell Properties Limited Partnership (the "Operating
Partnership"), through which we conduct all of our operations.
Overview
This discussion analyzes our operations for the first six months of 1998
compared to the first six months of 1997. In reading this discussion, it may
help if you keep certain key events in mind:
In December 1997 and early January 1998, we experienced a number of
significant changes that resulted in a marked increase in our total assets,
revenues, and expenses, and significant changes in our debt and equity.
-Effective December 1, 1997, we acquired four apartment communities
containing 880 apartment units. This acquisition increased the number of
apartment units we own and operate by 66.3%, and increased our real estate
investments by $60.7 million, or 62.8%.
-We financed a portion of the cost of the apartment acquisition with
fixed-rate deed of trust loans totaling $38.1 million. This financing
increased our long-term debt by 48.4%; however, the new loans have interest
rates of 6.97%, which reduced our weighted-average interest rate on
outstanding debt.
10
<PAGE>
-Also effective December 1, 1997, we converted to an UPREIT structure. In
conjunction with our apartment acquisition, we issued 950,000 Operating
Partnership units that represented an approximate 15% ownership of the
Operating Partnership (we refer to these limited partners of the Operating
Partnership as "minority unitholders" or "minority interest").
-In mid-December 1997, we completed a common stock offering of 2.5 million
shares of our common stock. In January 1998, we issued an additional
200,000 shares when the underwriters exercised part of their over-allotment
option. Net proceeds of this offering were $34.9 million, which increased
our recorded shareholders' equity by approximately 150%. These common stock
issuances increased our number of shares outstanding by 86.2%.
-In December 1997 and January 1998, we applied the net proceeds of the
common stock offering to retire $25.3 million of debt that existed before
our December 1997 apartment acquisition. Interest rates on the debt we
retired were generally 8% and higher. By retiring these loans, we further
reduced our weighted-average interest rate on debt outstanding.
-The combination of investment and financing transactions described above
significantly changed our capital structure. Prior to the December 1, 1997,
transactions, the ratio of our debt to real estate assets at cost was
71.2%. After we paid down debt with proceeds from our common stock
offering, the ratio of our debt to real estate assets at cost was 45.2%.
Effective June 1, 1998, we acquired one additional apartment community
containing 264 units. This acquisition increased the number of apartment units
we own and operate by 12.0%, and increased our real estate investment by $14.1
million, or 8.2%. This acquisition also increased our long-term debt by $9.75
million, or 10.9%.
Effective July 27, 1998, we acquired an additional apartment community
containing 220 units. But this acquisition is not reflected in the June 30,
1998, financial statements or the following discussion.
Results of Operations
Revenues
Total revenues for the second quarter of 1998 were $6.1 million, a 57.4%
increase over the second quarter of 1997. Total revenues for the six months
ended June 30, 1998, were $12.0 million, a 55.5% increase over the first six
months of 1997. We have two principal sources of revenue--apartment rental
income and restaurant rental income. The increase in revenues is attributable to
significant increases in apartment rental income.
Apartment rental income increased by 81.9% to $4.8 million for the second
quarter of 1998 compared to $2.6 million for the second quarter of 1997. For the
six months ended June 30, 1998, apartment rental income increased by 79.8% to
$9.4 million compared to $5.2 million for the six months ended June 30, 1997.
This increase in apartment rental income was the result of acquisitions of four
apartment communities in December 1997 and one apartment community in June 1998.
Revenues for apartment communities held throughout the first six months of
both 1998 and 1997 were $2.6 million in the second quarter of 1998, a decrease
of 0.5% compared to the second quarter of 1997. Revenues for these communities
were $5.3 million through the first six months
11
<PAGE>
of 1998, an increase of 0.7% compared to the first six months of 1997. These
comparisons reflect slight reductions in average occupancy with small increases
in average monthly revenue per unit at these communities. The decline in average
occupancy was primarily attributable to higher than expected turnover at Paces
Commons. This situation has now stabilized, and occupancy at Paces Commons
appears to have begun to recover. The turnover at Paces Commons appears to have
been largely the result of a flurry of home purchases. We have not experienced
this level of home purchasing by residents at our other communities.
Summary amounts for apartment communities' occupancy and revenue per
occupied unit are as follows:
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
------------------------------------ ------------------------------------
Average Average
monthly monthly
Number revenue revenue
of Average Average per Average Average per
apartment physical economic occupied physical economic occupied
units occupancy occupancy unit occupancy occupancy unit
----------- ----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Abbington Place (1) 360 93.0% 94.1% $791 92.7% 93.4% $790
Harris Hill 184 98.2% 98.0% 723 96.2% 97.4% 714
Latitudes 448 95.5% 97.2% 659 94.9% 95.6% 661
Oakbrook 162 95.3% 95.5% 772 96.0% 96.6% 770
Paces Commons 336 90.3% 90.9% 700 92.3% 92.1% 710
Paces Village 198 93.3% 94.5% 668 92.4% 93.5% 673
Pepperstone (1) 108 95.4% 96.5% 691 95.6% 96.5% 685
Savannah Place (1) 172 98.3% 97.5% 779 98.2% 97.9% 772
Waterford Place (1) 240 93.1% 90.6% 883 92.7% 91.4% 879
Woods Edge (2) 264 94.2% 96.4% 729 na na na
All apartments-- 2,472 94.2% 94.7% 736 94.2% 94.5% 736
Same units (3)
- 1998 1,328 94.2% 95.1% 694 94.2% 94.8% 696
- 1997 1,328 96.2% 96.1% 690 95.1% 95.0% 690
<FN>
(1) Acquired December 1, 1997.
(2) Acquired June 1, 1998. Amounts for June 1998.
(3) Apartment communities owned throughout the first six months of both 1998 and
1997.
</FN>
</TABLE>
For the second quarter and first six months of both 1998 and 1997,
restaurant rental income was the minimum rent of $1.1 million and $2.25 million,
respectively. For the quarter, sales at our restaurant properties decreased by
1.4% compared to the second quarter of 1997. For the first six months of 1998,
sales at our restaurant properties decreased by 1.7% compared to the first six
months of 1997. Despite this decrease in sales, restaurant rental income
remained unchanged. Restaurant rental income is the greater of the minimum rent
of $4.5 million per year or 9.875% of food sales.
The decrease in equity income from our unconsolidated subsidiary
management company in 1998 compared to 1997 reflects the effect of the sale of
two managed properties in the first quarter of 1997. We do not expect the
operations of the Management Company to have a significant effect on our
financial position, operating results or cash flows in future periods.
12
<PAGE>
Interest and other income increased in 1998 compared to 1997, primarily
due to interest and fees we earned from our participating note receivable from
The Villages of Chapel Hill Limited Partnership and increased interest we earned
on idle cash.
Expenses
Total expenses for the second quarter of 1998 were $4.8 million, an
increase of 37.9% compared to the second quarter of 1997. Total expenses through
the first six months of 1998 were $9.4 million, an increase of 37.6% compared to
the first six months of 1997. Expenses were generally in line with management's
expectations.
For the second quarter of 1998, apartment operations expense totaled $1.6
million, a 96.0% increase compared to $0.8 million for the second quarter of
1997. For the first six months of 1998, apartment operations expense totaled
$3.0 million, an 84.7% increase compared to $1.6 million for the first six
months of 1997. This increase in apartment operations expense was primarily the
result of acquisitions of four apartment communities in December 1997 and one
apartment community in June 1998.
For communities owned throughout the first six months of both 1998 and
1997, apartment operations expense totaled $1.0 million, a 17.7% increase
compared to the second quarter of 1997. Apartment operations expense for these
communities totaled $1.8 million through the first six months of 1998, a 10.3%
increase compared to the first six months of 1997. These communities have
experienced significant increases in property insurance premiums effective
November 1997 as a result of the fire loss at Latitudes in December 1996. In
addition, these communities experienced increased maintenance payroll costs in
1998, primarily due to increased labor rates.
Apartment operations expense was 33.2% of related rental income in the
second quarter of 1998. For the first six months of 1998, apartment operations
expense was 32.3% of related rental income. For communities owned throughout the
first six months of both 1998 and 1997, apartment operations expense was 36.4%
of related rental income in the second quarter of 1998, compared to 30.8% in the
second quarter of 1997. For these communities, apartment operations expense was
34.5% of related rental income through the first six months of 1998, compared to
31.5% through the first six months of 1997. These increases in operations
expense as a percentage of rental income reflect the effect of significant
increases in expenses with relatively flat revenues.
Operating expenses for restaurant properties are insignificant because the
restaurant properties' triple-net lease arrangement requires the lessee to pay
virtually all of the expenses associated with the restaurant properties.
Depreciation expense totaled $1.0 million for the second quarter of 1998,
a 59.3% increase compared to the second quarter of 1997. For the first six
months of 1998, depreciation expense totaled $2.0 million, a 58.1% increase
compared to the first six months of 1997. The increase in depreciation expense
is attributable to the addition of apartment communities.
Amortization expense totaled $129,000 for the second quarter of 1998
compared to $149,000 for the second quarter of 1997. For the first six months of
1998, amortization expense totaled $259,000 compared to $294,000 for the first
six months of 1997. The decrease in amortization expense for 1998 compared to
1997 reflects reduced amortization of deferred financing costs after significant
debt retirements in December 1997.
13
<PAGE>
Administrative costs totaled $309,000 in the second quarter of 1998, a
2.4% decrease compared to the second quarter of 1997. For the first six months
of 1998, administrative costs totaled $629,000, a 15.8% increase compared to the
first six months of 1997. The decrease in administrative costs for the second
quarter of 1998 compared to 1997 reflects the timing of certain costs of annual
meeting and directors' activities. The increased expenses for the first six
months of 1998 compared to 1997 are generally attributable to additional
corporate level staff and overhead costs resulting from the addition of
apartment communities in December 1997. We expect that administrative costs will
continue to increase as and when we acquire additional apartment communities.
Interest expense totaled $1.8 million for the second quarter of 1998, a
12.0% increase compared to the second quarter of 1997. For the first six months
of 1998, interest expense totaled $3.5 million, a 12.6% increase compared to the
first six months of 1997. The increased expense in 1998 reflects the effect of
debt issued related to apartment acquisitions, offset by the significant impact
of retirements of higher rate debt. Weighted average interest rates were 7.5%
for the second quarter of 1998 and through the first six months of 1998 compared
to 8.1% in the second quarter of 1997 and 8.0% through the first six months of
1997.
Net income
Net income for the second quarter of 1998 totaled $1.1 million, a 186.1%
increase compared to the second quarter of 1997. For the first six months of
1998, income before an extraordinary item (for loss on early retirement of debt
in first quarter) totaled $2.2 million, a 156.7% increase compared to the first
six months of 1997. These increases in net income reflect the impact of several
key factors--the significant increase in apartment communities and improved
apartment operations at acquired communities, and the significant reduction in
interest expense as a percentage of revenues.
Funds from Operations
Funds from operations is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") as "net income (computed in accordance with
generally accepted accounting principles), excluding gains (losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures."
We define funds available for distribution as funds from operations plus
non-cash expense for amortization of loan costs, less scheduled principal
payments on our debt and less recurring capital expenditures.
We consider funds from operations and funds available for distribution to
be useful in evaluating potential property acquisitions and measuring the
operating performance of an equity REIT because, together with net income and
cash flows, funds from operations and funds available for distribution provide
investors with additional measures to evaluate the ability of the REIT to incur
and service debt and to fund acquisitions and other capital expenditures. Funds
from operations and funds available for distribution do not represent net income
or cash flows from operations as defined by generally accepted accounting
principles. You should not consider funds from operations or funds available for
distribution:
14
<PAGE>
-to be alternatives to net income as reliable measures of the Company's
operating performance, or
-to be alternatives to cash flows as measures of liquidity.
Funds from operations and funds available for distribution do not measure
whether cash flow is sufficient to fund all of our cash needs, including
principal amortization, capital improvements and distributions to shareholders.
Funds from operations and funds available for distribution do not represent cash
flows from operating, investing or financing activities as defined by generally
accepted accounting principles. Further, funds from operations and funds
available for distribution as disclosed by other REITs may not be comparable to
our calculation of funds from operations or funds available for distribution.
We calculated funds from operations as follows (all amounts in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Income before minority interest and
extraordinary item $1,282 $ 383 $2,556 $ 854
Depreciation 1,018 639 2,021 1,278
Amortization of
management intangible 102 93 203 181
Non-recurring equity income items - - - (103)
--------------- --------------- --------------- --------------
Funds from operations before
minority interest in
Operating Partnership 2,402 1,115 4,780 2,210
Minority interest in
funds from operations (350) - (683) -
--------------- --------------- --------------- --------------
Funds from operations $2,051 $1,115 $4,097 $2,210
=============== =============== =============== ==============
</TABLE>
A reconciliation of funds from operations to funds available for
distribution follows (all amounts in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Funds from operations before
minority interest in
Operating Partnership $2,402 $1,115 $4,780 $2,210
Amortization of loan costs 28 56 56 112
Scheduled debt principal payments (112) (123) (241) (243)
Recurring capital expenditures (198) (126) (312) (214)
Non-recurring equity income items - - 103
--------------- --------------- --------------- --------------
Funds available for distribution $2,119 $ 922 $4,282 $1,969
=============== =============== =============== ==============
</TABLE>
15
<PAGE>
Other information about our historical cash flows follows (all amounts in
thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Net cash provided by (used in):
Operating activities $ 2,324 $1,166 $ 4,584 $ 2,362
Investing activities (2,300) (532) (2,804) (960)
Financing activities (146) (460) (2,516) (1,033)
Dividends and distributions paid to:
Shareholders $ 1,824 $ 962 $ 3,645 $ 1,920
Minority unitholders in
Operating Partnership 295 - 394 -
Non-recurring capital expenditures $ 192 $ 71 $ 220 $ 100
Weighted average common
shares outstanding 5,917 3,108 5,881 3,098
Weighted average Operating
Partnership minority units
outstanding 1,013 - 982 -
</TABLE>
Capital Resources and Liquidity
Capital Resources
In January 1998, the underwriters exercised part of their over-allotment
option for 200,000 shares related to our December 1997 common stock offering. We
received additional net proceeds of $2.6 million.
In addition, in January 1998, we issued 43,438 shares of our common stock
to the former shareholders of BT Venture Corporation. We issued this common
stock in final payment of additional consideration for the 1994 acquisition of
BT Venture.
In February 1998, we issued 8,161 shares of our common stock under our
Dividend Reinvestment and Stock Purchase Plan for cash proceeds totaling
$121,000. In May 1998, we issued 7,911 shares of our common stock under our
Dividend Reinvestment and Stock Purchase Plan for cash proceeds totaling
$110,000.
In May 1998, we issued 65,648 shares of our common stock to retire a
$956,000 note payable to an affiliate.
In January 1998, we applied $1.9 proceeds from a common stock offering to
pay off the outstanding balance of our fixed-rate $25.5 million line of credit
with a bank. These proceeds resulted from underwriters exercising their
over-allotment option. In June 1998, we modified this line of credit agreement
to make it a revolving line of credit and to provide for variable interest at
30-day LIBOR plus 1.75%. On June 4, 1998, we borrowed $2.0 million under this
line of credit, which remains outstanding at June 30, 1998.
16
<PAGE>
In March 1998, we applied $7.0 million proceeds from a fixed-rate loan and
operating cash to retire an $8.5 million variable-rate note secured by three
apartment communities. The new loan provides for interest at 6.73% payable in
monthly installments of $39,000, with the principal balance due in full in 2008.
A deed of trust on and assignment of rents of Paces Village Apartments secure
the new loan.
Effective June 1, 1998, in conjunction with the acquisition of Woods Edge
Apartments, we assumed a loan in the amount of $9.75 million that is secured by
a deed of trust on and assignment of rents of Woods Edge Apartments. The note
payable provides for interest at 6.95% payable in monthly installments of
$56,000, with the principal balance due in full in 2007.
At June 30, 1998, total long-term debt was $101.0 million, including $90.6
million of notes payable at fixed interest rates ranging from 6.7% to 8.6%, and
$10.4 million at variable rates indexed on 30-day LIBOR rates. The weighted
average interest rate on debt outstanding was 7.5% at June 30, 1998, compared to
7.6% at December 31, 1997, and 8.0% at June 30, 1997. A 1% increase in variable
interest rates would increase our annual interest expense by approximately
$68,000, while a 1% decrease in variable interest rates would decrease our
annual interest expense by $84,000.
At June 30, 1998, our debt-to-total market capitalization ratio was 51.5%,
compared to 50.6% at December 31, 1997, and 66.0% at June 30, 1997. The
debt-to-total market capitalization ratio is defined as total debt divided by
the sum of our total debt and the market value of our outstanding shares of
common stock and Operating Partnership units.
Cash flows and liquidity
We continue to produce sufficient cash flow to fund our regular dividend.
The Company has announced that it will pay a regular quarterly dividend of $0.31
per share on August 17, 1998, to shareholders of record on July 31, 1998.
We capitalize our expenditures relating to acquiring new assets,
materially enhancing the value of existing assets, or substantially extending
the useful life of existing assets. All carpet and vinyl replacements are
capitalized. Additions to apartment communities were funded from cash provided
by operating activities and proceeds of common stock issued through the
Company's Dividend Reinvestment and Stock Purchase Plan.
Effective June 1, 1998, we acquired a majority interest in Woods Edge
Apartments Limited Partnership of Durham ("Woods Edge Partnership") in exchange
for cash payments totaling $2.3 million and the issuance of 191,031 units in the
Operating Partnership. Woods Edge Partnership subsequently liquidated. We
received a liquidating distribution that included the Woods Edge apartment
community, subject to a $9.75 million first deed of trust loan, and operating
assets and liabilities, including $587,000 cash.
Effective July 27, 1998, we acquired a majority interest in Oak Hollow
Apartments Limited Partnership ("Oak Hollow Partnership") in exchange for cash
payments totaling $2.3 million and the issuance of 106,124 units in the
Operating Partnership. We also made additional cash investments in Oak Hollow
Partnership of approximately $850,000 to help fund liquidating distributions and
payment of certain existing liabilities. Oak Hollow Partnership will
subsequently liquidate. We will receive a liquidating distribution that includes
the Oak Hollow
17
<PAGE>
apartment community, subject to first and second deed of trust loans totaling
$7.5 million, and operating liabilities, net of operating assets.
We generally expect to meet our short-term liquidity requirements through
net cash provided by operations and utilization of credit facilities. We believe
that net cash provided by operations is, and will continue to be, adequate to
meet the REIT operating requirements in both the short- and the long-term. We
anticipate funding our future acquisition activities primarily by using
short-term credit facilities as an interim measure, to be replaced by funds from
equity offerings or long-term debt. We expect to meet our long-term liquidity
requirements, such as scheduled debt maturities and repayment of short-term
financing of possible property acquisitions, through long-term secured and
unsecured borrowings and the issuance of debt securities or additional equity
securities. We believe we have sufficient resources to meet our short-term
liquidity requirements.
We do not believe that inflation poses a material risk to the Company. The
leases at our apartment properties are short-term in nature. None are longer
than two years. The restaurant properties are leased on a triple-net basis,
which places the risk of rising operating and maintenance costs on the lessee.
We have not completed our assessment of Year 2000 issues that may affect
the Company. In conjunction with planned computer hardware and network software
upgrades for our accounting system, we have installed and tested new hardware
and operating systems that are Year 2000 compliant. We are currently monitoring
the efforts of our primary accounting software provider to insure full
compliance.
Recently Issued Accounting Standards
In 1997 the Financial Accounting Standards Board issued Statement No. 131,
Disclosures About Segments of an Enterprise and Related Information. Statement
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires that those
companies report selected information about operating segments in interim
financial statements. We will be required to disclose segment information in
accordance with Statement 131 beginning in our 1998 annual report. We expect
that adoption of Statement 131 will not have a material impact on our financial
statements.
18
<PAGE>
PART II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
We held our Annual Meeting of Shareholders on May 15, 1998. At that
meeting the following proposals were approved:
<TABLE>
<CAPTION>
Withheld/ Broker
For Against Abstained Non-votes
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Election of seven directors:
B. Mayo Boddie 5,262,661 - 11,866 223,839
D. Scott Wilkerson 5,263,286 - 11,241 223,839
Philip S. Payne 5,263,286 - 11,241 223,839
William H. Stanley 5,261,874 - 12,653 223,839
Donald R. Pesta, Jr. 5,259,983 - 14,544 223,839
Paul G. Chrysson 5,262,986 - 11,541 223,839
W. Michael Gilley 5,262,873 - 11,654 223,839
Increase the number of shares
issuable under the Stock
Option and Incentive Plan
from 280,000 to 570,000 5,048,881 178,112 47,533 223,940
</TABLE>
Item 5. Other Information
Re-election of officers
The Company has announced the re-election of the following officers:
D. Scott Wilkerson President and Chief Executive Officer
Philip S. Payne Executive Vice President, Treasurer,
Chief Financial Officer, and Assistant Secretary
Douglas E. Anderson Vice President, Secretary
Pamela B. Novak Vice President, Controller, and
Chief Accounting Officer
Shareholder proposals for 1999 Annual Meeting of Shareholders
In our April 1998 proxy statement, we gave notice that any shareholder
proposals for inclusion in proxy solicitation material for our next annual
meeting must be received at the Boddie-Noell Properties, Inc. executive offices
no later than December 15, 1998. Any such proposals must comply with
requirements of Rule 14a-8 promulgated under the Securities Exchange Act of
1934.
Subsequent to the distribution of that proxy statement, the SEC issued an
additional rule regarding shareholder proposals, for which we are giving the
following notice: Under our bylaws, we must receive any shareholder proposal to
be presented in connection with our 1999 annual meeting by February 15, 1999.
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 10.8 Boddie-Noell Properties, Inc. Amended and Restated 1994
Stock Option and Incentive Plan, as amended May 15, 1998
Exhibit 27 Financial data schedule (electronic filing)
b) Reports on Form 8-K:
Effective July 27, 1998, we filed a Current Report on Form 8-K to disclose
the acquisitions of Woods Edge Apartments and Oak Hollow Apartments.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BODDIE-NOELL PROPERTIES, INC.
(Registrant)
August 13, 1998 /s/ Philip S. Payne
Philip S. Payne
Executive Vice President and
Chief Financial Officer
(Duly authorized officer)
August 13, 1998 /s/ Pamela B. Novak
Pamela B. Novak
Vice President, Controller and
Chief Accounting Officer
21
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Page
<S> <C> <C>
10.8 Boddie-Noell Properties, Inc. Amended and Restated 1994 Stock Option and
Incentive Plan, as amended May 15, 1998 23
27 Financial data schedule (electronic filing) -
</TABLE>
22
<PAGE>
Exhibit 10.8
BODDIE-NOELL PROPERTIES, INC.
AMENDED AND RESTATED 1994 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the Boddie-Noell Properties, Inc. 1994 Stock
Option and Incentive Plan (the "Plan"). The purpose of the Plan is to encourage
and enable the officers, employees and directors of Boddie-Noell Properties,
Inc. (the "Company") and its Subsidiaries, upon whose judgment, initiative and
efforts the Company largely depends for the successful conduct of its business,
to acquire a proprietary interest in the Company. It is anticipated that
providing such persons with a direct stake in the Company's welfare will assure
a closer identification of their interests with those of the Company, thereby
stimulating their efforts on the Company's behalf and strengthening their desire
to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights and Restricted Stock Awards.
"Board" means the Board of Directors of the Company.
"Cause" means and shall be limited to a vote of the Board of Directors
resolving that the participant should be dismissed as a result of (i) any
material breach by the participant of any agreement to which the participant and
the Company are parties, (ii) any act (other than retirement) or omission to act
by the participant which may have a material and adverse effect on the business
of the Company or any Subsidiary or on the participant's ability to perform
services for the Company or any Subsidiary, including, without limitation, the
commission of any crime (other than ordinary traffic violations), or (iii) any
material misconduct or neglect of duties by the participant in connection with
the business or affairs of the Company or any Subsidiary.
"Change of control" is defined in Section 13.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the Board or any Committee of the Board referred to
in Section 2.
"Disability" means disability as set forth in Section 22(e)(3) of the
Code.
"Disinterested Person" means an Independent Director who qualifies as
such under Rule 16b-3(c)(2)(i) promulgated under the Act, or any successor
definition under the Act.
"Effective Date" means the date on which the Plan is approved by
shareholders as set forth in Section 15.
23
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the related rules, regulations and interpretations.
"Fair Market Value" on any given date means the last reported sale
price at which the Shares are traded on such date or, if no Shares are traded on
such date, the most recent date on which the Shares were traded, as reflected on
the New York Stock Exchange or, if applicable, any other national stock exchange
on which the Shares are traded.
"Incentive Stock Option" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase Shares granted
pursuant to Section 5.
"Phantom Stock" means Awards granted pursuant to Section 8.
"Restricted Stock Award" means Awards granted pursuant to Section 7.
"Restricted Shares" means Shares subject to restrictions as provided in
Section 7 and subject of a Restricted Stock Award.
"Share" means one or more, respectively, of the Company's shares of
common stock, par value $.01 per share, subject to adjustments pursuant to
Section 3.
"Stock Appreciation Rights" ("SARs") means Awards granted pursuant to
Section 6.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities, beginning with
the Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
SECTION 2. ADMINISTRATION OF PLAN: COMMITTEE AUTHORITY TO SELECT
PARTICIPANTS AND DETERMINE AWARDS
(a) Committee. The Plan shall be administered by all of the
Independent Director members of the Compensation Committee of the Board, or any
other committee of not less than two Independent Directors performing similar
functions, as appointed by the Board from time to time. Each member of the
Committee shall be a Disinterested Person.
(b) Powers of Committee. The Committee shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
24
<PAGE>
(i) to select the officers and other employees of the Company
and its Subsidiaries to whom Awards may be granted from time to time;
(ii) to determine the time or times of grant and the extent,
if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock
Appreciation Rights, Phantom Stock, and Restricted Stock Awards, or any
combination of the foregoing, granted to any one or more participants;
(iii) to determine the number of Shares to be covered by any
Award;
(iv) to determine and modify the terms and conditions,
including restrictions, not inconsistent with the terms of the Plan, of
any Award, which terms and conditions may differ among individual
Awards and participants, and to approve the form of written instruments
evidencing the Awards;
(v) to accelerate the exercisability or vesting of all or any
portion of any Award;
(vi) subject to the provisions of Section 5(a)(iv), to extend
the period in which Stock Options may be exercised;
(vii) to determine whether, to what extent and under what
circumstances Shares and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the
participant and whether and to what extent the Company shall pay or
credit amounts constituting interest (at rates determined by the
Committee) or dividends or deemed dividends on such deferrals; and
(viii) to adopt, alter and repeal such rules, guidelines and
practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Awards (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in
connection with the Plan; and to otherwise supervise the administration
of the Plan.
All decisions and interpretations of the Committee shall be binding on
all persons, including the Company and Plan participants.
SECTION 3. SHARES AVAILABLE UNDER THE PLAN; MERGERS; SUBSTITUTIONS
(a) Shares Issuable. The maximum number of Shares reserved and
available for issuance under the Plan shall be 570,000 Shares of which not more
than 152,000 Shares may be Restricted Stock granted as provided in Section 7
hereof. For purposes of this limitation, the Shares underlying any Awards which
are forfeited, cancelled, reacquired by the Company, satisfied without the
issuance of Shares or otherwise terminated (other than by exercise) shall be
added back to the Shares available for issuance under the Plan so long as the
participants to whom such Awards had been previously granted received no
benefits of ownership of the underlying Shares to which the Award related.
Subject to such overall limitation, Shares may be issued up to such maximum
number pursuant to any type or types of Award, including Incentive Stock
Options. Shares issued under the Plan may be authorized but unissued Shares or
Shares reacquired by the Company.
25
<PAGE>
(b) Stock Dividends, Mergers, etc. In the event of a stock dividend,
stock split or similar change in capitalization affecting the Shares, the
Committee shall make appropriate adjustments in (i) the number and kind of stock
or securities on which Awards may thereafter be granted, (ii) the number and
kind of stock or securities remaining subject to outstanding Awards, and (iii)
the option or purchase price in respect of such stock or securities. In the
event of any merger, consolidation, dissolution or liquidation of the Company,
the Committee, in its sole discretion, may, as to any outstanding Awards, make
such substitution or adjustment in the aggregate number of Shares reserved for
issuance under the Plan and the number and purchase price (if any) of Shares
subject to such Awards as it may determine and as may be permitted by the terms
of such transaction, or amend or terminate such Awards upon such terms and
conditions as it shall provide (which, in the case of the termination of the
vested portion of any Award, shall require payment or other consideration that
the Committee deems equitable in the circumstances).
(c) Substitute Awards. The Committee may grant Awards under the Plan in
substitution for stock and stock-based awards held by employees of another
corporation who concurrently become employees of the Company or a Subsidiary as
the result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Committee may direct that
the substitute awards be granted on such terms and conditions as the Committee
considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
Participants in the Plan will be such full or part-time officers and
other employees of the Company and its Subsidiaries who are responsible for or
contribute to the management, growth, or profitability of the Company and its
Subsidiaries and who are selected from time to time by the Committee, in its
sole discretion.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options. To the extent that any Option does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option.
No Incentive Stock Option shall be granted under the Plan after June
16, 2004.
(a) Stock Options Granted to Employees. The Committee, in its
discretion, may grant Stock Options to employees of the Company or any
Subsidiary. Stock Options granted to employees pursuant to this Section 5(a)
shall be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan, as
the Committee shall deem desirable:
(i) Exercise Price. The exercise price per share for the
Shares covered by a Stock Option granted pursuant to this Section 5(a)
shall be determined by the Committee at the time of grant but shall not
be less than 100% of Fair Market Value on the date of grant.
Notwithstanding the foregoing, with respect to Non-Qualified Stock
Options that are granted in lieu of cash bonus, the exercise price per
share shall not be less than 50% of the Fair Market Value on the date
of grant. If an employee owns or is deemed to own
26
<PAGE>
(by reason of the attribution rules applicable under Section 424(d) of
the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation and an
Incentive Stock Option is granted to such employee, the option price of
such Incentive Stock Option shall not be less than 110% of Fair Market
Value on the grant date.
(ii) Option Term. The term of each Stock Option shall be fixed
by the Committee, but no Incentive Stock Option shall be exercisable
more than ten years after the date the Option is granted. If an
employee owns or is deemed to own (by reason of the attribution rules
of Section 424(d) of the Code) more than 10% of the combined voting
power of all classes of stock of the Company or any Subsidiary or
parent corporation and an Incentive Stock Option is granted to such
employee, the term of such option shall be no more than five years from
the date of grant.
(iii) Exercisability; Rights of a Shareholder. Stock Options
shall become vested and exercisable at such time or times, whether or
not in installments, as shall be determined by the Committee at or
after the grant date. The Committee may at any time accelerate the
exercisability of all or any portion of any Stock Option. An optionee
shall have the rights of a shareholder only as to Shares acquired upon
the exercise of a Stock Option and not as to unexercised Stock Options.
(iv) Method of Exercise. Stock Options may be exercised, in
whole or in part, by giving written notice of exercise to the Company
specifying the number of Shares to be purchased. Payment of the
purchase price may be made by one or more of the following methods or
by such other method as the Compensation Committee may allow:
(A) In cash, by certified or bank check or other
instrument acceptable to the Committee;
(B) In the form of Shares that are not then subject
to restrictions under any Company plan and that have been held
by the optionee for at least six months, if permitted by the
Committee in its discretion. Such surrendered Shares shall be
valued at Fair Market Value on the exercise date; or
(C) By the optionee delivering to the Company a
properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company
cash or a check payable and acceptable to the Company to pay
the purchase price; provided that in the event the optionee
chooses to pay the purchase price as so provided, the optionee
and the broker shall comply with such procedures and enter
into such agreements of indemnity and other agreements as the
Committee shall prescribe as a condition of such payment
procedure. Payment instruments will be received subject to
collection.
The delivery of certificates representing the Shares to be purchased pursuant to
the exercise of a Stock Option will be contingent upon receipt from the optionee
(or a purchaser acting in his stead in accordance with the provisions of the
Stock Option) by the Company of the full purchase price for such Shares and the
fulfillment of any other requirements of the Stock Option or applicable
provisions or laws.
27
<PAGE>
(v) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution and all Stock Options shall be exercisable,
during the optionee's lifetime, only by the optionee.
(vi) Termination by Reason of Death. If any optionee's
employment by the Company and its Subsidiaries terminates by reason of
death, the Stock Option may thereafter be exercised, to the extent
exercisable at the date of death, by the legal representative or
legatee of the optionee, for a period of six months (or such longer
periods as the Committee shall specify at any time) from the date of
death or until the expiration of the stated term of the Option, if
earlier.
(vii) Termination by Reason of Disability.
(A) Any Stock Option held by an optionee whose
employment by the Company and its Subsidiaries has terminated
by reason of Disability may thereafter be exercised, to the
extent it was exercisable at the time of such termination, for
a period of six months (or such longer period as the Committee
shall specify at any time) from the date of such termination
of employment or until the expiration of the stated term of
the Option, if earlier.
(B) The Committee shall have sole authority and
discretion to determine whether a participant's employment has
been terminated by reason of Disability.
(C) Except as otherwise provided by the Committee at
the time of grant, the death of an optionee during a period
provided in this Section 5(a)(vii) for the exercise of a
Non-Qualified Stock Option shall extend such period of six
months from the date of death, subject to termination on the
expiration of the stated term of the Option, if earlier.
(viii) Termination for Cause. If any optionee's employment by
the Company and its Subsidiaries has been terminated for Cause, any
Stock Option held by such optionee shall immediately terminate and be
of no further force and effect; provided, however, that the Committee
may, in its sole discretion, provide that such Stock Option can be
exercised for a period of up to 30 days from the date of termination of
employment or until the expiration of the stated term of the Option, if
earlier.
(ix) Other Termination. Unless otherwise determined by the
Committee, if an optionee's employment by the Company and its
Subsidiaries terminates for any reason other than death, Disability, or
for Cause, any Stock Option held by such optionee may thereafter be
exercised, to the extent it was exercisable on the date of termination
of employment, for three months (or such longer period as the Committee
shall specify at any time) from the date of termination of employment
or until the expiration of the stated term of the Option, if earlier.
(x) Annual Limit on Incentive Stock Options. To the extent
required for "incentive stock option" treatment under Section 422 of
the Code, the aggregate Fair Market Value (determined as of the time of
grant) of the Shares with respect to which Incentive Stock Options
granted under this Plan and any other plan of the Company or its
Subsidiaries become exercisable for the first time by an optionee
during any calendar year shall not exceed $100,000.
28
<PAGE>
(xi) Form of Settlement. Shares issued upon exercise of a
Stock Option shall be free of all restrictions under the Plan, except
as otherwise provided in this Plan.
(b) Reload Options. At the discretion of the Committee, Options granted
under Section 5(a) may include a so-called "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of Shares in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted
additional Options (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with the same expiration
date as the original Option being exercised, and with such other terms as the
Committee may provide) to purchase that number of Shares equal to the number
delivered to exercise the original Option.
SECTION 6. STOCK APPRECIATION RIGHTS.
The Committee may from time to time grant SARs unrelated to Options or
related to Options or portions of Options granted to participants under the
Plan. Each SAR shall be evidenced by a written instrument and shall be subject
to such terms and conditions as the Committee may determine. Subject to such
terms and conditions established by the Committee the participant may exercise
an SAR, or portion thereof, and thereupon shall be entitled to receive payment
of an amount equal to the aggregate appreciation in value of the Shares with
respect to which the SAR is awarded, as measured by the difference between the
purchase price of such Shares and their Fair Market Value at the date of
exercise. Such payments may be made in cash, in Shares valued at Fair Market
Value as of the date of exercise, or in any combination thereof as the Committee
in its discretion shall determine.
SECTION 7. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Award. The Committee may grant
Restricted Stock Awards to any employee of the Company or any Subsidiary. A
Restricted Stock Award is an Award entitling the recipient to acquire, at no
cost or for a purchase price determined by the Committee, Shares subject to such
restrictions and conditions as the Committee may determine at the time of grant.
Conditions may be based on continued employment and/or achievement of
pre-established performance goals and objectives.
(b) Acceptance of Award. A participant who is granted a Restricted
Stock Award shall have no rights with respect to such Award unless the
participant shall have accepted the Award within 60 days (or such shorter date
as the Committee may specify) following the award date by making payment to the
Company, if required, by certified or bank check, or other instrument or form of
payment acceptable to the Committee, in an amount equal to the specified
purchase price, if any, of the Shares covered by the Award and by executing and
delivering to the Company a written instrument that sets forth the terms and
conditions of the Restricted Shares in such form as the Committee shall
determine.
(c) Rights as a Shareholder. Upon complying with Section 7(b) above, a
participant shall have all the rights of a shareholder with respect to the
Restricted Shares, including voting and dividend rights, subject to
non-transferability restrictions and Company repurchase or forfeiture rights
described in this Section 7 and subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the Committee
shall otherwise determine, certificates evidencing the Restricted Shares shall
remain in the possession of the Company until such Shares are vested as provided
in Section 7(e) below.
29
<PAGE>
(d) Restrictions. Restricted Shares may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein. In the event of termination of employment by the
Company and its Subsidiaries for any reason (including death, retirement,
Disability or for Cause), the Company shall have the right, at the discretion of
the Committee, to repurchase at their original purchase price as established in
Section 7(a) above Restricted Shares with respect to which conditions have not
lapsed, or to require forfeiture of such Shares to the Company if acquired at no
cost, from the participant or the participant's legal representative. The
Company must exercise such right of repurchase or forfeiture not later than the
90th day following such termination of employment (unless otherwise specified in
the written instrument evidencing the Restricted Stock Award).
(e) Vesting of Restricted Shares. The Committee at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the
non-transferability of the Restricted Shares and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the Shares on which all restrictions have lapsed shall no longer be
Restricted Shares and shall be deemed "vested."
(f) Waiver, Deferral and Reinvestment of Dividends. The written
instrument evidencing the Restricted Stock Award may require or permit the
immediate payment, waiver, deferral or investment of dividends paid on the
Restricted Shares.
SECTION 8. PHANTOM STOCK
The Committee may from time to time grant Phantom Stock Awards under
the Plan. Each Phantom Stock Award shall be evidenced by a written instrument
and shall be subject to such terms and conditions as the Committee may
determine. Subject to such terms and conditions as may be established by the
Committee, the participant may exercise a Phantom Stock Award, or portion
thereof, and thereupon shall be entitled to receive payment of an amount equal
to the Fair Market Value at the date of exercise of the Shares with respect to
which the Phantom Stock is awarded. Such payments may be made in cash, in Shares
valued at Fair Market Value as of the date of exercise, or in any combination
thereof, as the Committee in its discretion shall determine.
SECTION 9. TAX WITHHOLDING
(a) Payment by Participant. Each participant shall, no later than the
date as of which the value of an Award of any Shares or other amounts received
thereunder first becomes includable in the gross income of the participant for
federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of any federal, state, or local
taxes of any kind required by law to be withheld with respect to such income.
The Company and its Subsidiaries shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
participant.
(b) Payment in Shares. A participant may elect to have such tax
withholding obligation satisfied, in whole or in part, by (i) authorizing the
Company to withhold from the Shares to be issued pursuant to any Award a number
of Shares with an aggregate Fair Market Value (as of the date the withholding is
effected) that would satisfy the withholding amount due, or (ii) transferring to
the Company Shares owned by the participant with an aggregate Fair Market Value
(as of the date the withholding is effected) that would satisfy the withholding
30
<PAGE>
amount due. With respect to any participant who is subject to Section 17 of the
Act, the following additional restrictions shall apply:
(A) the election to satisfy tax withholding obligations
relating to an Award in the manner permitted by this Section 9(b) shall
be made either (1) during the period beginning on the third business
day following the date of release of quarterly or annual summary
statements of revenues of the Company and ending on the twelfth
business day following such date, or (2) at least six months prior to
the date as of which the receipt of such Award first becomes a taxable
event for federal income tax purposes;
(B) such election shall be irrevocable;
(C) such election shall be subject to the consent or
disapproval of the Committee, and
(D) the Shares withheld to satisfy tax withholding must
pertain to an Award which has been outstanding for at least six months.
SECTION 10. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purposes approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
SECTION 11. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the
Committee may, at any time, amend or cancel any outstanding Award (or provide
substitute Awards at the same or reduced exercise or purchase price or with no
exercise or purchase price, but such price, if any, must satisfy the
requirements which would apply to the substitute or amended Award as if it were
then initially granted under this Plan) for the purpose of satisfying changes in
law or for any outstanding Award without the holder's consent. To the extent
required by the Code to ensure that Options granted hereunder qualify as
Incentive Stock Options and to the extent required by the Act to ensure that
Awards and Options granted under the Plan are exempt under Rule 16B-3
promulgated under the Act, Plan amendments shall be subject to approval by the
Company's shareholders.
SECTION 12. STATUS OF PLAN
With respect to the portion of any Award which has not been exercised
and any payments in cash, Shares or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
31
<PAGE>
obligations to deliver Shares or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the provisions of the foregoing sentence.
SECTION 13. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control as defined in this Section
13:
(a) Each outstanding Stock Option shall automatically become fully
exercisable notwithstanding any provision to the contrary herein.
(b) Restrictions and conditions on Restricted Stock Awards shall
automatically be deemed waived, and the recipients of such Awards shall become
entitled to receipt of the Shares subject to such Awards unless the Committee
shall otherwise expressly provide at the time of grant.
(c) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person," as such term is used in Section 13(d) and
14(d) of the Act (other than the Company, any of its Subsidiaries, any
trustee, fiduciary or other person or entity holding securities under
any employee benefit plan of the Company or any of its Subsidiaries),
together with all "affiliates" and "associates" (as such terms are
defined in Rule 12b-2 under the Act) of such person, shall become the
"beneficial owner" (as such term is defined in Rule 13d-3 under the
Act), directly or indirectly, of securities of the Company representing
40% or more of either (a) the combined voting power of the Company's
then outstanding securities having the right to vote in an election of
the Company's Board of Directors ("Voting Securities") or (B) the then
outstanding Shares of the Company (in either such case other than as a
result of acquisition of securities directly from the Company); or
(ii) persons who, as of May 1, 1994, constitute the Company's
Board of Directors (the "Incumbent Directors") cease for any reason,
including, without limitation, as a result of a tender offer, proxy
contest, merger or similar transaction, to constitute at least a
majority of the Board, provided that any person becoming a director of
the Company subsequent to May 1, 1994 whose election or nomination for
election was approved by a vote of at least a majority of the Incumbent
Directors shall, for purposes of this Plan, be considered an Incumbent
Director; or
(iii) the shareholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the
shareholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13D-3 under the Act),
directly or indirectly, shares representing in the aggregate 50% of the
voting shares of the corporation issuing cash securities in the
consolidation or merger (or of its ultimate parent corporation, if
any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by an
party as a single plan) of all or substantially all of the assets of
the Company or (C) any plan or proposal for the liquidation or
dissolution of the Company.
32
<PAGE>
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of Shares or other Voting Securities outstanding, increases (x) the
proportionate number of Shares beneficially owned by any person to 40% or more
of the Shares then outstanding or (y) the proportionate voting power represented
by the Voting Securities beneficially owned by any person to 40% or more of the
combined voting power of all then outstanding Voting Securities; provided,
however, that if any person referred to in clause (x) or (y) of this sentence
shall thereafter become the beneficial owner of any additional Shares or other
Voting Securities (other than pursuant to a stock split, stock dividend, or
similar transaction), then a "Change of Control" shall be deemed to have
occurred for purposes of the foregoing clause (i).
SECTION 14. GENERAL PROVISIONS
(a) No Distribution: Compliance with Legal Requirements. The Committee
may require each person acquiring Shares pursuant to an Award to represent to
and agree with the Company in writing that such person is acquiring the Shares
without a view to distribution thereof.
No Shares shall be issued pursuant to an Award until all applicable
securities laws and other legal and stock exchange requirements have been
satisfied. The Committee may require the placing of such stop-orders and
restrictive legends on certificates for Shares and Awards as it deems
appropriate.
(b) Delivery of Stock Certificates. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have delivered such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) Other Compensation Arrangements: No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, subject to shareholder approval if
such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan and
the grant of Awards do not confer upon any employee any right to continued
employment with the Company or any Subsidiary.
SECTION 15. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon approval by the holders of a
majority of the Shares of the Company present or represented and entitled to
vote at a meeting of shareholders. Subject to such approval by the shareholders,
and to the requirement that no Shares may be issued hereunder prior to such
approval, Stock Options and other Awards may be granted hereunder on and after
adoption of the Plan by the Board.
SECTION 16. GOVERNING LAW
This Plan shall be governed by North Carolina law except to the extent
such law is preempted by federal law.
33
<PAGE>
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BODDIE-NOELL
PROPERTIES, INC. FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE
30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
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<RECEIVABLES> 168405
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<CURRENT-ASSETS> 3629962
<PP&E> 185859716
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<CURRENT-LIABILITIES> 2046080
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<COMMON> 71931388
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<TOTAL-LIABILITY-AND-EQUITY> 179382443
<SALES> 0
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<TOTAL-COSTS> 5061058
<OTHER-EXPENSES> 887928
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