As filed with the Securities and Exchange Commission on January 13, 1999
File No. 333-68935
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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BODDIE-NOELL PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 56-1574675
(State of incorporation) (I.R.S. Employer
Identification No.)
3850 One First Union Center
Charlotte, North Carolina 28202-6032
(704) 944-0100
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
With Copies to:
D. Scott Wilkerson, President Brad S. Markoff, Esq.
Boddie-Noell Properties, Inc. Alston & Bird LLP
3850 One First Union Center 3605 Glenwood Avenue, Suite 310
Charlotte, North Carolina 28202-6032 Raleigh, North Carolina 27612
(704) 944-0100 (919) 420-2210
(Address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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950,032 SHARES
BODDIE-NOELL PROPERTIES, INC.
COMMON STOCK
Boddie-Noell Properties, Inc. is a real estate investment trust focused
on owning and operating apartment communities. We currently own 14 apartment
communities containing 3,188 apartment units and have the right to acquire an
additional 108 apartment units in one apartment community currently under
construction. We also own 47 restaurant properties and manage four apartment
communities owned by other parties.
Our mailing address and telephone number are:
Boddie-Noell Properties, Inc.
3850 One First Union Center
Charlotte, North Carolina 28202-6032
(704) 944-0100.
We are offering and selling 950,032 shares of common stock with this
prospectus in exchange for the same number of units in Boddie-Noell Properties
Limited Partnership, which is the operating partnership through which we conduct
substantially all of our business. Our common stock is listed for trading on the
American Stock Exchange under the symbol "BNP." On January 6, 1999, the last
reported sale price of our common stock on the American Stock Exchange was
$10.75 per share.
Investing in our common stock involves certain risks. See "Risk
Factors" beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. It is illegal for any person to tell you
otherwise.
This prospectus is dated January 13, 1999.
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We have not authorized any person to make a statement that differs from
this prospectus. If any person does make a statement that differs from this
prospectus, you should not rely on it. This prospectus is not an offer to sell,
nor is it seeking an offer to buy, these securities in any state where the offer
or sale is not permitted. The information in this prospectus is complete and
accurate as of its date, but the information may change after that date.
THE COMPANY
We are Boddie-Noell Properties, Inc., a corporation organized under the
laws of the State of Maryland. We sometimes refer to ourselves as the Company.
We currently own 14 apartment communities in Charlotte, Greensboro and
Winston-Salem, North Carolina, and Virginia Beach, Virginia, containing a total
of 3,188 apartment units. Our apartments' rental rates are in the moderate to
moderately high range for apartments available within these markets. We also
have the right to acquire an additional apartment community in Winston-Salem,
North Carolina, which is currently under construction.
We also manage an additional four apartment communities owned by third
parties containing a total of 891 apartment units through an unconsolidated
subsidiary, BNP Management, Inc. All of the managed properties are located in
North Carolina and Virginia. To avoid confusion with Boddie-Noell Properties,
Inc., we refer to BNP Management, Inc. in this prospectus as the Management
Company. We own 95% of the economic interest and a 1% voting interest in the
Management Company, but we do not consolidate the Management Company for
financial statement purposes.
We also own 47 Hardee's restaurant properties, which we lease to
Boddie-Noell Enterprises, Inc. under a triple-net master lease. Because the name
of this company is similar to our own, we refer to it simply as Enterprises
throughout this prospectus. In addition to all operating expenses, Enterprises
is responsible for the cost of any improvement, expansion, remodeling or
replacement required to keep the properties competitive or in conformity with
the franchisor's building standards.
We employ approximately 135 persons, including management, accounting,
legal, acquisitions, development, property management, leasing, maintenance and
administrative personnel.
We currently operate as a self-administered and self-managed real
estate investment trust ("REIT") in accordance with the provisions of Sections
856 through 860 of the Internal Revenue Code. Qualifying as a REIT for federal
income tax purposes
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means that we substantially eliminate the federal "double taxation" that usually
results from investment in a corporation. The impact of failing to qualify as a
REIT is discussed in the "Risk Factors -- Tax Risks -- Consequences of the
Failure to Qualify as a REIT" section. See also "Federal Income Tax
Considerations."
We are organized as an UPREIT, a structure that many REITs currently
use. UPREIT stands for "Umbrella Partnership Real Estate Investment Trust." An
UPREIT is a real estate investment trust that controls and holds most of its
properties through an umbrella limited partnership. The umbrella limited
partnership in our UPREIT is Boddie-Noell Properties Limited Partnership, which
we organized as a Delaware limited partnership. An UPREIT's limited partnership
interests are generally referred to as "Units," and the limited partnership in
an UPREIT is generally referred to as the "Operating Partnership." In keeping
with industry convention and to help avoid confusion between Boddie-Noell
Properties, Inc. and Boddie-Noell Properties Limited Partnership, we have
adopted those terms for use in this prospectus.
We are the Operating Partnership's sole general partner and currently
own 79% of the Units. With the exception of the general partner (us), Unit
holders will generally be able to redeem their Units for cash or, at our option
as general partner, for shares of common stock of the Company on a one-for-one
basis. UPREITs are structured so that distributions of cash from the Operating
Partnership are allocated between the REIT (i.e., the Company) and the other
limited partners based upon their respective Unit ownership.
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RISK FACTORS
Before you invest in our common stock, you should be aware that there
are various risks, including those described below. You should consider
carefully these risk factors together with all of the other information included
in this prospectus before you decide to purchase shares of our common stock.
Some of the information in this prospectus may contain forward-looking
statements. You can identify such statements by our 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. When considering such forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this prospectus. The risk factors noted in this section and other
factors noted throughout this prospectus, including certain risks and
uncertainties, could cause our actual results to differ materially from those
contained in any forward-looking statement.
Tax Consequences of Redeeming Units
If a Unit holder seeks to require the Operating Partnership to redeem
his or her Units, the Operating Partnership will redeem the Units for cash or,
at our option, we may buy the Units (for cash or common stock). If a Unit holder
redeems all of his or her Units, the redemption will be treated for tax purposes
as a taxable sale or exchange of the Units. If a Unit holder exercises a
redemption for less than all of his or her Units, the Unit holder would
recognize no loss; however, the Unit holder would recognize gain to the extent
the cash received plus the amount of the liabilities relieved was more than his
or her entire adjusted basis in the Units. Upon redemption, the holder will be
treated as realizing proceeds equal to the sum of the cash (or the value of the
common stock) received plus the amount of the reduction in any Operating
Partnership liabilities allocable to the holder.
It is possible that a Unit holder could recognize a gain or even incur
a tax liability that exceeds the amount of cash or the value of common stock
that he or she receives in the redemption. See "Federal Income Tax
Considerations -- Tax Consequences of Redemption" beginning on page 46. In
addition, a Unit holder may not be able to raise sufficient cash through the
sale of the common stock received to pay the tax liabilities associated with the
Unit redemption. This could happen if the stock price falls after the holder
redeems his or her Units.
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Potential Change in Investment upon Redemption of Units
If a Unit holder exercises the right to require the Operating
Partnership to redeem his or her Units, the holder may receive, at our option,
cash or common stock in exchange for the Units. If the holder receives cash,
unless he or she owns or acquires additional common stock or Units, he or she:
- - will no longer have any interest in our operations;
- - will not benefit from any subsequent increases in our common stock price; and
- - will not receive any subsequent distributions.
If the holder receives common stock, he or she will become a shareholder in the
Company, rather than a limited partner in the Operating Partnership. There are
differences between owning common stock in the Company and Units in the
Operating Partnership. See "Redemption of Units -- Comparison of Units and
Shares of Common Stock" beginning on page 24.
Possible Inability to Meet and Manage Growth Objectives
Since December 1997, we have nearly tripled the number of apartment
units we own. Our ability to integrate successfully a large number of new
properties into our portfolio depends upon our ability to:
- identify, acquire and finance new properties;
- effectively manage properties;
- attract and retain quality personnel;
- develop procedures and practices necessary to generate high
occupancy levels and rental rates; and
- operate such new properties in a cost effective manner.
We can provide no assurances that we will be able to accomplish these
necessary prerequisites for the successful integration of any acquired
properties.
Uncertainty with Respect to Restaurant Properties
Since our inception in 1987, we have had a large portion of our assets
invested in 47 Hardee's restaurant properties that are leased to Enterprises.
Under the master lease for these properties, we are paid annual rent equal to
the greater of $4.5 million or 9.875% of food sales. From 1987 through 1995,
Enterprises paid us more than $4.5 million per year. However, restaurant sales
have declined each year since 1992 when our restaurant related
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revenues peaked at $5.3 million. Accordingly, the revenue we have received from
them has declined since that time as well. In 1996 and 1997, the revenues of
those Hardee's restaurants were below the level requiring payments in excess of
the minimum.
In order to protect our shareholders from these declining revenues, in
1993 we began to acquire apartment communities. We believe that we can more
effectively enhance the value of our common stock by acquiring and operating
apartment communities. Accordingly, we focused our business primarily on the
ownership and operation of apartment communities.
As a consequence of this refocused strategy, we may elect to sell our
restaurant properties and reinvest the proceeds in additional apartment
communities. No sale of the restaurants is pending, and we will only divest the
restaurants if we believe doing so will enhance shareholder value.
If we do dispose of the restaurant properties, it is possible that we
may incur a loss on the disposition of the properties. It is also possible that
we may invest such sale proceeds in properties that yield significantly less
than the $4.5 million we received from Enterprises in 1997.
Further, in the event we were to find a buyer, Enterprises has the
right to purchase the restaurants from us on the same terms as that offer. This
right may make it more difficult to find a suitable buyer or could adversely
affect the price we might realize on any such sale.
For the nine-month period ended September 30, 1998, the restaurant
properties accounted for 18% of our total revenues. All of the restaurant
property revenue comes from Enterprises. The inability of Enterprises to pay us
rent would adversely affect funds from operations and funds available for
distribution. Until we are able to increase our apartment portfolio
significantly or dispose of the restaurant properties, they will continue to
account for a sizeable portion of our revenues.
Real Estate Investment Risks
General Risks
Our ability to make distributions to you depends on our ability to
generate funds from operations in excess of scheduled principal payments on debt
and capital expenditure requirements. Events or conditions that are beyond our
control may adversely affect funds from operations and the value of our
properties. Such events or conditions could include:
- competition from other apartment communities and alternative
housing due in part to low interest rates, both nationally and
in our principal markets, which may make home purchasing an
attractive alternative to renting;
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- new construction of comparable properties which might adversely
affect apartment occupancy or rental rates;
- increases in operating costs (including real estate taxes) due to
inflation and other factors, which may not necessarily be offset by
increased rents;
- the inability to rent properties on favorable economic terms;
- changes in governmental regulations and the related costs of
compliance;
- changes in tax laws and housing laws including the enactment
of rent control laws or other laws regulating multifamily
housing;
- changes in interest rate levels and the availability of
financing; and
- the relative illiquidity of real estate investments.
Lack of Geographic Diversification
All of our properties are located in Virginia and North Carolina.
Adverse economic developments in these states could adversely impact the
operations of our properties and therefore our profitability. The concentration
of properties in a limited number of markets may expose us to risks of adverse
economic developments which are greater than the risks of owning properties in
more markets.
Financing Risks
Risks Associated with Debt Financing
At September 30, 1998, we had $140.1 million in long-term debt.
Payments of principal and interest on borrowings may leave us with insufficient
cash resources to operate the apartment communities or to pay the distributions
we must pay to maintain our qualification as a REIT.
Further, a high debt level creates an increased risk that we may
default on our obligations. If we default, the banks who lent us funds could
foreclose on the properties securing their loans. As of September 30, 1998, our
debt-to-total market capitalization ratio (debt divided by the sum of debt and
the market value of our outstanding Units and shares of common stock) was 61.6%.
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Variable Interest Rates
At September 30, 1998, $20.1 million of our long-term debt bore
interest at a variable rate. In addition, we may incur additional debt in the
future that also bears interest at variable rates. Variable-rate debt creates
higher debt service requirements if market interest rates increase. Such an
increase would adversely affect our cash flow and the amounts available to pay
dividends.
Possible Inability to Refinance Debt
We may obtain financing with "due-on-encumbrance" or "due-on-sale"
clauses in which future refinancing or property sales could cause the maturity
dates of the mortgages to accelerate and the financing to become due
immediately. Thus, we could be required to sell properties on an all-cash basis,
or the purchaser might be required to obtain new financing in connection with a
sale. Alternatively or additionally, we may obtain mortgages that have balloon
payments. Such mortgages involve greater risks than mortgages with principal
amounts amortized over the term of the loan since our ability to repay the
outstanding principal amount at maturity may depend on obtaining adequate
refinancing or selling the property. The efficacy of either option would depend
on economic conditions in general and the value of the underlying properties in
particular. We cannot guarantee that we could refinance or repay any such
mortgages at maturity. Further, a significant decline in the value of the
underlying property could result in a loss of the property through foreclosure.
Regulatory Matters
Environmental Matters
Various federal, state and local laws subject property owners or
operators to liability for the costs of removal or remediation of certain
hazardous substances released on a property. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the release of the hazardous substances. The presence of, or the failure to
remediate properly, hazardous substances may adversely affect occupancy of any
contaminated apartment communities, the ability of Enterprises to operate
restaurants, and our ability to sell or borrow against contaminated properties.
In addition to the costs associated with investigation and remediation actions
brought by governmental agencies, the presence of hazardous wastes on a property
could result in personal injury or similar claims by private plaintiffs.
Various laws also impose, on persons who arrange for the disposal or
treatment of hazardous or toxic substances, liability for the cost of removal or
remediation of hazardous substances at the disposal or treatment facility. These
laws often impose liability whether or not the person arranging for the disposal
ever owned or operated the disposal facility.
Enterprises has agreed to pay for the costs of complying with
applicable
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environmental laws, ordinances and regulations on the restaurant properties.
However, the obligation to pay for such costs with respect to our other
properties, or Enterprises' inability to pay for such costs on the restaurant
properties, may adversely affect our operating costs and the value of our
properties.
Phase I environmental site assessments have been obtained on all of our
owned apartment communities. The purpose of Phase I environmental site
assessments is to identify potential sources of contamination for which a
company may be responsible and to assess the status of environmental regulatory
compliance. All of the restaurant properties were subjected to transaction
screens in December 1995. A transaction screen involves a review of a property
for the purpose of recommending whether we should perform a Phase I
environmental site assessment. A transaction screen is significantly less
thorough in scope than a Phase I environmental site assessment.
Neither the transaction screens nor the environmental site assessments
revealed any environmental condition, liability or compliance concern that we
believe would have a material adverse affect on our business, assets or results
of operations. Nor are we aware of any such condition, liability or concern by
any other means. However, it is possible that the transaction screens and the
environmental site assessments relating to any one of the properties did not
reveal all environmental conditions, liabilities or compliance concerns. It is
also possible that there are material environmental conditions, liabilities or
compliance concerns that arose at a property after the related review was
completed.
Compliance with the Americans with Disabilities Act and Other Laws
Under the Americans with Disabilities Act of 1990 (the "ADA"), all
public accommodations and commercial facilities must meet certain federal
requirements related to access and use by disabled persons. Compliance with the
ADA requirements could require removal of access barriers. Additional federal,
state and local laws exist that are related to access by disabled persons. These
laws also may require modifications to our properties or restrict renovations of
our properties. For example, the Fair Housing Amendments Act of 1988 (the
"FHAA") requires apartment communities first occupied after March 13, 1991 to be
accessible to the handicapped. Non-compliance with the ADA, FHAA and similar
laws could result in the imposition of fines or an award of damages to private
litigants. Under the terms of the master lease agreement with Enterprises,
Enterprises is financially responsible for upgrading the restaurant properties
should such properties not be in compliance with the ADA. However, in the event
Enterprises fails to upgrade properly the restaurants and there is a
determination that the restaurant properties are not in compliance with the ADA,
we could still face the imposition of fines or an award of damages to private
litigants. If we were required to make unanticipated expenditures to comply with
the ADA or other laws, our cash flow and the amounts available for distributions
to you may be adversely affected.
The Federal Fair Housing Act and state fair housing laws prohibit
discrimination on the basis of certain protected classes. We have a policy
against these kinds of
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discriminatory behaviors and train our employees to avoid discrimination and the
appearance of discrimination. We cannot assure you that an employee will not
violate our policy against discrimination and violate the fair housing laws.
Such a violation could subject us to legal action and awards of damages.
Conflicts of Interest
We have been, and continue to be, involved in various transactions with
a number of our affiliates, including executive officers, directors, major
shareholders and entities sharing common ownership with us.
Enterprises' Option to Close Poorly Performing Restaurants
Under certain agreements with Enterprises and the bank holding the
mortgage on the restaurant properties, Enterprises has the option to close
restaurants that are performing poorly, as defined in such agreements.
Under the master lease, Enterprises has the option to close a poorly
performing location by offering us a choice of three of its own restaurants that
meet certain performance criteria as a substitute for the restaurant Enterprises
wishes to close. In our sole discretion, we may accept or reject any one of the
three alternatives they propose. If we reject all three, at our option, we may
(i) keep the property and cancel the portion of the master lease relating to
that property or (ii) sell the property to Enterprises for $920,000. Beginning
on January 1, 2008, Enterprises may close up to five poorly performing locations
per year. We will have the option to keep the property and cancel the portion of
the master lease relating to that property or sell the property to Enterprises
for cash equal in amount to the property's net book value (our original cost of
$920,000 less the depreciation we have recorded since 1987).
Under the terms of a tri-party agreement among the Company, Enterprises
and the bank holding the mortgage on the restaurant properties, Enterprises can
close up to seven poorly performing locations (but no more than five in any
year) under the same terms and conditions available to Enterprises beginning on
January 1, 2008 under the master lease. If the mortgage is canceled, the
tri-party agreement terminates, and Enterprises can only close restaurants in
accordance with the provisions of the master lease.
We cannot predict whether Enterprises will exercise its option to close
restaurants in accordance with the master lease and the tri-party agreement. And
we cannot accurately predict what impact such closures would have on our
financial condition or results of operations.
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Tax Risks
Consequences of the Failure to Qualify as a REIT
We believe that we operate in a manner that enables us to meet the
requirements for qualification as a REIT for federal income tax purposes. We
have not requested, and do not plan to request, a ruling from the Internal
Revenue Service that we qualify as a REIT. We have, however, received an opinion
from the law firm of Alston & Bird LLP that we met the requirements for
qualification as a REIT for the taxable years ended December 31, 1987 through
1997, and that we are in a position to continue such qualification if we meet
certain conditions throughout the year and for the year as a whole.
You should be aware that opinions of counsel are not binding on the IRS
or any court. Furthermore, the conclusions stated in the opinion are conditioned
on, and our continued qualification as a REIT will depend on, our meeting
various requirements. Such requirements are discussed in more detail under the
heading "Federal Income Tax Considerations -- Requirements for Qualification"
beginning on page 33. Finally, the opinion is based on certain representations
by us to Alston & Bird LLP, which has not independently verified or investigated
the correctness of those representations.
If we fail to qualify as a REIT, we would not be allowed a deduction
for distributions to shareholders in computing our taxable income and would be
subject to federal income tax at regular corporate rates. We also could be
subject to the federal alternative minimum tax. Unless we are entitled to relief
under specific statutory provisions, we could not elect to be taxed as a REIT
for four taxable years following the year during which we were disqualified.
Therefore, if we lose our REIT status, the funds available for distribution to
you would be reduced substantially for each of the years involved. See "Federal
Income Tax Considerations -- Failure to Qualify" on page 39.
Effect of Distribution Requirements
As a REIT, we are subject to annual distribution requirements, which
limit the amount of cash we have available for other business purposes,
including amounts to fund our growth. See "Federal Income Tax Considerations --
Annual Distribution Requirements" on page 37.
Other Tax Liabilities
Even if we qualify as a REIT, we and our subsidiaries will be subject
to certain federal, state, and local taxes on our income and property that could
reduce operating cash flow.
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Possible Adverse Consequences of Limits on Ownership of Shares
Our Articles of Incorporation limit ownership of our capital stock by
any single shareholder to 9.8% of the outstanding shares. The Articles also
prohibit anyone from buying shares if the purchase would result in us losing our
REIT status. This could happen if a share transaction results in fewer than 100
persons owning all of our shares or in five or fewer persons, applying certain
broad attribution rules of the Internal Revenue Code, owning 50% or more of our
shares. If you or anyone else acquires shares in excess of the ownership limit
or in violation of the ownership requirements of the Internal Revenue Code for
REITs, we:
- will consider the transfer to be null and void;
- will not reflect the transaction on our books;
- may institute legal action to enjoin the transaction;
- will not pay dividends or other distributions with respect
to those shares;
- will not recognize any voting rights for those shares;
- will consider the shares held in trust for the benefit
of the Company; and
- will either direct the affected person to sell the shares and
turn over any profit to us, or we will redeem the shares. If
we redeem the shares, it will be at a price equal to the
lesser of:
(a) the price paid by the transferee of the shares or
(b) the average of the last reported sales prices on
the American Stock Exchange on the 10 trading
days immediately preceding the date fixed for
redemption by our Board of Directors.
An individual who acquires shares that violate the above rules bears
the risk that (1) he may lose control over the power to dispose of the shares,
(2) he may not recognize profit from the sale of such shares if the market price
of the shares increases and (3) he may be required to recognize a loss from the
sale of such shares if the market price decreases.
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Limitations on Acquisition and Change in Control
Ownership Limit
The 9.8% ownership limit discussed above may have the effect of
precluding acquisition of control of us by a third party without the consent of
our Board of Directors. See "Description of Capital Stock -- Ownership
Limitations and Restrictions on Transfer" on page 18.
Required Consent of the Operating Partnership for Significant Corporate Action
A provision in the Operating Partnership agreement prohibits us from
engaging in certain transactions that could result in a change of control
without the approval of the holders of a majority of the outstanding Units,
including Units that we own. While we expect that we will always hold a majority
of the outstanding Units, we cannot guarantee that this will be the case. If we
ever own less than a majority of the outstanding Units, this voting requirement
might limit the possibility for an acquisition or change in control of the
Company, even if such acquisition or change in control would be in your (the
shareholders') best interests. As of September 30, 1998, we owned approximately
80% of the Operating Partnership Units.
Operating Partnership Agreement
The Operating Partnership agreement contains provisions relating to
limited partners' redemption rights in the event of certain changes of control
of the Company. These provisions require an acquiror to maintain the Operating
Partnership structure and to maintain a limited partner's right to continue to
hold Units with future redemption rights. Such provision could have the effect
of discouraging a third party from making an acquisition proposal, even if such
proposal were in our shareholders' best interests.
Preferred Stock
Our Articles of Incorporation authorize our Board of Directors to issue
up to 10.0 million shares of preferred stock. The Board of Directors may
establish the preferences and rights of any preferred shares issued. The
issuance of preferred stock could have the effect of delaying or preventing
someone from taking control of us, even if a change in control were in our
shareholders' best interests. As of the date of this prospectus, we have not yet
issued any preferred stock. See "Description of Capital Stock --Preferred Stock"
on page 17.
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Maryland Business Combination Statute
The Maryland General Corporation Law establishes special requirements
for "business combinations" between a Maryland corporation and "interested
shareholders" unless exemptions are applicable. An interested shareholder is any
person who beneficially owns 10% or more of the voting power of our
then-outstanding voting stock. Among other things, the law prohibits for a
period of five years a merger and other similar transactions between us and an
interested shareholder unless the Board approved the transaction prior to the
party becoming an interested shareholder. The five-year period runs from the
most recent date on which the interested shareholder became an interested
shareholder. The law also requires a supermajority shareholder vote for such
transactions after the end of the five-year period. This means that the
transaction must be approved by at least:
- 80% of the votes entitled to be cast by holders
of outstanding voting shares and
- two-thirds of the votes entitled to be cast by holders of
outstanding voting shares other than shares held by the
interested shareholder with whom the business combination is
to be effected.
The business combination statute could have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our shareholders' best interests.
Maryland Control Share Acquisition Statute
Maryland law provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a shareholder vote. Two-thirds of the shares eligible to vote must
vote in favor of granting the "control shares" voting rights. "Control shares"
are shares of stock that, taken together with all other shares of stock the
acquiror previously acquired, would entitle the acquiror to exercise voting
power (in electing directors) within any of the following ranges:
- at least one-fifth, but less than one-third of all voting power,
- at least one-third, but less than a majority of all voting power, or
- a majority or more of all voting power.
Control shares include shares only to the extent that the acquiring person may
exercise voting power within a range for which shareholder approval has not been
obtained. A "control share acquisition" means the acquisition of control shares,
subject to certain exceptions.
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If a person who has made (or proposes to make) a control share
acquisition satisfies certain conditions (including agreeing to pay expenses),
he may compel the Board of Directors to call a special meeting of shareholders
to be held within 50 days to consider the voting rights of the shares. If such a
person makes no request for a meeting, we have the option to present the
question at any shareholders' meeting.
If voting rights are not approved at a meeting of shareholders, then we
may redeem any or all of the control shares (except those for which voting
rights have previously been approved) for fair value. We will determine the fair
value of the shares, without regard to voting rights, as of the date of either:
- the last control share acquisition or
- any meeting where shareholders considered and
did not approve voting rights of the control shares.
If voting rights for control shares are approved at a shareholders'
meeting and the acquiror becomes entitled to vote a majority of the shares of
stock entitled to vote, all other shareholders may exercise appraisal rights.
This means that you would be able to redeem your stock back to us for fair
value. Under Maryland law, the fair value may not be less than the highest price
per share paid in the control share acquisition. Furthermore, certain
limitations otherwise applicable to the exercise of dissenters' rights would not
apply in the context of a control share acquisition.
The control share acquisition statute would not apply to shares
acquired in a merger, consolidation or share exchange if we were a party to the
transaction.
The control share acquisition statute could have the effect of
discouraging offers to acquire us and of increasing the difficulty of
consummating any such offers, even if our acquisition would be in our
shareholders' best interests.
Dependence on Key Personnel
We are dependent on the efforts of our executive officers, particularly
D. Scott Wilkerson, Philip S. Payne and Pamela B. Novak. While we believe that
we could find replacements for these key personnel, if necessary, the loss of
their services could have an adverse effect on our operations. Messrs. Wilkerson
and Payne and Ms. Novak have entered into employment contracts with us.
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USE OF PROCEEDS
In connection with the issuance of the common stock offered by us
through this prospectus, we will generally receive one Unit in the Operating
Partnership for each share of common stock. This will have the effect of
increasing our proportionate ownership in the Operating Partnership.
DESCRIPTION OF CAPITAL STOCK
General
Our Articles of Incorporation give us the authority to issue up to
100.0 million shares of common stock and 10.0 million shares of preferred stock.
The par value of both the common and preferred stock is $.01 per share. Under
Maryland law, shareholders generally are not responsible for a corporation's
debts or obligations. At September 30, 1998, we had 5,965,505 shares of common
stock issued and outstanding. This does not include shares issuable upon the
redemption of any Units or shares issuable under currently outstanding options
or warrants held by officers and directors or shares that may be issued under
our Dividend Reinvestment and Stock Purchase Plan. No shares of preferred stock
are outstanding.
Common Stock
Our Board of Directors previously authorized us to issue all of the
currently outstanding common stock. The Board has also authorized the issuance
of the stock issuable upon redemption of outstanding Units. The common stock we
have previously sold has been fully paid for and is non-assessable. When we
issue stock upon redemption of Units, we will also consider such common stock to
be fully paid for and non-assessable. Non-assessable means that we cannot ask
you for more money for the stock after you have purchased it.
As a holder of common stock, you will be entitled to receive
distributions based on common stock if our Board of Directors declares such
distributions. However, because we have the authority under our Articles of
Incorporation to issue preferred stock, your rights to receive distributions may
be subordinated to the rights of any preferred stock we
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issue in the future. In any liquidation, each outstanding common share entitles
its holder to share (based on the percentage of shares held) in the assets that
remain after we pay our liabilities and any preferential distributions owed to
preferred shareholders. We have paid quarterly distributions on our common stock
since the period ending June 30, 1987, and we intend to continue to pay
quarterly distributions.
Holders of common stock are entitled to one vote for each share on all
matters submitted to a shareholder vote. Unless a law requires otherwise, or as
our Articles of Incorporation may provide with respect to preferred stock, the
holders of common stock will possess exclusive voting power. See " -- Ownership
Limitations and Restrictions on Transfers." There is no cumulative voting in the
election of directors. This means that the holders of a majority of the common
stock can elect all of the directors and the holders of the remaining common
stock could not elect any director.
As a common shareholder in the Company, you will have no conversion,
sinking fund or redemption rights, or preemptive rights. A conversion feature is
one where a shareholder has the option to convert his shares to a different
security, such as debt or preferred stock. A sinking fund or redemption right is
one where a shareholder will have the right to redeem his shares (for cash or
other securities) at some point in the future. Sometimes a redemption right is
paired with an obligation of the company to create an account into which such
company must deposit money into to fund the redemption (i.e., a sinking fund).
Preemptive rights are rights granted to shareholders to subscribe for a
percentage of any other securities we may offer in the future based on the
percentage of shares owned.
We will furnish you with annual reports containing audited consolidated
financial statements. The financial statements will contain an opinion of our
independent public accountants. We will also furnish you quarterly reports for
the first three quarters of each year. These reports will contain unaudited
financial information.
All common stock will have equal distribution, liquidation and voting
rights.
The Maryland General Corporate Law generally prohibits us from merging
with another corporation if we will not be the surviving entity in the merger.
Maryland law also generally prohibits us from selling all or most of our assets.
We can enter into these transactions, however, if our Board of Directors adopts
a resolution declaring the proposed transaction advisable and a majority of
shareholders entitled to vote approves the transaction.
The common stock is listed on the American Stock Exchange. The transfer
agent and registrar for the common stock is First Union National Bank of North
Carolina.
Preferred Stock
Under our Articles of Incorporation, our Board of Directors has the
authority to issue one or more series of preferred stock. Prior to issuing
shares of each series, the
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Maryland General Corporate Law and our Articles of Incorporation require the
Board of Directors to fix the terms for each series. Such terms could include
the right to receive distributions and liquidation payments before such can be
made on the common stock. The Board of Directors could authorize terms that
could discourage a takeover or other transaction that might be in the common
shareholders' best interests. As of the date of this prospectus, we have not
issued any preferred stock.
Ownership Limitations and Restrictions on Transfers
To maintain our REIT qualification, no fewer than six persons can own
50% or more in value of our outstanding common stock during the last half of a
taxable year. Additionally, at least 100 persons must own the common stock
during at least 335 days per year. See "Federal Income Tax Considerations --
Requirements for Qualification." To help ensure we meet these tests, our
Articles of Incorporation provide that no person may own more than 9.8% of our
issued and outstanding capital stock. For purposes of this provision, the
Company treats corporations, partnerships, groups within Section 13(d)(3) of the
Securities Exchange Act of 1934 and other entities as single persons. The Board
of Directors has discretion to waive this ownership limit if they receive
evidence that the changes in ownership will not jeopardize our REIT status. The
consequences of violating these limits are spelled out under the heading "Risk
Factors -- Possible Adverse Consequences of Limits on Ownership of Shares."
The restrictions on transferability and ownership will not apply if the
Board of Directors and the shareholders holding two-thirds of our outstanding
shares of capital stock determine that it is no longer in our best interest to
be a REIT. We have no intention to seek to change our REIT status.
All certificates representing shares of common stock bear a legend
referring to the restrictions described above.
If you own more than 5% of our common stock or preferred stock, you
must file a written notice with us no later than January 30 of each year. This
notice should contain your name and address, the number of shares of common
stock or preferred stock you own and a description of how you hold the shares.
In addition, you will be required, if we ask, to disclose to us in writing any
information we need in order to determine the effect of your ownership of such
shares on our status as a REIT.
These ownership limitations could have the effect of precluding a third
party from obtaining control over the Company unless the Board of Directors and
the shareholders determine that maintaining REIT status is no longer desirable.
Limitations of Liability and Indemnification of Directors and Officers
Maryland corporation law and our Articles of Incorporation exculpate
each director and officer in actions by the Company or by shareholders in
derivative actions from liability unless the director or officer has received an
improper personal benefit in
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money, property or service or he has acted dishonestly, as established by a
final judgment of a court.
The Articles of Incorporation also provide that we will indemnify a
present or former director or officer against expense or liability in an action
to the fullest extent permitted by Maryland law. Maryland law permits a
corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable expenses
they incur in connection with any proceeding to which they are a party because
of their service as an officer, director or other similar capacity. However,
Maryland law prohibits indemnification if it is established that:
- the act or omission of the director or officer was material to
the matter giving rise to the proceeding and was committed in
bad faith or was the result of active and deliberate
dishonesty;
- the director or officer actually received an improper personal
benefit in money, property or services; or
- in the case of any criminal proceeding, the director or
officer had reasonable cause to believe that the act or
omission was unlawful.
In addition, under Maryland law, to indemnify a director or officer we would
also have to obtain (i) a written affirmation by the director or officer of his
or her good faith belief that he or she has met the standard of conduct
necessary for indemnification and (ii) a written statement that he will repay
the amounts we advance if it shall ultimately be determined that the standard of
conduct was not met.
The exculpation and indemnification provisions in the Articles of
Incorporation have been adopted to help induce qualified individuals to agree to
serve on behalf of the Company by providing a degree of protection from
liability for alleged mistakes in making decisions and taking actions. Such
exculpation and indemnification provisions have been adopted, in part, in
response to a perceived increase in shareholders' litigation alleging director
and officer misconduct. You should be aware, however, that these provisions in
our Articles of Incorporation and Maryland law give you a more limited right of
action than you otherwise would have in the absence of such provisions.
The above indemnification provisions could operate to indemnify
directors, officers or other persons who exert control over us against
liabilities arising under the Securities Act of 1933. Insofar as the above
provisions may allow that type of indemnification, the Securities and Exchange
Commission has informed us that, in their opinion, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
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PARTNERSHIP AGREEMENT OF THE OPERATING PARTNERSHIP
We organized the Operating Partnership under the Delaware Revised
Uniform Limited Partnership Act, as amended. The following summary of the
partnership agreement is qualified by reference to the actual partnership
agreement. We have filed a copy of the partnership agreement as an exhibit to
the registration statement of which this prospectus is a part.
General
We conduct substantially all of our activities through the Operating
Partnership. The Operating Partnership is a Delaware limited partnership.
Boddie-Noell Properties, Inc., as the sole general partner, has the exclusive
power to manage and conduct the business of the Operating Partnership, and has
the rights and powers permitted to the general partner of a Delaware limited
partnership. In addition to other rights, investors who hold Units in the
Operating Partnership have such rights and powers as are reserved to limited
partners under Delaware law, but have no authority to transact business for, or
participate in the management activities or decisions of, the Operating
Partnership. The limited partners do not have the right to remove us as the
general partner.
The Operating Partnership agreement provides that we shall not, without
the consent of a majority of the holders of Units, sell or otherwise dispose of
all or substantially all of the Operating Partnership's assets (including
through a merger or other combination with another entity). We must hold
substantially all of our property through the Operating Partnership.
Allocation of Distributions, Profits and Losses
The Operating Partnership agreement provides, except as noted below,
that the net operating cash of the Operating Partnership available for
distribution, as well as net sales and 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 applicable laws, such as those noted under "Federal Income Tax
Considerations -- Tax Aspects of the Operating Partnership -- Tax Allocations
With Respect To Our Properties."
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Transferability of Interests
The Operating Partnership agreement generally provides that we may not
withdraw from the Operating Partnership, or transfer or assign our interest in
the Operating Partnership. The limited partners, on the other hand, generally
may transfer all or a portion of their interests in the Operating Partnership to
a transferee. No person receiving such a transfer, however, will be admitted to
the Operating Partnership as a substitute limited partner having the rights of a
limited partner without our consent. Additionally, the transferee must meet
certain other conditions, including agreeing to be bound by the terms and
conditions of the Operating Partnership agreement.
Additional Capital Contributions; Issuance of Additional Partnership Interests
The Operating Partnership agreement does not require any limited
partner to make additional capital contributions to the Operating Partnership.
We, however, are obligated to make certain additional capital contributions to
the Operating Partnership in connection with the issuance of additional Units to
the Company.
The Operating Partnership agreement authorizes us to issue additional
Units for any partnership purpose and for such capital contributions and other
consideration as we determine. The issuance of additional Units to us, however,
is subject to certain limitations. First, we may not issue additional Units to
ourselves unless we issue the additional Units to all partners in proportion to
their respective partnership interests. Alternatively, we may issue additional
Units to ourselves in connection with our issuing capital stock, provided that
the net proceeds of the capital stock issuance are contributed to the Operating
Partnership as an additional capital contribution.
If we issue additional capital stock and make a capital contribution to
the Operating Partnership, the capital contribution must be in an amount equal
to the proceeds we receive from the issuance of the additional capital stock.
The Operating Partnership will then issue additional Units with similar
designations, preferences and rights to the capital stock we issued. For
example, if we issue 6% preferred stock, the Operating Partnership must issue 6%
preferred Units. If additional partnership interests are issued, the partnership
interests of all existing partners of the Operating Partnership will be diluted
proportionately.
Redemption of Operating Partnership Units
The Operating Partnership is obligated to redeem each Unit at the
request of the holder, subject to certain limitations. See "Redemption of Units
- - General."
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Indemnifications and Limitation of Liability
The Operating Partnership agreement provides that the general partner,
and each person designated or delegated by the general partner, will be
indemnified and held harmless by the Operating Partnership for any liabilities
or expenses from any claim or proceeding that relates to the operations of the
Operating Partnership, unless it is established that:
- the act or omission of the person was material to the matter
giving rise to the proceeding and was committed in bad faith
or was the result of active and deliberate dishonesty;
- the person actually received an improper personal benefit in money,
property or services; or
- in the case of any criminal proceeding, the person had reasonable
cause to believe that the act or omission was unlawful.
The Operating Partnership agreement also provides that the general partner will
have no personal liability to the Operating Partnership and its partners for
monetary damages for any act or omission if the general partner acted in good
faith and with due care and loyalty.
Tax Matters Partner
As provided in the Operating Partnership agreement, the Company is the
tax matters partner of the Operating Partnership. This means that we make
whatever tax elections must be made under the Internal Revenue Code.
Operations
The Operating Partnership agreement requires the partnership to be
operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT and to avoid any federal income tax liability.
Under the Operating Partnership agreement, the Operating Partnership
will assume and pay, or reimburse us for payment of, all expenses incurred
relating to the ownership and operation of, or for the benefit of, the Operating
Partnership, including all expenses of the Company.
Term
The term of the Operating Partnership continues until December 31,
2097, or until sooner dissolved pursuant to the terms of the Operating
Partnership agreement.
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Exercises of Stock Options
If options to acquire common stock that we have granted are exercised,
the Operating Partnership agreement requires us to contribute to the Operating
Partnership as an additional contribution the exercise price we receive. For any
given number of shares, we will thus receive less than their fair value
(assuming the option holder exercises when the fair value exceeds the option
price). We will receive from the Operating Partnership, in exchange for the
proceeds we contribute, additional Units equal to the number of shares we
issued, even though we will not be paying the full fair value for those Units.
Under the terms of the Operating Partnership agreement, we will be deemed to
have contributed the fair value of the Units.
Other
The Operating Partnership agreement provides that substantially all of
our business activities must be conducted through the Operating Partnership or
subsidiary partnerships or corporations.
The Operating Partnership is 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.
REDEMPTION OF UNITS
General
The Operating Partnership is obligated to redeem each Unit at the
request of the holder after a period of at least one year from issuance for cash
equal to the then fair market value of each share of common stock at the time of
such redemption. The Company may, however, elect to acquire the Unit for one
share of common stock or an amount of cash of the same value. We presently
anticipate that we will elect to issue common stock in connection with each such
redemption, rather than paying cash or having the Operating Partnership pay
cash. If, however, Units are redeemed for cash, such redemption will be at the
fair market value of the Units. Our percentage ownership interest in the
Operating Partnership will increase each time we redeem Units. This acquisition
by us will be treated as a sale of the Units to us for federal income tax
purposes. See "Federal Income Tax Considerations -- Tax Consequences of
Redemption." When a limited partner tenders his or her Units for redemption, his
or her right to receive distributions with respect to the Units redeemed will
cease. But he or she
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will then have rights as a shareholder of the Company from the time of his or
her acquisition of common stock, including the payment of dividends.
A limited partner must notify us, as general partner of the Operating
Partnership, of his or her desire to require the Operating Partnership to redeem
Units by sending a notice in the form attached as an exhibit to the Operating
Partnership agreement, a copy of which is available from us. A limited partner
must request the redemption of at least 1,000 Units (or all of the limited
partner's Units, if less). A redemption generally will occur on the 10th
business day after the notice is delivered by the limited partner, except that
no redemption can occur if the delivery of shares of common stock would be
prohibited under the provisions of the Articles of Incorporation. This condition
protects our qualification as a REIT.
For a summary discussion of certain federal income tax considerations
relevant to the redemption of Units, see "Federal Income Tax Considerations --
Tax Consequences of Redemption."
Comparison of Ownership of Units and Shares of Common Stock
In general, the nature of an investment in shares of our common stock
is substantially equivalent economically to an investment in Operating
Partnership Units. A shareholder receives the same distribution that a Unit
holder receives, and shareholders and Unit holders generally share in the risks
and rewards of ownership in the enterprise being conducted by the Company
(through the Operating Partnership). However, there are differences between
owning Units and owning common stock, some of which may be important to you.
The information below highlights some significant differences between
the Operating Partnership and the Company and compares certain legal rights
associated with owning Units and common stock. These comparisons are intended to
assist limited partners of the Operating Partnership in understanding how their
investment will be changed if their Units are redeemed for common stock. This
discussion is summary in nature and not a complete discussion of these matters.
Unit holders should carefully review the balance of this prospectus and the
registration statement, including the exhibits, of which this prospectus is a
part for additional important information about us.
Form of Organization and Assets Owned
The Operating Partnership is organized as a Delaware limited
partnership. Substantially all of the Company's operations are conducted through
the Operating Partnership.
The Company is a Maryland corporation. The Company has elected to be
taxed as a REIT under the Internal Revenue Code and intends to maintain its
qualification as a REIT. The Company's interest in the Operating Partnership
gives the Company an indirect investment in the properties and other assets the
Operating Partnership owns.
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This interest in the Operating Partnership represents substantially all of the
Company's assets.
Length of Investment
The Operating Partnership terminates December 31, 2097. But it may be
terminated earlier under certain circumstances.
The Company has a perpetual term and intends to continue its operations
for an indefinite time period.
Purpose and Permitted Investments
The purpose of the Operating Partnership includes the conduct of any
business that may be lawfully conducted by a limited partnership formed under
Delaware law. But the Operating Partnership agreement requires the business of
the Operating Partnership to be conducted in a manner that will permit the
Company to be classified as a REIT for federal income tax purposes. The
Operating Partnership may, subject to this limitation, invest or enter into
partnerships, joint ventures or similar arrangements and may own interests in
any other entity.
Under its Articles of Incorporation, the Company may engage in any
lawful activity permitted under Maryland law. Under the Operating Partnership
agreement, however, the Company must conduct substantially all of its business
and own substantially all of its assets through the Operating Partnership.
Additional Equity
The Operating Partnership is authorized to issue Units and other
partnership interests to its partners or to other persons for such consideration
and on such terms as the Company, as general partner, determines. When the
Company sells securities, it will contribute the proceeds to the Operating
Partnership. In exchange, the Operating Partnership will issue to the Company
partnership interests having substantially similar rights to the securities the
Company issues. Such partnership interests may be of different series or classes
from the Units and may be senior to the Units. No limited partner has any
preemptive, preferential or similar rights either with respect to additional
capital contributions to the Operating Partnership or with respect to the
issuance or sale of any partnership interests.
The Company's Board of Directors may issue, in its discretion,
additional equity securities consisting of common stock or preferred stock. The
total number of shares issued may not exceed the number of shares of capital
stock authorized in the Company's Articles of Incorporation. As long as the
Operating Partnership is in existence, the proceeds (or a portion thereof) of
all equity capital the Company raises will be contributed to the Operating
Partnership in exchange for Units or other interests in the
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Operating Partnership. The general partner's contribution will be deemed to be
an amount equal to the net proceeds of any such offering.
Management Control
All management powers over the business and affairs of the Operating
Partnership are vested in the general partner of the Operating Partnership. No
limited partner of the Operating Partnership has any right to participate in or
exercise control or management power over the business and affairs of the
Operating Partnership. The limited partners may not remove the general partner
for any reason.
The Board of Directors has exclusive control over the Company's
business and affairs, subject to the restrictions in the Articles of
Incorporation, the bylaws and the Operating Partnership agreement. The Board of
Directors has adopted and continues to adopt policies that guide the Company's
direction. But the Board of Directors may alter or repeal these policies at any
time without seeking the advice of the shareholders. Except for their vote in
the elections of directors, shareholders have no control over the ordinary
business policy of the Company. The Company's shareholders may remove a director
for cause by the affirmative vote of the holders of two-thirds of the shares of
capital stock outstanding and entitled to vote.
Fiduciary Duties
Under Delaware law, the general partner of the Operating Partnership is
accountable to the Operating Partnership as a fiduciary and, consequently, is
required to exercise good faith in all of its dealings with respect to
partnership affairs. However, under the Operating Partnership agreement, the
general partner is under no obligation to take into account the tax consequences
to any partner of any action taken by it. The Operating Partnership agreement
provides that the general partner will not be liable for any act or omission if
the general partner acted in good faith and with due care and loyalty. See
"Partnership Agreement of the Operating Partnership -- Indemnifications and
Limitation of Liability."
Under Maryland law, the directors must perform their duties in good
faith, in a manner that they believe to be in the best interests of the Company
and with the care an ordinarily prudent person would exercise under similar
circumstances. Directors of the Company who act in such a manner generally will
not be liable because they were a director of the Company.
Limitation of Liability and Indemnification
The Operating Partnership agreement limits the liability of the general
partner and others and also provides for indemnification of the same persons by
the Operating Partnership. See "Partnership Agreement of the Operating
Partnership --Indemnifications and Limitation of Liability."
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The Articles of Incorporation limit the liability of the Company's
directors and officers and provide for indemnification of such individuals. See
"Description of Capital Stock -- Limitations of Liability and Indemnifications
of Directors and Officers."
Anti-Takeover Provisions
Except in limited circumstances, the general partner of the Operating
Partnership has exclusive management power over the business and affairs of the
Operating Partnership. The general partner may not be removed by the limited
partners with or without cause. A limited partner, after a minimum of one year,
may generally transfer his or her partnership interest, subject to certain
limitations. Under the Operating Partnership agreement, the general partner may,
in its sole discretion, prevent the admission of a substitute limited partner.
If the general partner does not admit a transferee of Units to the Operating
Partnership as a substitute limited partner, the transferee, among other things,
will not be entitled to vote such Units.
Maryland law, the Articles of Incorporation and the Operating
Partnership agreement contain provisions that could have the effect of delaying
or discouraging a change in control of the Company and other transactions. See
"Risk Factors -- Limitations on Acquisitions and Change of Control."
Voting Rights
Under the Operating Partnership agreement, the limited partners
generally do not have voting rights relating to the operation and management of
the Operating Partnership. Limited partners do have the right to vote on certain
amendments to the Operating Partnership agreement. The ownership of Units does
not entitle the holder thereof to vote on any matter to be voted upon by the
shareholders of the Company.
Shareholders of the Company have the right to vote on, among other
things, a merger or sale of all or substantially all of the Company's assets,
amendments to the Articles of Incorporation, certain bylaw amendments and
dissolution of the Company. All shares of common stock have one vote, and the
Articles of Incorporation permit the Board of Directors to classify and issue
preferred stock in one or more series having voting power that may differ from
that of the common stock.
Amendment of the Operating Partnership Agreement or the Articles of
Incorporation
Amendments to the Operating Partnership agreement may be proposed by
the general partner or by any limited partners holding 10% or more of the
partnership interests. Approval of such an amendment requires the vote of the
general partner and the holders of a majority of the Units, including those
Units held by the general partner. Certain amendments may be approved solely by
the general partner, including amendments that would add to the obligations of
the general partner, reflect the admission, substitution, termination or
withdrawal of partners, or satisfy any legal requirements. Certain amendments
that affect fundamental rights of a limited partner
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must be approved by each affected limited partner and certain other amendments
must be approved by holders of 75% of the limited partnership interests
(including interests held by the general partner).
The Company's Articles of Incorporation may be amended with the
affirmative vote of at least a majority of the shares of capital stock
outstanding and entitled to vote thereon voting together as a single class.
Certain provisions of the Articles of Incorporation may not, however, be amended
without the approval of the holders of two-thirds of the shares of capital stock
of the Company outstanding and entitled to vote, voting together as a single
class. The Company's bylaws generally may be amended by the Board of Directors
or the shareholders.
Vote Required to Dissolve the Operating Partnership or the Company
Until January 1, 2044, the general partner may elect to dissolve the
Operating Partnership. But if the limited partners who were limited partners on
December 1, 1997 then own at least 10% of the outstanding Units, and if those
same limited partners owning a majority of the Units that were outstanding on
December 1, 1997 (excluding any Units owned by the general partner) object to
the dissolution within 30 days of receiving notice of the general partner's
election, then the general partner cannot dissolve the Operating Partnership.
Beginning January 1, 2044, the general partner may choose to dissolve the
Operating Partnership in its discretion. The Operating Partnership will also
dissolve under other conditions listed in the Operating Partnership agreement.
Under Maryland law and the Articles of Incorporation, the Company may
be dissolved by (1) the affirmative vote of a majority of the entire Board of
Directors declaring such dissolution to be advisable and directing that the
proposed dissolution be submitted for consideration at an annual or special
meeting of shareholders, and (2) shareholder approval by the affirmative
majority vote of the shareholders entitled to vote voting as a single class.
Vote Required to Sell Assets or Merge
Under the Operating Partnership agreement, the sale, exchange, transfer
or other disposition of all or substantially all of the Operating Partnership's
assets or the merger or consolidation of the Operating Partnership requires the
consent of the general partner and holders of one-half of the outstanding Units
(including Units held by the general partner).
Under Maryland law and the Articles of Incorporation, the Company
cannot sell substantially all of its assets or merge without the approval of the
holders of a majority of the shares entitled to vote on the matter. Maryland law
establishes special requirements generally applicable to "business combinations"
between Maryland corporations and "interested shareholders." Among other things,
the law prohibits for five years a merger or other specified or similar
transactions between a corporation and an interested shareholder and requires a
super-majority vote for such transactions after the end of the
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five-year period. See "Risk Factors --Limitations on Acquisition and Change in
Control -- Maryland Business Combination Statute."
Compensation, Fees and Distributions
The Company does not receive any compensation for its services as
general partner of the Operating Partnership. As a partner in the Operating
Partnership, however, the general partner has the same right to allocations and
distributions as other partners of the Operating Partnership. In addition, the
Operating Partnership reimburses the general partner for substantially all
expenses incurred relating to the ongoing operation of the Company and any
offering of partnership interests in the Operating Partnership or capital stock
of the Company.
Directors that are not officers of the Company or Enterprises and
Company officers receive compensation for their services.
Liability of Investors
Under the Operating Partnership agreement and Delaware law, the
liability of the limited partners for the Operating Partnership's debts and
obligations is generally limited to the amount of their investment in the
Operating Partnership.
Under Maryland law, shareholders are not personally liable for the
debts or obligations of the Company.
Nature of Investment
The Units constitute equity interests entitling each limited partner to
a pro rata share of cash distributions made to the limited partners of the
Operating Partnership. The Operating Partnership generally intends to retain and
reinvest proceeds of the sale of property or excess refinancing proceeds in its
business.
The shares of common stock constitute equity interests in the Company.
The Company is entitled to receive its pro rata share of distributions made by
the Operating Partnership with respect to the Company-owned Units, and each
shareholder will be entitled to his pro rata share of any dividends or
distributions paid with respect to the common stock. The dividends payable to
the shareholders are not fixed in amount and are only paid if, when and as
declared by the Board of Directors. In order to qualify as a REIT, the Company
must distribute 95% of its taxable income (excluding capital gains). Any taxable
income (including capital gains) not distributed will be subject to corporate
income tax.
Potential Dilution of Rights
The general partner of the Operating Partnership is authorized, in its
sole discretion and without limited partner approval, to cause the Operating
Partnership to
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issue additional limited partnership interests and other equity securities for
any partnership purpose at any time to the limited partners or to other persons
on terms the general partner establishes.
The Company's Board of Directors may issue, in its discretion,
additional shares of common stock and has the authority to issue from the
authorized capital stock a variety of other Company equity securities, with such
powers, preferences and rights as the Board of Directors may designate at the
time. Issuing additional shares of either common stock or other similar equity
securities may result in the dilution of the shareholders' interests.
Liquidity
The limited partners generally may transfer all or a portion of their
interests in the Operating Partnership to a transferee, subject to a minimum
one-year lock-up and certain limitations imposed by federal and state securities
laws. 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 as the general partner and satisfaction of certain other
conditions, including an agreement to be bound by the terms and conditions of
the Operating Partnership agreement.
Upon the effectiveness of the registration statement of which this
prospectus is a part, the shares to be issued by the Company, upon issuance
(except when issued to an investor who is an affiliate of the Company) will be
freely transferable as registered securities under the Securities Act of 1933.
The common stock is listed on the American Stock Exchange. The breadth and
strength of this market will depend, among other things, upon the number of
shares outstanding, the Company's financial results and prospects, the general
interest in the Company's and other real estate investments and the Company's
dividend yield compared to that of other debt and equity securities.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations to
Boddie-Noell Properties, Inc. and its shareholders relating to this registration
statement and the treatment of Boddie-Noell Properties, Inc. as a REIT is based
on current law, is for general purposes only, and is not tax advice. The summary
is not intended to represent a detailed description of the federal income tax
consequences applicable to a particular shareholder in view of such
shareholder's particular circumstances nor is it intended to represent a
detailed description of the federal income tax consequences applicable to
certain types of shareholders subject to special treatment under the federal
income tax
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laws (such as insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations, and persons who are not
citizens or residents of the United States).
Each investor is advised to consult his or her own tax advisor
regarding the tax consequences to him or her of the purchase, ownership, and
sale of the offered stock, including the federal, state, local, foreign, and
other tax consequences of such purchase, ownership, or sale and of potential
changes in applicable tax laws.
General
Beginning with our taxable year ended December 31, 1987, we have
elected to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code ("Code"). We believe that beginning with that taxable year we have
been organized and have operated in a manner to qualify for taxation as a REIT
under the Code. And we intend to continue to operate in such a manner. But we
can provide no assurance that we have operated or will operate in a manner so as
to qualify or remain qualified as a REIT.
The sections of the Code relating to the qualification and operation as
a REIT are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. This summary is qualified in its
entirety by the applicable Code provisions, relevant rules and regulations, and
administrative and judicial interpretations of Code provisions and regulations.
We have not requested a ruling from the Internal Revenue Service ("IRS") with
respect to any issues relating to our qualification as a REIT. Therefore, we can
provide no assurance that the IRS will not challenge our REIT status.
Alston & Bird LLP has acted as tax counsel to us in connection with
this offering and our election to be taxed as a REIT. Alston & Bird LLP is of
the opinion that we have been organized and operated in conformity with the
requirements for qualification and taxation as a REIT under the Code for our
taxable years ended December 31, 1987 through 1997, and that, based on our
proposed method of operation, we are in a position to continue our qualification
and taxation as a REIT within the definition of Section 856(a) of the Code for
the taxable year that ended December 31, 1998 and the taxable year that will end
December 31, 1999. This opinion is based solely on our representations with
respect to factual matters concerning our business operations and our
properties. Alston & Bird LLP has not independently verified these facts. In
addition, our qualification as a REIT at any time during 1998 or 1999 is
dependent, among other things, upon our meeting the requirements of Sections 856
through 860 of the Code throughout each of such years and for each year as a
whole. Accordingly, because our satisfaction of such requirements will depend
upon future events, including the final determination of operational results, no
assurance can be given that we satisfied the REIT requirements during the
taxable year ended December 31, 1998 or that we will satisfy the REIT
requirements during the taxable year that will end December 31, 1999.
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Federal Income Taxation of Boddie-Noell Properties, Inc.
If we qualify for taxation as a REIT, we generally will not be subject
to federal corporate income tax on that portion of our ordinary income or
capital gain that we currently distribute to our shareholders. 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, we will be subject to federal income tax as follows:
First, we will be taxed at regular corporate rates on our undistributed
REIT taxable income, including undistributed net capital gains.
Second, we may be subject to the "alternative minimum tax" as a
consequence of our items of tax preference under certain circumstances.
Third, if we have net income from "foreclosure property" held primarily
for sale to customers in the ordinary course of business, including income from
the sale or other disposition of such property, we will be subject to tax at the
highest corporate rate on such income to the extent that it does not constitute
qualifying income for purposes of the 75% income test (discussed below).
Fourth, if we have net income from prohibited transactions (which are,
in general, certain sales or other dispositions of property that is held
primarily for sale to customers in the ordinary course of business but that is
not foreclosure property), we will be subject to a 100% tax on such income.
Fifth, if we fail to satisfy either the 75% or 95% gross income test
(discussed below) but have nonetheless maintained our qualification as a REIT
because certain other safe harbor requirements have been met, we will be subject
to a 100% tax on the net income attributable to the greater of the amount by
which we fail either the 75% or 95% test multiplied by a fraction intended to
reflect our profitability.
Sixth, if we fail to distribute each year at least the sum of:
(1) 85% of our ordinary income for such year;
(2) 95% of our capital gain net income for such year; and
(3) any undistributed taxable income from prior periods,
then we will be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed.
Seventh, if we acquire any asset from a corporation generally subject
to full corporate-level tax in a carryover-basis transaction and we subsequently
recognize gain
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on the disposition of such asset during the 10-year period beginning on the date
on which we acquired the asset, then to the extent of the excess of (1) the fair
market value of the asset at the time we acquired it over (2) our adjusted basis
in the asset at the time we acquired it, we will be subject to tax at the
highest regular corporate rate, pursuant to guidelines issued by the IRS (the
"Built-In Gain Rules").
Requirements for Qualification
To qualify as a REIT, we must elect to be treated as a REIT and must
meet the requirements, discussed below, relating to our organization, sources of
income, and nature of assets.
Organizational Requirements
The Code defines a REIT as a corporation, trust or association that:
(1) is managed by one or more trustees or directors;
(2) uses transferable shares or transferable certificates
to evidence beneficial ownership;
(3) would be taxable as a domestic corporation but for
Sections 856 through 860 of the Code;
(4) is neither a financial institution nor an insurance
company within the meaning of the applicable
provisions of the Code;
(5) has at least 100 persons as beneficial owners;
(6) during the last half of each taxable year, is not
closely held, i.e., not more than 50% of the value
of the outstanding stock is owned, directly or
indirectly, by five or fewer shareholders;
(7) files an election or continues such election to be
taxed as a REIT on its return for each taxable year;
and
(8) satisfies the 95% and 75% income assets and the 75%,
25%, 10%, and 5% asset tests, all of which are
described below.
The Code provides that conditions (1) through (4) must be met during the entire
taxable year and that condition (5) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. For purposes of condition (5), certain pension funds and
other tax-exempt entities are treated as persons. For purposes of condition (6),
on the other hand, the beneficiaries of a pension or profit-sharing trust under
Section 401(a) of the Code are treated as REIT shareholders. In addition, our
Articles of Incorporation currently include certain restrictions regarding
transfer of our common stock, which are intended (among other
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things) to assist us in continuing to satisfy conditions (5) and (6) noted
above.
In the case of a REIT that is a partner in a 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 retain the same character in the
hands of the REIT for purposes of satisfying the REIT criteria of Section 856 of
the Code, including the gross income tests and asset tests. Thus, our
proportionate share of the assets, liabilities, and items of income of the
Operating Partnership will be treated as our assets, liabilities, and items of
income for purposes of applying and meeting the various REIT requirements. In
addition, the Operating Partnership's proportionate share of the assets,
liabilities, and items of income with respect to any partnership (including any
limited liability company treated as a partnership) in which it holds an
interest would be considered assets, liabilities, and items of income of the
Operating Partnership for purposes of applying and meeting the various REIT
requirements.
Income Tests
To maintain qualification as a REIT, we must meet two gross income
requirements annually. First, we must derive directly or indirectly at least 75%
of our gross income (excluding gross income from prohibited transactions) from
investments relating to real property, including investments in other REITs or
mortgages on real property (including "rents from real property" and, in certain
circumstances, interest). Second, we must derive at least 95% of our gross
income (excluding gross income from prohibited transactions) from the real
property investments described in the preceding sentence or from dividends,
interest, or gain from the sale or disposition of stock or securities (or from
any combination of the foregoing). In addition, for taxable years ended prior to
the current taxable year, short term gain from the sale or other disposition of
stock or securities, gain from prohibited transactions and gain from the sale or
other disposition of real property held for less than four years (other than
involuntary conversions and sales of foreclosure property) must have represented
less than 30% of our gross income (including gain from prohibited transactions).
Rents we receive or that we are deemed to receive will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met. First, the amount of
rent must not be based in whole or in part on the income or profits of any
person but can be based on a fixed percentage of gross receipts or gross sales.
Second, "rents from real property" excludes any amount received directly or
indirectly from any corporation in which we own 10% or more of the total
combined voting power of all classes of voting stock or 10% or more of the total
number of shares of all classes of stock and from any other person in which we
own an interest of 10% or more in the assets or net profits of such person.
Third, rent attributable to personal property is generally excluded from "rents
from real property," except where such personal property is leased in connection
with such real property and the rent attributable to such personal property is
less than or equal to 15% of the total rent
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received under the lease. Finally, amounts that are attributable to services
furnished or rendered in connection with the rental of real property, whether or
not separately stated, will not constitute "rents from real property" unless
such services are customarily provided in the geographic area. Customary
services that are not provided to a particular tenant (e.g., furnishing heat and
light, the cleaning of public entrances, and the collection of trash) can be
provided directly by the REIT. Where, however, such services are provided
primarily for the convenience of the tenants or are provided to such tenants,
such services must be provided by an independent contractor. In the event that
an independent contractor provides such services, the REIT must adequately
compensate any such independent contractor, the REIT must not derive any income
from the independent contractor, and neither the independent contractor nor
certain of its shareholders may, directly or indirectly, own more than 35% of
the REIT, taking into consideration the applicable attributed ownership.
Pursuant to the Taxpayer Relief Act and beginning with our taxable year ending
December 31, 1998, our rental income will not cease to qualify as "rents from
real property" merely because we perform a de minimis amount of services to
tenants of a property that are not usually and customarily provided and are
considered rendered to the occupant. The income from these services will be
considered de minimis if the value of such services (valued at not less than
150% of our direct cost of performing such services) is less than 1% of the
total income derived from such property.
We do not anticipate deriving rent attributable to personal property
leased in connection with real property that exceeds 15% of the total rent
attributable to such lease or receiving rent from related party tenants.
The Operating Partnership provides certain services with respect to our
properties. We believe that these services are usually or customarily rendered
in connection with the rental of space for occupancy only and are not otherwise
rendered to the tenants. Therefore, we believe that the provision of such
customary services will not cause rents received with respect to our properties
to fail to qualify as "rents from real property." Noncustomary services and
services rendered primarily for the tenants' convenience will be provided by an
independent contractor to avoid jeopardizing the qualification of rent as "rents
from real property."
Fees to perform property management services for apartment properties
that we do not own will not qualify under the 75% or the 95% gross income tests.
BNP Management, Inc., our unconsolidated subsidiary, receives these fees. Either
the REIT or the Operating Partnership also may receive certain other types of
income with respect to our properties that will not qualify for either of these
tests. In addition, dividends on the Operating Partnership's stock in BNP
Management, Inc. will not qualify under the 75% gross income test. We, however,
believe that the aggregate amount of such fees and other non-qualifying income
in any taxable year will not cause us to exceed the limits for non-qualifying
income under the 75% and 95% gross income tests.
If we fail one or both of the 75% or 95% gross income tests for any
taxable year, we may nevertheless qualify as a REIT for that year if we are
eligible for relief under a
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certain provision of the Code. This relief provision generally will be available
if: (1) our failure to meet such gross income tests is due to reasonable cause
and not due to willful neglect; (2) we attach a schedule of the nature and
amount of each item of income to our federal income tax return; and (3) the
inclusion of any incorrect information on such schedule is not due to fraud with
the intent to evade tax. We, however, cannot state whether in all circumstances
we would be entitled to the benefit of this relief provision. For example, if we
fail to satisfy the gross income tests because non-qualifying income that we
intentionally receive exceeds the limits on such income, the IRS could conclude
that our failure to satisfy the tests was not due to reasonable cause. As
discussed above in "Federal Income Taxation of Boddie-Noell Properties, Inc.,"
even if this relief provision applies, a 100% tax would be imposed with respect
to the part of our taxable income that fails the 75% or 95% tests.
Asset Tests
At the close of each quarter of our taxable year, we also must satisfy
four tests relating to the nature and diversification of our assets. First, at
least 75% of the value of our total assets must be represented by real estate
assets, cash and cash items (including receivables), and government securities.
Second, not more than 25% of the value of our total assets may consist of
securities (other than those securities includible in the 75% asset test).
Third, not more than 5% of the value of our total assets may consist of
securities of any one issuer (other than those securities includible in the 75%
asset test).
Fourth, not more than 10% of the outstanding voting securities of any one issuer
may be held by us (other than those securities includible under the 75% asset
test).
Based on the foregoing, the 5% asset test generally must be met for any
quarter in which we acquire securities of an issuer. Thus, this requirement must
be satisfied not only on the date we, through the Operating Partnership,
acquired securities of BNP Management, Inc., but also each time we increase our
ownership of securities of BNP Management, Inc. (including as a result of
increasing our interest in the Operating Partnership as limited partners
exercise their redemption rights). Although we plan to take steps to ensure that
we will satisfy the 5% value test for any quarter with respect to which
retesting is to occur, there can be no assurance that such steps always will be
successful or will not require a reduction in the Operating Partnership's
overall interest in BNP Management, Inc.
Through BNP Realty, LLC, the Operating Partnership owns all of the
nonvoting stock and 1% of the voting stock of BNP Management, Inc., which
represents 95% of the equity of BNP Management, Inc., with the remaining equity
interests currently owned by certain officers of Boddie-Noell Properties, Inc.
or affiliates thereof. We are considered to own our pro rata share of the assets
of the Operating Partnership, including the securities of BNP Management, Inc.
The Operating Partnership will not own more than 10% of the voting securities of
BNP Management, Inc. and, therefore, the Company will not own more than 10% of
the voting securities of BNP Management, Inc. In addition, we believe that our
pro rata share of the value of the securities of BNP Management, Inc will not
exceed 5% of the total value of our assets. Our belief is based in part upon our
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analysis of the estimated value of the securities of BNP Management, Inc.
indirectly owned by the Operating Partnership relative to the estimated value of
the other assets of the Operating Partnership. No independent appraisals will be
obtained to support this conclusion, and Alston & Bird LLP, in rendering its
opinion regarding our qualification as a REIT, will rely on a representation by
us with respect to the value of the securities of BNP Management, Inc. There,
however, can be no assurance that the IRS will not contend that the value of the
securities of BNP Management, Inc. exceeds the 5% value limitation.
After initially meeting the asset tests at the close of each quarter,
we will not lose our REIT status if we fail to satisfy the asset tests at the
end of a later quarter solely because of changes in the market values of our
assets. If we fail to satisfy the asset tests because of an acquisition of
securities or other property during a quarter, we have the opportunity to cure
the failure by disposition of sufficient securities (other than those securities
includible in the 75% asset test) within 30 days after the close of that
quarter. We intend to maintain adequate records of the value of our assets to
ensure compliance with the asset tests. We also will take any other actions
within 30 days after the close of any quarter as may be required to cure any
noncompliance.
Annual Distribution Requirements
To qualify for taxation as a REIT, we must meet the following annual
distribution requirements.
First, we must make distributions (other than capital gain
distributions) to our shareholders in an amount at least equal to (a) the sum of
(1) 95% of our "REIT taxable income" (computed without regard to
the dividends paid deduction and by excluding our net capital
gain), and
(2) 95% of the net income, if any, from foreclosure property in
excess of the excise tax on income from foreclosure property,
minus (b) the sum of certain items of non-cash income.
We must pay these distributions in the taxable year to which they
relate. Dividends paid in the subsequent year, however, will be treated as if
paid in the prior year for purposes of such prior year's 95% distribution
requirement if one of the following two sets of criteria are satisfied: (1) the
dividends were declared in October, November, or December, the dividends were
payable to shareholders of record on a specified date in such a month, and the
dividends were actually paid during January of the subsequent year; or (2) the
dividends were declared before we timely file our federal income tax return for
such year, the dividends were distributed in the twelve month period following
the close of the prior year and not later than the first regular dividend
payment after such declaration, and we elected on our tax return for the prior
year to have a specified amount of the subsequent dividend treated as if paid in
the prior year. Even if we satisfy this annual distribution requirement, we will
be subject to tax at regular capital gains or
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ordinary corporate tax rates to the extent that we do not distribute all of our
net capital gain or "REIT taxable income" as adjusted.
Second, we must distribute during each calendar year at least the
sum of
(1) 85% of our ordinary income for that year,
(2) 95% of our capital gain net income for that year, and
(3) any undistributed taxable income from prior periods. In the
event that we do not satisfy this distribution requirement, we
will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed.
Third, if we dispose of any asset, which is subject to the Built-In
Gain Rules, during the 10-year period beginning on the date on which we acquired
the asset, we will be required to distribute at least 95% of the Built-In Gain
(after tax), if any, recognized on the disposition of the asset.
We intend to make timely distributions sufficient to satisfy the annual
distribution requirements. In this regard, the Operating Partnership agreement
authorizes us, as general partner, to take such steps as may be necessary to
cause the Operating Partnership to distribute to its partners an amount
sufficient to permit us to meet these distribution requirements.
We expect that our REIT taxable income will be less than our cash flow
due to the allowance of depreciation and other non-cash charges in computing
REIT taxable income. Accordingly, we anticipate that we generally will have
sufficient cash or liquid assets to enable us to satisfy the 95% distribution
requirement. It is possible, however, that we may not have sufficient cash or
other liquid assets to meet the 95% distribution requirement or to distribute
such greater amount as may be necessary to avoid income and excise taxation. In
such event, we may find it necessary to borrow funds to pay the required
distribution or, if possible, pay taxable stock dividends in order to meet the
distribution requirement.
In the event that we are subject to an adjustment to our REIT taxable
income (as defined in Section 860(d)(2) of the Code) resulting from an adverse
determination by either a final court decision, a closing agreement between us
and the IRS under Section 7121 of the Code, or any agreement as to tax liability
between us and an IRS district director, we may be able to correct any resulting
failure to meet the 95% annual distribution requirement by paying "deficiency
dividends" to our shareholders that relate to the adjusted year but that are
paid in the subsequent year. To qualify as a deficiency dividend, the
distribution must be made within 90 days of the adverse determination and we
also must satisfy certain other procedural requirements. If the statutory
requirements of Section 860 of the Code are satisfied, a deduction is allowed
for any deficiency dividend subsequently paid by us to offset an increase in our
REIT taxable income
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resulting from the adverse determination. We, however, will be required to pay
statutory interest on the amount of any deduction taken for deficiency dividends
to compensate for the deferral of the tax liability.
Earnings and Profits
Throughout the remainder of this discussion, we frequently will refer
to "earnings and profits." Earnings and profits is a concept used extensively
throughout corporate tax law, but it is undefined in the Code. Each corporation
maintains an "earnings and profits" account that helps to measure whether a
distribution originates from corporate earnings or from other sources.
Distributions generally decrease the earnings and profits while income generally
increases earnings and profits. If a corporation has positive earnings and
profits, the distributions generally will be considered to come from corporate
earnings. If a corporation has no earnings and profits, distributions generally
will be considered a return of capital and then capital gain.
A REIT cannot have, at the close of any taxable year, accumulated
earnings and profits attributable to any non-REIT year and remain qualified as a
REIT. Therefore, in rendering their opinion regarding our qualification as a
REIT, Alston & Bird LLP is relying on our representation that, when we acquired
BT Venture Corporation in October 1994, BT Venture Corporation did not have any
accumulated earnings and profits. In the event that BT Venture Corporation did
have accumulated earnings and profits and such earnings and profits were not
distributed in accordance with the applicable REIT provisions, we would have
ceased to qualify as a REIT upon our acquisition of BT Venture Corporation.
Failure to Qualify
If we fail to qualify as a REIT in any year and the relief provisions
do not apply, we will be subject to tax (including any applicable alternative
minimum tax) on our taxable income at regular corporate rates. Distributions to
shareholders in any year in which we fail to qualify will not be deductible by
us nor will they be required to be made. In such event, to the extent of
positive 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 we are entitled to relief under
specific statutory provisions, we 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 we would be
entitled to such statutory relief.
Taxation of U.S. Shareholders
When we use the term "U.S. Shareholder," we mean a holder of common
stock that, for federal income tax purposes:
(1) is a citizen or resident of the United States;
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(2) is a corporation or partnership (including an entity treated
as a corporation or partnership for United States federal
income tax purposes) created or organized in or under the laws
of the United States or of any of its political subdivisions;
(3) is an estate the income of which is subject to federal income
taxation regardless of its source, or
(4) is a trust if a court within the United States is able to
exercise primary supervision over the administration of the
trust, and one or more United States persons have the
authority to control all substantial decisions of the trust.
For any taxable year for which we qualify for taxation as a
REIT, amounts distributed to taxable U.S. Shareholders will be
taxed as discussed below.
Distributions Generally
Distributions to U.S. Shareholders, other than capital gain dividends
discussed below, will constitute dividends up to the amount of our positive
current or accumulated earnings and profits and, to that extent, will be taxable
to shareholders as ordinary income. Because a REIT is not subject to tax on
income distributed to its shareholders, the distributions made to corporate
shareholders are not eligible for the dividends-received deduction. To the
extent that we make a distribution in excess of our positive current or
accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital, reducing the tax basis in the U.S. Shareholder's
shares of common stock, and then the distribution in excess of the tax basis
will be taxable as gain realized from the sale of the common stock. Dividends we
declare in October, November, or December of any year payable to a shareholder
of record on a specified date in any such month shall be treated as both paid by
us and received by the shareholders on December 31 of the year, provided that we
actually pay the dividends during January of the following calendar year.
Shareholders are not allowed to include on their own federal income tax returns
any of our tax losses.
We will be treated as having sufficient earnings and profits to treat
as a dividend any distribution we make up to the amount required to be
distributed in order to avoid imposition of the 4% excise tax discussed in " --
Federal Income Taxation of Boddie-Noell Properties, Inc." above.
Capital Gain Distributions
Distributions to U.S. Shareholders that we properly designated as
capital gain distributions will be treated as long-term capital gains (to the
extent they do not exceed our actual net capital gain) for the taxable year
without regard to the period for which the shareholder has held the stock.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Capital gain dividends
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are not eligible for the dividends-received deduction for corporations.
Pursuant to the Taxpayer Relief Act and beginning with our taxable year
ending December 31, 1998, we may elect to retain and pay income tax on any net
long-term capital gain. In this instance, U.S. Shareholders will include in
their income their proportionate share of the undistributed long-term capital
gain. The U.S. Shareholders also will be deemed to have paid their proportionate
share of tax on such long-term capital gain and, therefore, will receive a
credit or refund for the amount of such tax. In addition, the basis of the U.S.
Shareholders' shares will be increased in an amount equal to the difference
between the undistributed long-term capital gain and the amount of tax paid by
us that is included in such shareholders' long-term capital gains.
As a result of changes made to the capital gains rates by the Taxpayer
Relief Act (See "-- Certain Disposition of Shares"), the IRS issued Notice 97-64
outlining when a REIT may designate its dividends as capital gain dividends.
This Notice is effective until Treasury Regulations are issued. When a REIT
designates a distribution as a capital gain dividend, which is attributable to a
taxable year ending after May 7, 1997, for purposes of the annual distribution
requirement, the REIT also may designate such dividend as a 20% rate gain
distribution or as unrecaptured Section 1250 gain distribution. These additional
designations by the REIT are effective only to the extent that they do not
exceed certain limitations. For example, the maximum amount of each distribution
that can be classified as a particular type of distribution must be calculated
in accordance with the Code and the IRS Notice. The additional 28% tax rate
group identified by IRS Notice 97-64 has effectively been eliminated by the
Internal Revenue Restructuring Act of 1998 (the "IRS Restructuring Act").
Certain Dispositions of Shares
In general, you will realize capital gain or loss on the disposition of
common stock equal to the difference between (1) the amount of cash and the fair
market value of any property received on such disposition, and (2) your adjusted
basis of such common stock. Losses incurred on the sale or exchange of our
common stock that you held for less than six months (after applying certain
holding company rules) will be treated as a long-term capital loss to the extent
of any capital gain dividend received by the selling U.S. Shareholder from those
shares.
As a result of the Taxpayer Relief Act and the IRS Restructuring Act,
the maximum rate of tax on net capital gains on individuals, trusts, and estates
from the sale or exchange of assets held for more than one year has been reduced
to 20%, and such maximum rate is further reduced to 18% for assets acquired
after December 31, 2000, and held for more than five years. For 15% bracket
taxpayers, the maximum rate on net capital gains is reduced to 10%, and such
maximum rate is further reduced to 8% for assets sold after December 31, 2000,
and held for more than five years. The maximum rate for net capital gains
attributable to the sale of depreciable real property held for more than one
year is 25% to the extent of the deductions for depreciation with respect to
such property. Long-term capital gain that we allocate to U.S. Shareholders will
be subject to
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the 25% rate to the extent that the gain does not exceed depreciation on real
property that we sold. The taxation of capital gains of corporations was not
changed by the Taxpayer Relief Act or the IRS Restructuring Act.
Passive Activity Loss and Investment Interest Limitations
You may not treat distributions we make to you or any gain from
disposing of our common stock as passive activity income. Therefore, you will
not be able to apply any "passive losses" against such income. Dividends we pay
(to the extent they do not constitute a return of capital) generally will be
treated as investment income for purposes of the investment interest limitation.
Net capital gain from the disposition of our common stock (or capital gain
dividends) generally will be excluded from investment income unless you elect to
have such gain taxed at ordinary income rates.
Treatment of Tax-Exempt Shareholders
Distributions we make to a tax-exempt employee pension trust or other
domestic tax-exempt shareholder generally will not constitute "unrelated
business taxable income" ("UBTI") unless the shareholder has borrowed to acquire
or carry our shares of common stock. Qualified trusts that hold more than 10%
(by value) of the shares of pension-held REITs may be required to treat a
certain percentage of such REIT's distributions as UBTI. The restriction on
ownership of common stock in our Articles of Incorporation generally will
prevent application of the provisions treating a portion of REIT distributions
as UBTI to tax-exempt entities purchasing common stock.
Special Tax Considerations for Non-U.S. Shareholders
The rules governing United States income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and foreign trusts and
estates (collectively, "Non-U.S. Shareholders") are complex. We intend the
following discussion to be only a summary of these rules. This discussion is
based on current law, which is subject to change, and assumes we will qualify
for taxation as a REIT. Prospective Non-U.S. Shareholders should consult with
their own tax advisors to determine the impact of federal, state, local and
foreign income tax laws on an investment in our common stock, including any
reporting requirements.
In general, Non-U.S. Shareholders will be subject to regular United
States federal income tax with respect to their investment in us if the income
from such investment is "effectively connected" with the Non-U.S. Shareholder's
conduct of a trade or business in the United States. A corporate Non-U.S.
Shareholder that receives income that is (or is treated as) effectively
connected with a U.S. trade or business also may be subject to the branch
profits tax under Section 884 of the Code, which is imposed in addition to
regular United States federal income tax and which generally is at the rate of
30%, subject to reduction under a tax treaty, if applicable. Certain
certification requirements must be met in order for effectively connected income
to be exempt from withholding. The following discussion will apply to Non-U.S.
Shareholders whose income from their investments in
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us is not effectively connected (except to the extent that the FIRPTA rules
discussed below treat such income as effectively connected).
If we make a distribution that is not attributable to gain from the
sale or exchange by us of a United States real property interest and that we do
not designate as a capital gain distribution, then a Non-U.S. Shareholder must
treat the distribution as an ordinary income dividend to the extent that it is
made out of current or accumulated earnings and profits. Generally, any ordinary
income dividend will be subject to a federal income tax equal to 30% of the
gross amount of the dividend unless this tax is reduced by an applicable tax
treaty. Such a distribution in excess of our earnings and profits will be
treated first as a return of capital that will reduce a Non-U.S. Shareholder's
basis in its common stock (but not below zero) and then as gain from the
disposition of such shares, the tax treatment of which is described under the
rules discussed below with respect to dispositions of common stock.
Distributions by us that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Shareholder under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S. Shareholder
as if the distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a Non-U.S. Shareholder will be taxed at the
normal capital gain rates applicable to a U.S. Shareholder (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Distributions that are taxable under
FIRPTA also may be subject to a 30% branch profits tax when made to a foreign
corporation that is not entitled to an exemption or reduced branch profits tax
under an income tax treaty.
Although tax treaties may reduce our withholding obligations, we
generally will be required to withhold from distributions to Non-U.S.
Shareholders, and remit to the IRS, (1) 35% of designated capital gain dividends
(or, if greater, 35% of the amount of any distributions that could be designated
as capital gain dividends) and (2) 30% of ordinary dividends paid out of
earnings and profits. In addition, if we designate prior distributions as
capital gain dividends, subsequent distributions, up to the amount of such prior
distributions that were designated as capital gains dividends, will be treated
as capital gain dividends for withholding purposes. We may be required to
withhold 10% of distributions in excess of our current and accumulated earnings
and profits. If the amount of tax withheld by us with respect to a distribution
to a Non-U.S. Shareholder exceeds the shareholder's United States tax liability
with respect to such distribution, the Non-U.S. Shareholder may file for a
refund of the excess from the IRS.
Unless the common stock constitutes a "United States real property
interest" within the meaning of FIRPTA, a sale of common stock by a Non-U.S.
Shareholder generally will not be subject to federal income taxation. The common
stock will not constitute a United States real property interest if we are a
"domestically controlled REIT." A domestically-controlled REIT is a REIT in
which at all times during a specified testing period Non-U.S. Shareholders held,
directly or indirectly, less than 50% in value of the REIT's shares. We
anticipate that we will be a domestically-controlled REIT and,
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therefore, that a sale of common stock will not be subject to taxation under
FIRPTA. However, because the common stock will be publicly traded, we cannot
give assurance that we will continue to be a domestically-controlled REIT. If we
were not a domestically-controlled REIT, a Non-U.S. Shareholder's sale of our
common stock would be subject to tax under FIRPTA as a sale of a United States
real property interest unless the common stock were "regularly traded" on an
established securities market (such as the American Stock Exchange) on which the
common stock will be listed and the seller owned no more than 5% of the common
stock throughout the applicable testing period. If the gain on the sale of
common stock were subject to taxation under FIRPTA, the Non-U.S. Shareholder
would be subject to the same treatment as a U.S. Shareholder with respect to the
gain (subject to applicable alternative minimum tax or a special alternative
minimum tax in the case of nonresident alien individuals). Notwithstanding the
foregoing, capital gains not subject to FIRPTA will be taxable to a nonresident
alien individual who is present in the United States for 183 days or more during
the taxable year and if certain other conditions apply, in which case the
nonresident alien individual will be subject to a 30% tax on his or her U.S.
source capital gains.
A purchaser of common stock from a Non-U.S. Shareholder will not be
required to withhold under FIRPTA on the purchase price if our common stock is
"regularly traded" on an established securities market or if we are a
domestically-controlled REIT. Otherwise, a purchaser of common stock from a
Non-U.S. Shareholder may be required to withhold 10% of the purchase price and
remit this amount to the IRS. Our common stock is currently a "regularly traded"
security on the American Stock Exchange. We believe that we qualify under both
the "regularly traded" and the domestically-controlled REIT exceptions to
withholding but cannot provide any assurance to that effect.
Upon the death of a nonresident alien individual, such individual's
common stock will be treated as part of such individual's U.S. estate for
purposes of the United States estate tax, except as may be otherwise provided in
an applicable estate tax treaty.
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Information Reporting Requirements and Backup Withholding Tax
Under certain circumstances, U.S. Shareholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, our common stock. Backup withholding will apply only
if:
(1) the payee fails to furnish his or her taxpayer identification
number (which, for an individual, would be his or her Social
Security Number) to the payor as required;
(2) the IRS notifies the payor that the taxpayer identification
number furnished by the payee is incorrect;
(3) the IRS has notified the payee that such payee has failed to
properly include reportable interest and dividends in the
payee's return or has failed to file the appropriate return
and the IRS has assessed a deficiency with respect to such
underreporting; or
(4) the payee has failed to certify to the payor, under penalties
of perjury, that the payee is not subject to withholding. In
addition, backup withholding will not apply with respect to
payments made to certain exempt recipients, such as
corporations and tax-exempt organizations. U.S. Shareholders
should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the
procedure for obtaining such an exemption.
Backup withholding is not an additional tax. Rather, the amount of any
backup withholding with respect to a payment to a U.S. Shareholder will be
allowed as a credit against the U.S. Shareholder's federal income tax liability.
Additional issues may arise pertaining to information reporting and
backup withholding for Non-U.S. Shareholders. For example, on October 7, 1997,
the Treasury Department issued new regulations (the "New Regulations") that make
certain modifications to the withholding, backup withholding, and information
reporting rules. On March 27, 1998, the Treasury Department and the IRS released
Notice 98-16, which announced that the effective date of the New Regulations
will be extended to apply generally to payments made to foreign persons after
December 31, 1999. Non-U.S. Shareholders should consult their tax advisors with
regard to U.S. information reporting and backup withholding.
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Tax Consequences of Redemption
The following discussion summarizes certain federal income tax
considerations that may be relevant to a limited partner who exercises his or
her right to require the redemption of his or her Units.
Tax Treatment of Redemption of Units.
If a limited partner exercises his or her right to require the
redemption of Units, and if the Company elects to acquire the Units in exchange
for common stock and/or cash, the acquisition will be treated by the Company,
the Operating Partnership, and the redeeming limited partner as a sale of Units
for federal income tax purposes. Such sale will be fully taxable to the limited
partner. Such limited partner generally will be treated as realizing for tax
purposes an amount equal to the sum of either the cash or the fair market value
of the common stock received and the amount of any Operating Partnership
liabilities allocable to the sold Units at the time of the sale. We discuss more
fully the determination of the amount of gain or loss below.
If we do not elect to acquire the Units and instead the Operating
Partnership redeems the limited partner's Units for cash, the tax consequences
would be as described in the previous paragraph. However, if the Operating
Partnership redeems less than all of a limited partner's Units, the limited
partner would not recognize any loss occurring on the transaction and would
recognize taxable gain only to the extent that the cash plus the amount of any
Operating Partnership liabilities allocable to the redeemed Units exceeded the
limited partner's adjusted basis in all of such limited partner's Units
immediately before the redemption.
The methodology used by the Operating Partnership to allocate its
liabilities to its partners will likely result in varying amounts of such
liabilities being allocated to different partners. Under that methodology, which
is based on principles set forth in Treasury Regulations, it is possible that
partners who hold an identical number of Units are allocated different amounts
of liabilities of the Operating Partnership for federal income tax purposes and,
accordingly, could have differing tax consequences from a sale or redemption of
Units.
Tax Treatment of Disposition of Common Units by Limited Partner Generally.
If a Unit is redeemed or a limited partner otherwise disposes of a
Unit, the determination of gain or loss from the redemption or other disposition
will be based on the difference between the amount realized for tax purposes and
the tax basis in such Unit. See "-- Basis of Units" below. Upon the sale of a
Unit, the "amount realized" will be the sum of the cash or fair market value of
common stock or other property received plus the reduction in the amount of any
Operating Partnership liabilities allocable to the Unit holder. To the extent
that the amount of cash or property received plus the reduction in the allocable
share of any Operating Partnership liabilities exceeds the limited partner's
basis in his or her interest in the Operating Partnership, such limited partner
will
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recognize gain. It is possible that the amount of gain recognized or even the
tax liability resulting from such gain could exceed the amount of cash or the
value of common stock received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent that the amount realized upon the
sale or other disposition of a Unit attributable to a limited partner's share of
"unrealized receivables" of the Operating Partnership (as defined in Section 751
of the Code) exceeds the basis attributable to those assets, however, such
excess will be treated as ordinary income. Unrealized receivables include, to
the extent not previously included in Operating Partnership income, any rights
to payment for services rendered or to be rendered. Unrealized receivables also
include amounts that would be subject to recapture as ordinary income if the
Operating Partnership had sold its assets at their fair market value at the time
of the transfer of a Unit.
Basis of Units
In general, a limited partner who was deemed to have received his or
her Units upon liquidation of a partnership had an initial tax basis in the
Units ("Initial Basis") equal to his or her basis in the partnership interest at
the time of such liquidation. Similarly, in general a limited partner who
contributed a partnership interest in exchange for his or her Units had an
Initial Basis in the Units equal to his or her basis in the contributed
partnership interest. A limited partner's Initial Basis in his or her Units
generally is increased by (1) such limited partner's share of Operating
Partnership taxable and tax-exempt income and (2) increases in such partner's
share of the liabilities of the Operating Partnership (including any increase in
his or her share of liabilities occurring in connection with the transaction in
which he or she received Units). Generally, such partner's basis in his or her
Units is decreased (but not below zero) by (a) his or her share of Operating
Partnership distributions, (b) decreases in his or her share of liabilities of
the Operating Partnership (including any decrease in his or her share of
liabilities of the Operating Partnership occurring in connection with the
transaction in which he or she received Units), (c) his or her share of losses
of the Operating Partnership, and (d) his or her share of nondeductible
expenditures of the Operating Partnership that are not chargeable to capital
account.
Potential Application of the Disguised Sale Regulations to a Redemption of Units
There is a risk that a redemption of Units, which were issued in a
transaction where a limited partner received Units, may cause the original
transfer of property to the Operating Partnership in exchange for Units to be
treated as a "disguised sale" of property. Section 707 of the Code and the
Treasury Regulations thereunder (the "Disguised Sale Regulations") generally
provide that a partner's contribution of property to a partnership and the
partnership's simultaneous or subsequent transfer of money or other
consideration (including the assumption of or taking subject to a liability) to
the partner, which would not have been made but for the transfer of property,
will be
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presumed to be a sale, in whole or in part, of such property by the partner to
the partnership unless one of the prescribed exceptions is applicable. Further,
the Disguised Sale Regulations generally provide that, if a partner's transfer
of property to the partnership is within two years of the partnership's transfer
of money or other consideration to a partner, the transfers are presumed to be a
sale of the property unless the facts and circumstances clearly establish that
the transfers do not constitute a sale. The Disguised Sale Regulations also
provide that if the transfers are made more than two years apart, the transfers
are presumed not to be a sale unless the facts and circumstances clearly
establish that the transfers do constitute a sale.
Accordingly, if a Unit is redeemed, the IRS could contend that the
Disguised Sale Regulations apply because the limited partner will receive
consideration subsequent to his or her previous contribution of property to the
Operating Partnership. In that event, the IRS could contend that any of the
transactions where limited partners received Units that may be redeemed for
shares of common stock that may in turn be sold are taxable as a disguised sale
under the Disguised Sale Regulations. Any gain recognized as a result of the
disguised sale treatment may be eligible for installment reporting under Section
453 of the Code, subject to certain limitations.
Tax Aspects of the Operating Partnership
General
Substantially all of our investments are held through the Operating
Partnership. In general, partnerships are "pass-through" entities that are not
subject to federal income tax. Rather, partners are allocated their
proportionate share of the items of income, gain, loss, deduction, and credit of
a partnership, and are potentially subject to tax thereon, without regard to
whether the partners receive a distribution from the partnership. We include in
our income our proportionate share of the Operating Partnership's income, gain,
loss, deduction, and credit for purposes of the various REIT income tests and in
the computation of our REIT taxable income. In addition, we include our
proportionate share of assets held by the Operating Partnership in the REIT
asset tests.
Tax Allocations with Respect to our Properties
When property is contributed to a partnership in exchange for an
interest in the partnership, the partnership generally takes a carryover basis
in that property for tax purposes. That carryover basis is equal to the
contributing partner's adjusted basis in the property rather than 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 the unrealized gain or unrealized loss
associated with the property at the time of the contribution. The amount of such
unrealized gain or unrealized loss generally is 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
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solely for federal income tax purposes and do not affect the book capital
accounts or other economic or legal arrangements among the partners.
The Operating Partnership has been formed by way of contributions of
appreciated property, and we expect that future contributions to the Operating
Partnership also will take the form of appreciated property. Consequently, the
Operating Partnership agreement requires tax allocations to be made in a manner
consistent with Section 704(c) of the Code.
In general, the partners who have contributed their interests in
properties to the Operating Partnership (the "Contributing Partners") will be
allocated lower amounts of depreciation deductions for tax purposes than such
deductions would be if determined on a pro rata basis. In addition, in the event
of the disposition of any of the contributed assets that have a Book-Tax
Difference, all taxable income attributable to such Book-Tax Difference
generally will be allocated to the Contributing Partners, and the Company
generally will be allocated only its share of capital gains attributable to
appreciation, if any, occurring after the closing of the acquisition of such
properties. This will tend to eliminate the Book-Tax Difference over the life of
the Operating Partnership. However, the special allocation rules of Section
704(c) of the Code do not always entirely eliminate the Book-Tax Difference on
an annual basis or with respect to a specific taxable transaction such as a
sale. Thus, the carryover basis of the contributed assets in the hands of the
Operating Partnership may cause the Company to be allocated lower depreciation
and other deductions and cause Contributing Partners to be allocated less
taxable income. As a result, the Company could recognize taxable income in
excess of distributed amounts, which might adversely affect our ability to
comply with the REIT distribution requirements, and Contributing Partners may
realize income on the distribution of cash because their basis has not been
increased sufficiently from income allocations. See " -- Annual Distribution
Requirements."
With respect to any property purchased by the Operating Partnership,
such property initially will have a tax basis equal to its fair market value,
and Section 704(c) of the Code will not apply.
Basis in Operating Partnership Interest.
Our adjusted tax basis in our interest in the Operating Partnership
generally
(1) will be equal to the amount of cash and the basis of any other
property that we contributed to the Operating Partnership,
(2) will be increased by (a) our allocable share of the Operating
Partnership's income and (b) our allocable share of
indebtedness of the Operating Partnership and
(3) will be reduced, but not below zero, by our allocable share of
(a) losses suffered by the Operating Partnership, (b) the
amount of cash distributed
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to the Company, and (c) constructive distributions resulting
from a reduction in our share of indebtedness of the Operating
Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of its partnership interest in
the Operating Partnership, the recognition of such excess loss will be deferred
until such time and to the extent that it has an adjusted tax basis in our
partnership interest. To the extent that the Operating Partnership's
distributions, or any decrease in our share of the indebtedness of the Operating
Partnership (such decreases being considered a cash distribution to the
partners) exceed our adjusted tax basis, such excess distributions (including
such constructive distributions) constitute taxable income to the Company. Such
taxable income normally will be characterized as a capital gain if the interest
in the Operating Partnership has been held for longer than one year, subject to
reduced tax rates described above (See " -- Taxation of U.S. Shareholders --
Capital Gain Distributions"). Under current law, capital gains and ordinary
income of corporations generally are taxed at the same marginal rates.
Sale of the Properties.
The Company's share of gain realized by the Operating Partnership on
the sale of any property held by the Operating Partnership as inventory or other
property held primarily for sale to customers in the ordinary course of the
Operating Partnership's trade or business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. See "
- --Requirements for Qualification -- Income Tests." Such prohibited transaction
income also may have an adverse effect upon its ability to satisfy the income
tests for qualification as a REIT. Under existing law, whether property is held
as inventory or primarily for sale to customers in the ordinary course of the
Operating Partnership's trade or business is a question of fact that depends on
all the facts and circumstances with respect to the particular transaction. The
Operating Partnership intends to hold the properties for investment with a view
to long-term appreciation, to engage in the business of acquiring, developing,
owning, and operating the properties (and other properties) and to make such
occasional sales of the properties, including peripheral land, as are consistent
with the Operating Partnership's investment objectives.
Other Tax Considerations
BNP Management, Inc.
We expect a portion of the amounts we will use to fund distributions to
come from distributions on the stock of BNP Management, Inc. BNP Management,
Inc. does not qualify as a REIT, and it will pay federal, state, and local
income taxes on its taxable income at normal corporate rates. Any federal,
state, or local income taxes that BNP Management, Inc. pays will reduce the cash
available for distribution.
As described above, the value of the stock of BNP Management, Inc. that
is attributed to the Company cannot exceed 5% of the value of its assets at any
time when a
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Unit holder in the Operating Partnership exercises his or her redemption right.
See " --Requirements for Qualification -- Asset Tests." We believe that we
currently satisfy this limit though this limitation may restrict the ability of
BNP Management, Inc. to increase the size of its business unless the value of
our assets is also increasing.
State and Local Tax
We may be subject to state and local tax in various states and
localities. Our shareholders also may be subject to state and local tax in
various states and localities. The tax treatment to us and to our shareholders
in such jurisdictions may differ from the federal income tax treatment described
above. Consequently, before you buy our common stock, you should consult your
own tax advisor regarding the effect of state and local tax laws on an
investment in our common stock.
PLAN OF DISTRIBUTION
This prospectus relates to the issuance of 950,032 shares of common
stock by us. The 950,032 shares are offered for an equal number of Units in the
Operating Partnership, which is the partnership through which we conduct
substantially all of our business. The holders of Units generally have the right
to redeem them for the market value of an equal number of shares of common
stock. At the time the Units are presented for redemption, we have an option to
purchase such Units for an equal number of shares of common stock or the cash
value thereof.
EXPERTS
The following financial statements have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. The following financial statements
are incorporated herein by reference in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing:
- the consolidated financial statements and schedule of
Boddie-Noell Properties, Inc. at December 31, 1997, and for
the year then ended, incorporated by reference from the
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Boddie-Noell Properties, Inc. Annual Report on Form 10-K for
the year ended December 31, 1997,
- the financial statements of Woods Edge Apartments Limited
Partnership at December 31, 1997, and for the year then ended,
incorporated by reference from the Boddie-Noell Properties,
Inc. Current Report on Form 8-K dated July 27, 1998, as
amended September 21, 1998,
- the financial statements of Oak Hollow Apartments, Limited
Partnership at December 31, 1997 and 1996, and for the years
then ended, incorporated by reference from the Boddie-Noell
Properties, Inc. Current Report on Form 8-K dated July 27,
1998, as amended September 21, 1998,
- the Statement of Revenue and Certain Operating Expenses of
Madison Hall Property for the year ended December 31, 1997,
incorporated by reference from the Boddie-Noell Properties,
Inc. Current Report on Form 8-K dated September 2, 1998, as
amended October 29, 1998,
- the Statement of Revenue and Certain Operating Expenses of
Summerlyn Place Property for the year ended December 31, 1997,
incorporated by reference from the Boddie-Noell Properties,
Inc. Current Report on Form 8-K dated September 2, 1998, as
amended October 29, 1998,
- the Statement of Revenue and Certain Operating Expenses of
Allerton Place Property for the seven-month period ended
December 31, 1997, incorporated by reference from the
Boddie-Noell Properties, Inc. Current Report on Form 8-K dated
September 2, 1998, as amended October 29, 1998, and
- the Combined Statement of Revenue and Certain Operating
Expenses of the Acquired Properties for the year ended
December 31, 1996, incorporated by reference from the
Boddie-Noell Properties, Inc. Current Report on Form 8-K dated
December 1, 1997.
The following financial statements, which are incorporated by reference
into this prospectus and registration statement, have been audited by Reznick
Fedder & Silverman, independent auditors, as set forth in their reports thereon
included in the financial statements, and are incorporated in this prospectus
and registration statement in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing:
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- the financial statements of Woods Edge Apartments Limited
Partnership at December 31, 1996 and 1995, and for the years
then ended, incorporated by reference from the Boddie-Noell
Properties, Inc. Current Report on Form 8-K dated July 27,
1998, as amended September 21, 1998.
The following financial statements incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated in this prospectus and
registration statement in reliance upon the authority of such firm as experts in
accounting and auditing in giving such reports:
- the financial statements of Oak Hollow Apartments Limited
Partnership at December 31, 1995 and 1994, and for the years
then ended, incorporated by reference from the Boddie-Noell
Properties, Inc. Current Report on Form 8-K dated July 27,
1998, as amended September 21, 1998, and
- the financial statements of Boddie-Noell Properties, Inc. at
December 31, 1995, and for the year then ended, incorporated
by reference from the Boddie-Noell Properties, Inc. Annual
Report on Form 10-K for the year ended December 31, 1997.
LEGAL OPINIONS
Alston & Bird LLP, Raleigh, North Carolina, will issue an opinion to us
regarding certain legal matters. Alston & Bird LLP, Atlanta, Georgia, will issue
an opinion to us regarding certain tax matters.
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy the reports, statements or
other information we file at the SEC's Public Reference Room at 450 Fifth
Street, N.W., in Washington, D.C. 20549. You can request copies of these
documents, upon payment of
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photocopying fees, by writing to the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the Public Reference Room. In
addition, the SEC maintains an Internet site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
issuers like the Company that file electronically. These documents are also
available for viewing at the offices of the American Stock Exchange in New York.
For more information, you may call the viewing room of the American Stock
Exchange at (212) 306-1292.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We have filed certain documents with the SEC, as required by the
Securities Exchange Act of 1934, and are incorporating them by reference into
this prospectus. Incorporating by reference means that we are making the
documents listed below a part of this prospectus by referring to these documents
and declaring that you should consider them to be part of this prospectus as if
they were fully copied in this prospectus.
A. Our Annual Report on Form 10-K for the year ended
December 31, 1997;
B. Our Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;
C. Our Current Reports on Form 8-K, dated December 1, 1997, dated July
27, 1998, as amended on September 21, 1998, and dated September 2, 1998, as
amended on October 29, 1998; and
D. The description of our common stock included in our registration
statement on Form 8-A, dated April 27, 1987.
In addition, all documents subsequently filed by us pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, prior to the
termination of this offering, shall be deemed to be incorporated by reference
into this prospectus. Any statement that is incorporated by reference into this
prospectus is automatically updated and superseded if information contained in
this prospectus, or information that we later file with the SEC, modifies or
replaces the statement.
We will furnish without charge upon written or oral request to each
person to whom a copy of this prospectus is delivered, including any beneficial
owner, a copy of any or all of the documents specifically incorporated by
reference in this prospectus (not including the exhibits to such documents,
unless the exhibits are specifically incorporated by reference in such
documents). Requests should be made to: Boddie-Noell Properties, Inc., 3850 One
First Union Center, Charlotte, North Carolina 28202-6032. Our telephone number
is (704) 944-0100.
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimates of the various expenses to be
paid by the Company in connection with the registration of the common stock
offered pursuant to this registration statement.
Securities and Exchange Commission Registration Fee...................$ 3,005
Legal Fees ............................................................15,000
Accounting Fees .......................................................10,000
Miscellaneous...........................................................1,995
-------
Total........................................................$30,000
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's officers and directors are and will be indemnified
against certain liabilities in accordance with the Maryland General Corporation
Law ("MGCL"), the Articles of Incorporation and bylaws of the Company and the
Operating Partnership agreement. The Articles of Incorporation require the
Company to indemnify its directors and officers to the fullest extent permitted
from time to time by the MGCL. The MGCL permits a corporation to indemnify its
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reasons of their service in
those or other capacities unless it is established that the act or omission of
the director or officer was material to the matter giving rise to the proceeding
and was committed in bad faith or was the result of active and deliberate
dishonesty, or the director or officer actually received an improper personal
benefit in money, property or services, or in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful.
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ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
4.1 * Articles of Incorporation of Registrant (filed as exhibit 3.1
to the Boddie-Noell Properties, Inc. Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997)
4.2 * Bylaws of Registrant (filed as exhibit 3.1 to the Boddie-Noell
Properties, Inc. Registration Statement on Form S-2
filed with the SEC on December 16, 1997 (Reg. No. 333-39803))
5.1 Opinion of Alston & Bird LLP regarding the legality of the
shares being registered
8.1 Opinion of Alston & Bird LLP regarding tax matters
23.1 Consent of Alston & Bird LLP (included as part of exhibit 5.1
and exhibit 8.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of Reznick Fedder & Silverman
23.4 Consent of Arthur Andersen LLP
24.1** Power of Attorney
99.1* Form of Agreement of Limited Partnership of Boddie-Noell
Properties Limited Partnership (filed as exhibit 10.9 to the
Boddie-Noell Properties, Inc. Registration Statement on Form
S-2 filed with the SEC on December 16, 1997 (Reg.
No. 333-39803))
99.2* Form of Registration Rights Agreement (filed as exhibit 10.11
to the Boddie-Noell Properties, Inc. Registration Statement
on Form S-2 filed with the SEC on December 16, 1997
(Reg. No. 333-39803))
* Incorporated herein by reference.
** Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to the registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
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<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that the undertakings set forth in paragraphs
(a)(1)(i) and (a)(1)(ii) do not apply if the information required to be
included in a post-effective amendment by those paragraphs is contained
in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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<PAGE>
(c) Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions described under Item 15 above,
or otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this amendment to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Charlotte, State of North Carolina, on January
8, 1999.
BODDIE-NOELL PROPERTIES, INC.
/s/ D. Scott Wilkerson
D. Scott Wilkerson
President and Chief Executive Officer
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<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
amendment to registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ B. Mayo Boddie* Chairman of the Board and Director January 8, 1999
B. Mayo Boddie
/s/ D. Scott Wilkerson President and Chief Executive Officer January 8, 1999
D. Scott Wilkerson and Director
/s/ Philip S. Payne Executive Vice-President, Treasurer January 8, 1999
Philip S. Payne and Chief Financial Officer and
Director
/s/ Paul G. Chrysson* Director January 8, 1999
Paul G. Chrysson
/s/ W. Michael Gilley* Director January 8, 1999
W. Michael Gilley
/s/ Donald R. Pesta, Jr.* Director January 8, 1999
Donald R. Pesta, Jr.
/s/ William H. Stanley* Director January 8, 1999
William H. Stanley
/s/ Pamela B. Novak Vice-President, Controller and Chief January 8, 1999
Pamela B. Novak Accounting Officer
</TABLE>
*By: /s/ Philip S. Payne
Philip S. Payne
Attorney-in-Fact
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<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
4.1 * Articles of Incorporation of Registrant (filed as exhibit 3.1
to the Boddie-Noell Properties, Inc. Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997)
4.2 * Bylaws of Registrant (filed as exhibit 3.1 to the Boddie-Noell
Properties, Inc. Registration Statement on Form S-2
filed with the SEC on December 16, 1997 (Reg. No. 333-39803))
5.1 Opinion of Alston & Bird LLP regarding the legality of the
shares being registered
8.1 Opinion of Alston & Bird LLP regarding tax matters
23.1 Consent of Alston & Bird LLP (included as part of exhibit 5.1
and exhibit 8.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of Reznick Fedder & Silverman
23.4 Consent of Arthur Andersen LLP
24.1** Power of Attorney (included on the signature page hereof)
99.1* Form of Agreement of Limited Partnership of Boddie-Noell
Properties Limited Partnership (filed as exhibit 10.9 to
the Boddie-Noell Properties, Inc. Registration Statement
on Form S-2 filed with the SEC on December 16, 1997 (Reg.
No. 333-39803))
99.2* Form of Registration Rights Agreement (filed as exhibit 10.11
to the Boddie-Noell Properties, Inc. Registration
Statement on Form S-2 filed with the SEC on December 16, 1997
(Reg. No. 333-39803))
* Incorporated herein by reference.
** Previously filed.
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Alston & Bird LLP
3605 Glenwood Avenue, Suite 310
P. O. Drawer 31107
Raleigh, NC 27622-1107
919-420-2200
Fax: 919-420-2260
www.alston.com
Robert H. Bergdolt Direct Dial: 919-420-2216 E-mail: [email protected]
January 8, 1999
Boddie-Noell Properties, Inc.
3850 One First Union Center
Charlotte, North Carolina 28202-6302
Re: Legality of shares covered by Registration Statement on Form
S-3 (File No. 333-68935) (the "Registration Statement")
Ladies and Gentlemen:
We are acting as counsel for Boddie-Noell Properties, Inc., a Maryland
corporation (the "Company"), in connection with the preparation and filing of
the Registration Statement, which covers the registration by the Company of
950,032 shares issuable upon the redemption of certain outstanding partnership
units in Boddie-Noell Properties Limited Partnership (the "Shares").
We have reviewed such documents and considered such matters of law and
fact as we, in our professional judgment, have deemed appropriate to render the
opinion contained herein. We are familiar with the proceedings taken and
proposed to be taken by the Company in connection with the authorization and
issuance of the Shares and for the purpose of this opinion, have assumed such
proceedings will be timely completed in the manner presently proposed.
Based upon and subject to the foregoing and the further limitations and
qualifications hereinafter expressed, it is our opinion that the Company has the
authority pursuant to its charter to issue the Shares, and the Shares will be
duly authorized, validly issued, fully paid and non-assessable upon (a) the
adoption by the board of directors of a resolution in form and content required
by Maryland law, and (b) delivery of the consideration contemplated by the
Agreement of Limited Partnership of Boddie-Noell Properties Limited Partnership.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
references therein to us and this opinion under the heading "Legal Opinions." In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended.
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<PAGE>
Our opinion expressed herein is as of the date hereof, and we undertake
no obligation to advise you of any changes in applicable law or any other
matters that may come to our attention after the date hereof that may affect our
opinion expressed herein.
Very truly yours,
ALSTON & BIRD LLP
By: /s/ Robert H. Bergdolt
Robert H. Bergdolt, Partner
RHB/ppb
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<PAGE>
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
404-881-7000
Fax: 404-881-7777
www.alston.com
Pinney L. Allen Direct Dial: 404-881-7485
January 8, 1999
Boddie-Noell Properties, Inc.
3710 One First Union Center
301 South College Street, Suite 3710
Charlotte, North Carolina 28202-6024
Re: Registration Statement on Form S-3 Relating to 950,032 Shares
of Common Stock of Boddie-Noell Properties, Inc.
Ladies and Gentlemen:
In connection with the registration statement on Form S-3, File No.
333-68935, as in the form filed on January 8, 1999, relating to the registration
of 950,032 shares of common stock by Boddie-Noell Properties, Inc. (the
"Company"), you have requested our opinion concerning certain of the federal
income tax consequences to the Company of its election to be taxed as a real
estate investment trust ("REIT") under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended (the "Code").
In connection with issuing this opinion, we have relied solely on
various facts and factual assumptions as set forth in the Registration Statement
and is conditioned upon certain representations made by the Company as to
factual matters through a certificate of an officer of the Company and
certificates from B. Mayo Boddie and Nicholas B. Boddie (the "Certificates")
attached hereto and made a part hereof. We have made no independent inquiry as
to the factual matters set forth herein. In addition, we have examined no
documents other than the Registration Statement for purposes of this opinion
and, therefore, our opinion is limited to matters determined through an
examination of such document and the factual matters set forth in the
Certificates. We note that we issued an opinion dated January 13, 1998, with
respect to similar matters to those contained herein and we have no reason to
believe that such opinion is inaccurate.
In rendering the opinions set forth herein, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures thereon, the legal capacity of natural persons executing such
documents and the conformity to authentic original documents of all documents
submitted to us as copies.
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<PAGE>
We are opining herein as to the effect on the subject transaction only
of the federal income tax laws of the United States and we express no opinion
with respect to the applicability thereto, or the effect thereon, of other
federal laws, the laws of any other jurisdiction, the laws of any state or as to
any matters of municipal law or the laws of any other local agencies within any
state.
Based solely on the facts in the Registration Statement and the facts
in the Certificates, we are of the opinion that the Company has been organized
and has operated in conformity with the requirements for qualification and
taxation as a REIT under the Code for its taxable years ended December 31, 1987
through 1997, and that the Company is in a position to continue its
qualification and taxation as a REIT within the definition of Section 856(a) of
the Code for the taxable year that ended December 31, 1998, and the taxable year
that will end December 31, 1999. With respect to 1998 and 1999, we note that the
Company's status as a REIT at any time during such years is dependent, among
other things, upon the Company meeting the requirements of Sections 856 through
860 of the Code throughout each of such years and for each year as a whole.
Accordingly, because the Company's satisfaction of such requirements will depend
upon future events, including final determination of operational results, it is
not possible to assure that the Company satisfied the requirements to be a REIT
during the taxable year that ended December 31, 1998, or will satisfy such
requirements for the taxable year that will end December 31, 1999.
In addition, we have participated in the preparation of the material
under the heading "Federal Income Tax Considerations" of the Registration
Statement and we are of the opinion that the federal income tax treatment
described therein is accurate in all material respects.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement or
the Certificates may affect the opinions stated herein.
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<PAGE>
This opinion is furnished only to you, is solely for your use in
connection with the Registration Statement, and is limited to the specific
matters covered hereby and should not be interpreted to imply that the
undersigned has offered its opinion on any other matter. This opinion may be
relied upon only by the party to whom it is addressed and may not be quoted,
circulated, or used for any other purpose without our prior written consent. We,
however, hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Opinions" in the Registration Statement.
Very truly yours,
ALSTON & BIRD
By: /s/ Pinney L. Allen
Pinney L. Allen
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<PAGE>
CERTIFICATE
I, Philip S. Payne, in my capacity as Executive Vice President,
Treasurer, and Chief Financial Officer of Boddie-Noell Properties, Inc. (the
"Company"), do hereby certify, with respect to all matters set forth below, as
follows:
1. That I am the Executive Vice President, Treasurer, and Chief
Financial Officer of the Company in the state of North Carolina;
2. That in such capacity, I have access to relevant information
regarding each of the factual matters set forth below and each of the matters
set forth is true, correct and complete for taxable years of the Company from
1994 to the date of this certificate and that each of the matters is true,
correct and complete for each of the taxable years of the Company prior to 1994
to the best of my knowledge and belief after making appropriate inquiries;
3. That I have reviewed the contents of this certificate with
other personnel of the Company;
4. That for purposes of this Certificate,
(a) "Affiliated Limited Liability Companies" means,
collectively:
(i) BNP Realty LLC, a North Carolina limited
liability company that is owned 100% by Boddie-Noell Properties Limited
Partnership;
(ii) BNP/Chason Ridge LLC, a North Carolina limited
liability company that is owned 100% by Boddie-Noell Properties Limited
Partnership; and
(iii) BNP/Chrysson Phase I Acquisition LLC, a North
Carolina limited liability company that is owned 100% by Boddie-Noell
Properties Limited Partnership.
(b) "BNP Management" means BNP Management, Inc., a North
Carolina corporation of which BNP Realty LLC owns 100% of the nonvoting stock
and 1% of the voting stock and Philip S. Payne, D. Scott Wilkerson, Douglas E.
Anderson, and W. Craig Worthy, who are officers of the Company or affiliates
thereof, collectively own 99% of the voting stock;
(c) "BT Venture" means BT Venture Corporation, a
Subchapter S corporation that was merged with and into the Company on
October 1, 1994;
(d) "Code" means the Internal Revenue Code of 1986,
as amended;
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(e) "Foreclosure Property" means real property (including
interests in real property), and any personal property incident to such real
property, acquired by the real estate investment trust as a result of such trust
having bid in such property at foreclosure, or having otherwise reduced such
property to ownership or possession by agreement or process of law, after there
was default (or default was imminent) on a lease of such property or on an
indebtedness that such property secured;
(f) "Independent Contractor" means any person who does
not own, directly or indirectly, more than 35% of the shares in the REIT, and,
if such person is a corporation, not more than 35% of the total combined voting
power of whose stock (or 35% of the total shares of all classes of whose stock),
or, if such person is not a corporation, not more than 35% of the interest in
whose assets or net profits is owned, directly or indirectly, by one or more
persons owning 35% or more of the shares in the REIT;
(g) "Operating Partnership" means Boddie-Noell Properties
Limited Partnership, a Delaware limited partnership formed on September 18,
1997, of which the Company is the sole general partner with an approximate 79%
ownership interest, including a 1% general partnership interest and a 78%
limited partnership interest, and various others (including officers and
directors of the Company) are the remaining limited partners with an approximate
21% aggregate interest;
(h) "Operating Partnership Agreement" means the First
Amended and Restated Agreement of Limited Partnership of Boddie-Noell Properties
Limited Partnership, as executed;
(i) "Prohibited Transaction" means a sale or other
disposition of property, other than foreclosure property, that is stock in trade
of the taxpayer or other property of a kind which would properly be included in
the inventory of the taxpayer if on hand at the close of the taxable year, or
property held by the taxpayer primarily for sale to customers in the ordinary
course of trade or business;
(j) "Qualified REIT Subsidiary" means (1) any corporation
in which a real estate investment trust owned stock during any taxable year
ended on or before December 31, 1997, if 100% of the stock of such corporation
was held by the real estate investment trust at all times during the period such
corporation was in existence and (2) any corporation in which a real estate
investment trust owns stock after the taxable year ended December 31, 1997, if
100% of the stock of such corporation is held by the real estate investment
trust;
(k) "Real Estate Assets" means real property (including
interests in real property and interests in mortgages on real property) and
shares (or transferable
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certificates of beneficial interest) in other entities qualifying to be taxed as
real estate investment trusts;
(l) "Registration Statement" means the Form S-3, File
No. 333-68935 filed on January 8, 1999, by the Company in connection with the
offer and sale of 950,032 shares of the Company's common stock;
(m) "Rent from Real Properties" means amounts derived
from rental of real property, including rents attributable to personal property
if such personal property is leased in conjunction with the real property and
such rent is less than 15% of the total rent and including charges for services
customarily furnished or rendered in connection with the rental of such real
property, whether or not such charges are separately stated, but excluding rents
received from parties in which the Company owns 10% or more of the vote or value
of equity ownership of such party and excluding amounts received or accrued with
respect to any real or personal property if the Company furnishes noncustomary
services to the tenants or manages or operates such property other than through
an Independent Contractor from which neither the Company nor the Operating
Partnership derives any form of income;
(n) "REIT" means a real estate investment trust;
(o) "REIT Election" means an election to be taxed as a
REIT under Code Section 856(c)(1); and
(p) "Service" means the Internal Revenue Service;
5. That I have consulted with other employees and officers of the
Company regarding the matters set forth below and such persons have agreed in
all respects with the representations made below;
6. That, except as otherwise noted, all representations made below are
true and complete for each of the taxable years ended December 31, 1987, through
December 31, 1998, and through the date hereof; and that I have no reason to
believe that such representations will not continue to be true for the taxable
year that will end December 31, 1999;
7. That, prior to July 12, 1997, the Company operated in accordance
with Delaware law and, after its reincorporation in Maryland on July 12, 1997,
the Company has operated and will continue to operate in accordance with
Maryland law; and that the Company has operated and will continue to operate in
accordance with its articles of incorporation, and its bylaws and in accordance
with the statements and representations made in the Registration Statement;
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<PAGE>
8. That the Operating Partnership has operated and will continue to
operate in accordance with Delaware law, the Operating Partnership Agreement,
and the statements and representations made in the Registration Statement;
9. That I am familiar with the requirements for qualification as a REIT
under applicable provisions of the Code, that all such requirements have been
satisfied for the Company's taxable years ended December 31, 1987, through
December 31, 1998; that I have no reason to believe that such requirements will
not continue to be satisfied in the taxable year that will end December 31,
1999; and that I have exercised ordinary business care and prudence to attempt
to satisfy such requirements and I have advised Alston & Bird LLP of any matter
of which I am aware that could cause reason for concern as to whether those
requirements have been or will be satisfied;
10. That the Company filed an election to be taxed as a REIT with its
tax return for the taxable year ended December 31, 1987, and has not taken any
action to terminate such election; that I have no reason to believe that the
Company will not continue such election or that it will take any action to
terminate such election for the period that ended December 31, 1998, or the
period that will end December 31, 1999; and that the Company has received no
notification formally or informally from the Service or any other person that
such election may not be valid or has been revoked or withdrawn in any respect;
11. That the Company is and will continue to be managed by one or more
of its directors who have exclusive authority over the management of the
Company, the management of its officers, and the management and disposition of
the Company's property;
12. That the beneficial ownership of the Company is and will continue
to be evidenced by transferable shares; and that there are no restrictions on
the transferability of such shares either in the Articles of Incorporation or in
any agreement to which the Company is a party, other than the restrictions set
forth in the Article of Incorporation that permit the directors to redeem shares
or refuse to transfer shares in any case where such directors, in good faith,
believe that a failure to redeem or that a transfer of shares would result in
the loss of the Company's REIT status;
13. That the Company has been a domestic corporation during its entire
existence;
14. That the Company has not been, is not, and will not be (i) a bank,
a mutual savings bank, a cooperative bank, a domestic building and loan
association or other savings institution, a small business investment company
operating under the Small Business Investment Act of 1958, or a corporation
created under state law for the purpose
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of promoting, maintaining, and assisting the economy within a state by making
loans, or (ii) an insurance company;
15. That at no time during the last half of any taxable year for which
a REIT election has been in effect has more than 50% of the value of the
Company's outstanding stock been beneficially owned by five or fewer individuals
taking into consideration the applicable attribution rules; and that the Company
will take all measures within its control to ensure that, at no time during the
last half of any taxable year for which a REIT election will be continued, will
more than 50% of the value of the Company's outstanding stock be beneficially
owned by or for five or fewer individuals;
16. That the record and beneficial ownership of the Company has been
and will be held by 100 or more persons;
17. That, in all taxable years ended, at least 95% of the gross income
derived by the Company (including the income derived through its ownership of
the Operating Partnership and the Affiliated Limited Liability Companies)
consisted of: (i) Rent from Real Properties; (ii) interest; (iii) gain realized
upon the sale of all or a portion of a Real Estate Asset that is not a
Prohibited Transaction; (iv) dividends; (v) abatements and refunds of tax; (vi)
income and gain from Foreclosure Property; and (vii) amounts for making loans by
secured properties or to purchase or lease real property; and that I have no
reason to believe that such 95% gross income test will not continue to be met
for the taxable year that will end December 31, 1999;
18. That, in all taxable years ended, at least 75% of the gross income
derived by the Company (including the income derived through its ownership of
the Operating Partnership and the Affiliated Limited Liability Companies)
consisted of: (i) Rent from Real Properties; (ii) interest on obligations
secured by mortgages on real property or on interests in real property; (iii)
gain realized upon the sale of all or a portion of the real property; (iv)
abatements and refunds of property tax; (v) income and gain derived from
Foreclosure Property; (vi) amounts for agreeing to make loans secured by real
property or to purchase or lease real property; and (vii) gain from the sale or
disposition of a Real Estate Asset that is not a Prohibited Transaction; and
that I have no reason to believe that such 75% gross income test will not
continue to be met for the taxable year that will end December 31, 1999;
19. That, for taxable years ended on or before December 31, 1997, less
than 30% of the gross income of the Company (including the income derived
through its ownership of the Operating Partnership and the Affiliated Limited
Liability Companies) was derived from (i) the sale or other disposition of stock
or securities held for less than one year; (ii) property in a transaction that
is a Prohibited Transaction; and (iii) real property (including interests in
real property and interests in mortgages on real property)
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held for less than four years other than property compulsorily or involuntarily
converted and property that is Foreclosure Property;
20. That the Company, the Operating Partnership, and the Affiliated
Limited Liability Companies have not entered into and will not enter into any
lease, agreement, or other arrangement in connection with the rental of real
property under which any amount payable to the Company, the Operating
Partnership, or the Affiliated Limited Liability Companies depends or will
depend in whole or in part on the income or profits derived from any tenant (or
sub-tenant) of such real property (except that such an amount may be based on a
fixed percentage or percentages of gross receipts or sales);
21. That (i) any personal property directly or indirectly leased by the
Company, the Operating Partnership, and the Affiliated Limited Liability
Companies has been and will be leased under or in connection with a lease of the
real property; and (ii) the average of the adjusted bases of such personal
property at the beginning and at the end of the taxable year is less than 15% of
the average of the aggregate adjusted bases of both the real property and the
personal property at the beginning and at the end of the taxable year, as
calculated on a lease by lease basis;
22. That, for purposes of Items 17 and 18 above, Rent from Real
Properties does not include rent received for any real property directly or
indirectly from any person in which the Company owns (i) in the case of a
corporation, 10% or more of the total combined voting power of all classes of
stock entitled to vote or 10% or more of the total number of shares of all
classes of stock; or (ii) in the case of an entity other than a corporation, an
interest of 10% or more in the assets or net profits of such entity (for
purposes of this representation, ownership is determined by taking into account
the attribution of ownership rules, which generally apply a look-through
provision to determine constructive stock ownership);
23. That, in connection with the merger of BT Venture Corporation with
and into the Company, B. Mayo Boddie and Nicholas B. Boddie, the sole
shareholders of BT Venture Corporation, were entitled to additional "earn-out
consideration" up to an amount of $1,700,000 in the event that the Company
satisfied certain performance criteria set forth in the merger agreement; and
that such earn-out consideration was payable in the common stock of the Company
but, at the Company's sole option, was payable in cash in lieu of such stock;
24. That, with respect to Item 22 above, B. Mayo Boddie has not and
will not own more than 9.8% of the Company's stock, taking into consideration
(i) all shares of stock owned directly by him, (ii) all shares of stock
reinvested in BNP's Dividend Reinvestment Plan, (iii) all shares of stock owned
directly by his spouse, children, parents, or grandparents, (iv) his
proportionate share of all shares of stock owned, directly or indirectly, by or
for a partnership in which he has had or will have any partnership
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interest, (v) his proportionate share of all shares of stock owned, directly or
indirectly, by or for an estate of which he has been or is a beneficiary, (vi)
his proportionate share of all shares of stock owned, directly or indirectly, by
or for a trust (other than a qualified trust under section 401(a) of the Code)
of which he has been or is a beneficiary, (vii) all shares of stock owned,
directly or indirectly, by or for any portion of a trust of which he is
considered the owner for federal income tax purposes, and (viii) his
proportionate share of all shares of stock owned, directly or indirectly, by or
for a corporation in which he owns or has owned a ten percent (10%) interest;
25. That, with respect to Item 22 above, Nicholas B. Boddie has not and
will not own more than 9.8% of the Company's stock, taking into consideration
(i) all shares of stock owned directly by him, (ii) all shares of stock
reinvested in BNP's Dividend Reinvestment Plan, (iii) all shares of stock owned
directly by his spouse, children, parents, or grandparents, (iv) his
proportionate share of all shares of stock owned, directly or indirectly, by or
for a partnership in which he has had or will have any partnership interest, (v)
his proportionate share of all shares of stock owned, directly or indirectly, by
or for an estate of which he has been or is a beneficiary, (vi) his
proportionate share of all shares of stock owned, directly or indirectly, by or
for a trust (other than a qualified trust under section 401(a) of the Code) of
which he has been or is a beneficiary, (vii) all shares of stock owned, directly
or indirectly, by or for any portion of a trust of which he is considered the
owner for federal income tax purposes, and (viii) his proportionate share of all
shares of stock owned, directly or indirectly, by or for a corporation in which
he owns or has owned a ten percent (10%) interest; and
26. That, for purposes of Item 22 above, no partnership in which either
B. Mayo Boddie or Nicholas B. Boddie has been or is directly or indirectly a
partner has owned or owns ten percent (10%) or more of the Company's stock,
taking into consideration stock owned by others attributed to any such
partnership including (i) any of the Company's stock owned, directly or
indirectly, by either B. Mayo Boddie or Nicholas B. Boddie and (ii) any of the
Company's stock owned directly or indirectly by any other partner of a
partnership in which either B. Mayo Boddie or Nicholas B. Boddie owned an
interest for taxable years ended on or before December 31, 1997, and in which
either B. Mayo Boddie or Nicholas B. Boddie will own a 25% interest for taxable
years ending after December 31, 1997;
27. That the Company is aware of the rules regarding attribution of
ownership and the bar on the characterization of amounts received from certain
related parties as Rent from Real Properties and, accordingly, for the taxable
years ended on or before December 31, 1997, the Company continually monitored
the constructive share ownership of the Company by partnerships in which
Nicholas B. Boddie and B. Mayo Boddie are partners, directly or indirectly; and
that the Company is not aware of any of facts causing any partnership to which
the Company leases any of its property to be considered to own a 10% or greater
interest in the Company;
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28. That the fair market value of any real property (or, with respect
to any construction loan, the fair market value of the land plus the reasonably
estimated cost of the improvements other than personal property) securing a
note, determined at the time the Company became bound to make the loan, is equal
to or exceeds the amount of the loan;
29. That no interest (including interest on obligations secured by
mortgages on real property or interests in real property) received or accrued,
directly or indirectly, by the Company, the Operating Partnership, or the
Affiliated Limited Liability Companies has been or will be determined in whole
or in part by reference to the income or profits derived by any person;
30. That neither the Company, the Operating Partnership, nor the
Affiliated Limited Liability Companies have owned any Foreclosure Property
(other than property the income from which would not cause the statements
contained in Items 17 and 18 above to no longer be true).
31. That the Company has reviewed and will continue to review all
leases for each property to ensure that such leases conform with all REIT
requirements; and that in connection with such review, the Company's Chief
Accounting Officer performs the following: (i) audits each lease prior to
signing such lease with respect to new and existing properties, (ii) audits each
property's operations prior to acquiring any such property, and (iii) meets
quarterly with property managers, who complete a form in connection with each
property setting forth the nature and amount of such items as personal property
and services provided to tenants, if any;
32. That, for taxable years prior to 1998, neither the Company, the
Operating Partnership, nor the Affiliated Limited Liability Companies have
provided any services to any tenant, other than through an Independent
Contractor from whom no income was derived or received by any such entity,
except for services that would be considered customarily furnished or rendered
in connection with the rental of real property, such as the furnishing of water,
heat, lights, trash collection, and maintenance of common areas; that, for
taxable years beginning after December 31, 1997, neither the Company, the
Operating Partnership, nor the Affiliated Limited Liability Companies have
provided or will provide services that would generate impermissible service
income in an amount that exceeds 1% of all amounts received or accrued during
the taxable year, directly or indirectly, by the Company with respect to such
property, with the amount treated as received or accrued by the Company for such
impermissible services not being less than 150% of the direct cost of the
Company in furnishing or rendering such services (for purposes of this
representation, impermissible service income means any amount received or
accrued directly or indirectly by the Company for services furnished or rendered
by the Company to the tenants of its property or for managing or operating such
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property, unless (i) such services, management, or operations are provided
through an Independent Contractor from whom the Company has not derived or
received and will not derive or receive any income or (ii) such services are
customarily furnished or rendered in connection with the rental of real
property, such as the furnishing of water, heat, lights, trash collection, and
maintenance of common areas);
33. That the Company has not derived and will not derive any income
from any Independent Contractor; that no Independent Contractor who provided or
will provide management and operating functions for the Company, the Operating
Partnership, or the Affiliated Limited Liability Companies or any of its
properties had or will have any ownership interest in the Company in excess of
35%;
34. That, at the close of each quarter of any taxable year the Company
has had a REIT election in effect or will continue such REIT election, at least
75% of the total combined value of its assets, including its proportionate share
of the assets of the Operating Partnership and the Affiliated Limited Liability
Companies, has or will consist of Real Estate Assets, cash and cash items
(including receivables), and government securities; and that at the close of
each quarter of any taxable year the Company performs the following items to
determine its compliance with the 75% asset test: (i) monitors the fair market
value of the properties on an ongoing basis and (ii) completes a spreadsheet
detailing all assets of the Company, the Operating Partnership, and the
Affiliated Limited Liability Companies on an asset by asset basis to determine
whether such assets are qualifying assets under the applicable Treasury
Regulations;
35. That, at the close of each quarter of any taxable year that the
Company has had a REIT election in effect or will continue such REIT election,
not more than 25% of the value of the Company's total assets (including those
assets owned indirectly through the Operating Partnership and the Affiliated
Limited Liability Companies) has been or will be represented by securities
(other than government securities) for purposes of this calculation limited in
respect of any one issuer to an amount not greater in value than 5% of the value
of the total assets of the Company and to not more than 10% of the outstanding
voting securities of such issuer;
36. That the Company's pro rata share of the value of the securities of
BNP Management has not exceeded 5% of the total value of the Company's assets at
the end of any calendar quarter; that 99% of the voting stock of BNP Management
is owned by Philip S. Payne, D. Scott Wilkerson, Douglas E. Anderson, and W.
Craig Worthy; that the Company has no informal or formal agreement with BNP
Management or the other shareholders of BNP Management regarding the voting of
the BNP Management stock; and that the stock owned by Philip S. Payne, D. Scott
Wilkerson, Douglas E. Anderson, and W. Craig Worthy is not subject to any voting
or purchase agreement that effectively would deny such individuals of the
economic rights of such stock;
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37. That, at the close of each quarter of any taxable year that the
Company has had a REIT election in effect or will continue such REIT election,
the Company has not owned and will not own directly or indirectly securities in
any one issuer, including mutual funds, having an aggregated value in excess of
5% of the value of the total assets of the Company;
38. That the Company, the Operating Partnership, and the Affiliated
Limited Liability Companies have held and will at all times hold all real
property and all other assets for investment purposes and not as (i) stock in
trade or other property of a kind which would properly be includible in
inventory if on hand at the close of the taxable year, or (ii) property held
primarily for sale to customers in the ordinary course of the trade or business
of the Company, the Operating Partnership, or the Affiliated Limited Liability
Companies;
39. That, for each taxable year for which a REIT election has been in
effect, the Company has distributed or will distribute an amount equal to or
exceeding the sum of 95% of the Company's real estate investment trust taxable
income for such taxable year, determined without regard for the deduction for
dividends paid and by excluding any net capital gain, and 95% of the excess of
the net income from Foreclosure Property over the tax imposed on such income,
reduced by, any excess noncash income;
40. That, in each taxable year for which a REIT election has been in
effect, the dividends paid by the Company on the Company's common stock were
made pro rata, with no preference to any share of the common stock as compared
with other such shares;
41. That, for each taxable year for which a REIT election has been in
effect, the Company has and will (i) maintain stock records that disclose actual
ownership of the Company's outstanding stock, and (ii) within 30 days of each
taxable year end, demand a written statement from shareholders of record,
including holders of the Company's stock warrants, for the purpose of disclosing
actual ownership;
42. That the Company has received no indication (whether in response to
the required demand letters sent to each shareholder of record owning 1% or more
of the outstanding shares of the Company on the appropriate date, as a result of
any filing of a Schedule 13D or 13G under the Securities Exchange Act of 1934,
as amended, or otherwise) that the actual ownership of shares of the Company was
or is such as to prevent the Company from satisfying the REIT rules prohibiting
the Company from being closely-held or from having fewer than 100 shareholders;
43. That the Company has at all times adopted and will continue to use
a calendar year accounting period;
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44. That other than BNP Management, the Company has not and does not
own any stock or other voting securities in any corporation;
45. That, at the time of the merger of BT Venture Corporation with and
into the Company, BT Venture Corporation had no Subchapter C earnings and
profits;
46. That the Operating Partnership is the only partnership in which the
Company has held a direct or indirect interest at the close of any quarter of
any taxable year ended on or before December 31, 1998, or at the close of any
quarter through the date hereof and this partnership was formed as a partnership
under the laws of the applicable state; that the Affiliated Limited Liability
Companies are the only limited liability companies in which the Company has held
a direct or indirect interest at the close of any quarter of any taxable year
ended on or before December 31, 1998, or at the close of any quarter through the
date hereof, and each of these limited liability companies were formed as a
limited liability company under the laws of the applicable states and elected to
be treated as a partnership for federal income tax purposes; that all such
partnerships (including the Affiliated Limited Liability Companies) have made no
election to be treated as a corporation or any other type of entity for federal
income tax purposes; and that the Company has received no notification formally
or informally from the Service or any other person challenging the status of any
of these entities as a partnership for federal income tax purposes;
47. That the Operating Partnership is the only partnership in which the
Company holds a direct or indirect interest as of the date hereof; and that the
Affiliated Limited Liability Companies are the only limited liability companies
in which the Company holds a direct or indirect interest as of the date hereof;
48. That the Company is not a party to any stock or asset purchase
agreement, including any plan of merger or reorganization, that will cause the
Company to fail to satisfy any of the matters set forth in this Certificate or
to fail to qualify as a REIT in the taxable year that will end December 31,
1999;
49. That the Company has filed timely tax returns in each year of its
existence and has not included any information in such returns due to fraud with
an intent to evade taxes;
50. That, beginning with the taxable year ended December 31, 1996, the
Company has engaged Ernst & Young to complete the Company's audited financial
statements and federal income tax returns; and that, in connection with such
work, Ernst & Young advised us that it found no problems with the Company's
qualification as a REIT for any year that it elected to be so taxed and that it
foresaw no problems in continuing to so qualify;
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51. That with respect to the Company's interest income:
(a) All of such interest income has been and will be earned on
notes ("Notes") that are secured by real property, other than amounts of
interest earned on funds of the Company held on deposit in banking institutions,
the loan to BNP Management, and other interest that did not cause the Company to
fail the 75% income test;
(b) None of the Notes has contained or will contain any
provisions that entitles the Company to interest based on the earnings or
profits of the maker of the Note or the value of the property securing the Note;
and
(c) The fair market value of the real property (or, with
respect to any construction loan, the fair market value of the land plus the
reasonably estimated cost of the improvements other than personal property)
securing each of the Notes, determined at the time the Company became bound to
make the loan, is equal to or exceeds the amount of the loan.
52. That no proceedings are pending or, to the knowledge of the
undersigned, threatened against the Operating Partnership, the Company, any of
their subsidiaries (including corporations, limited and general partnerships,
joint ventures, limited liability companies, and other entities, whether
directly or indirectly controlled) (the "Entities") or any of their properties,
before or by any Federal state or other commission, board, court, or
administrative agency wherein an unfavorable decision, ruling, or finding would
materially and adversely affect the business, property, financial condition, or
income of the Company, the Operating Partnership, and their subsidiaries
considered as one enterprise or any of their properties.
53. That the Company's ownership interests in the Operating Partnership
and its other directly or indirectly held Entities are held free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or equity,
except for security interests granted in respect to indebtedness of the Company
or the Subsidiaries as described in the Registration Statement.
54. That the description of the Company, its properties, and its method
of operation contained in the Registration Statement is accurate and complete in
all material aspects with respect to this opinion; and
55. That the Company will undertake to advise you of any change in the
representations made herein for so long as the Registration Statement referred
to above remains in effect.
The foregoing Certification is provided to Alston & Bird LLP in
connection with rendering an opinion regarding the qualification of the Company
as a REIT and may not
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be relied upon for any other purpose or by any other party. It is understood
that such opinion is limited to the factual matters revealed pursuant hereto and
other materials provided to them and that to the extent required, I have asked
questions of the appropriate individuals to confirm the foregoing answers, and
to the best of my knowledge and belief such answers are true, correct, and
complete and in no way are misleading.
January 8, 1999 /s/ Philip S. Payne
Philip S. Payne
Executive Vice President, Treasurer,
and Chief Financial Officer
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CERTIFICATE
I, B. Mayo Boddie, in my individual capacity and in my capacity as
Chairman of Boddie-Noell Enterprises, Inc. ("Boddie-Noell"), do hereby certify,
after making appropriate inquiries with respect to all matters set forth below,
as follows:
1. That I am the Chairman of Boddie-Noell;
2. That in such capacity, I have access to relevant information
regarding each of the factual matters set forth below;
3. That I have consulted with other employees and officers of
Boddie-Noell regarding the matters set forth below and such persons have agreed
in all respects with the representations made below;
4. That, except as otherwise noted, all representations made below are
true and complete for each of the taxable years ended December 31, 1987, through
December 31, 1998, and through the date hereof; and that I have no reason to
believe that such representations will not continue to be true for the taxable
years that will end after December 31, 1998;
5. That BNE Advisory Group, Inc., which was formed in 1987 and operated
as a wholly-owned subsidiary of Boddie-Noell, provided no services with respect
to any of the Hardee's restaurants leased to Boddie-Noell during any of the
taxable years ended December 31, 1987 through 1994; and that BNE Advisory Group,
Inc. neither managed nor operated any of the Hardee's restaurants leased to
Boddie-Noell during any of the taxable years ended December 31, 1987 through
1994;
6. That at all times during the taxable years ended December 31, 1987
through 1998, and through the date hereof, I have owned less than ten percent
(10%) of the stock of Boddie-Noell Properties, Inc. ("BNP") taking into
consideration:
(i) all shares of stock owned directly by me,
(ii) all shares of stock reinvested in BNP's Dividend
Reinvestment Plan,
(iii) all shares of stock owned directly by my spouse,
children, parents, or grandparents,
(iv) my proportionate share of all shares of stock owned,
directly or indirectly, by or for a partnership in which I have or have had any
partnership interest,
(v) my proportionate share of all shares of stock owned,
directly or indirectly, by or for an estate of which I have been or am a
beneficiary,
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(vi) my proportionate share of all shares of stock owned,
directly or indirectly, by or for a trust (other than a qualified trust under
section 401(a) of the Internal Revenue Code of 1986, as amended) of which I have
been or am a beneficiary,
(vii) all shares of stock owned, directly or indirectly, by or
for any portion of a trust of which I am considered the owner for federal income
tax purposes, and
(viii) my proportionate share of all shares of stock owned,
directly or indirectly, by or for a corporation in which I own or have owned a
ten percent (10%) interest;
7. That no partnership in which I am a general partner directly or
indirectly has owned or does own ten percent (10%) or more of BNP's stock,
taking into consideration stock attributed to any such partnership including (i)
any of BNP's stock owned, directly or indirectly, by me, and (ii) any of BNP's
stock owned, directly or indirectly, by any other partner of a partnership in
which I have owned an interest for taxable years ended on or before December 31,
1997, and in which I have owned or will own a 25% interest for taxable years
ending after December 31, 1997; and that I have no reason to believe that any
partnership in which I am a limited partner directly or indirectly has owned or
does own ten percent (10%) or more of BNP's stock, taking into consideration
stock attributed to any such partnership including (i) any of BNP's stock owned,
directly or indirectly, by me, and (ii) any of BNP's stock owned, directly or
indirectly by any other partner of a partnership in which I have owned an
interest for taxable years ended on or before December 31, 1997, and in which I
will own a 25% interest for taxable years ending after December 31, 1997;
8. I have disclosed the partnerships in which I am a general partner to
BNP and the names of those persons who are my partners in said partnerships and
I know that such persons do not own sufficient stock in BNP when taken together
with stock owned by me to cause any partnership to be considered to
constructively own ten percent (10%) or more of the stock of BNP; and that I
have disclosed the partnerships in which I am a limited partner to BNP and I
have no reason to believe that any of the other partners in such partnerships
own stock in BNP when taken together with stock owned by me to cause any
partnership to be considered to constructively own ten percent (10%) or more of
the stock of BNP (for purposes of this representation, (i) for taxable years
ended on or before December 31, 1997, all BNP stock owned, directly or
indirectly, by any partner of a partnership in which I owned an interest is
taken into consideration, and (ii) for taxable years ending after December 31,
1997, all BNP stock owned, directly or indirectly, by any partner who owns a 25%
interest in a partnership in which I own an interest is taken into
consideration); and
9. That at all times during the taxable years ended December 31, 1987
through 1994, BNP was organized and operated as a real estate investment trust
under applicable provisions of the Code; and that I am not aware of any reason
that BNP did not so qualify during such period of time.
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The foregoing Certification is provided to Alston & Bird LLP in
connection with rendering an opinion regarding the qualification of BNP as a
REIT and may not be relied upon for any other purpose or by any other party. It
is understood that such opinion is limited to the factual matters revealed
pursuant hereto and other materials provided to them and that to the extent
required, I have asked questions of the appropriate individuals to confirm the
foregoing answers, and to the best of my knowledge and belief such answers are
true, correct, and complete and in no way are misleading.
January 8, 1999 /s/ B. Mayo Boddie
B. Mayo Boddie
Chairman
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CERTIFICATE
I, Nicholas B. Boddie, in my individual capacity and in my capacity as
Vice Chairman of Boddie-Noell Enterprises, Inc. ("Boddie-Noell"), do hereby
certify, after making appropriate inquiries with respect to all matters set
forth below, as follows:
1. That I am the Vice Chairman of Boddie-Noell;
2. That in such capacity, I have access to relevant information
regarding each of the factual matters set forth below;
3. That I have consulted with other employees and officers of
Boddie-Noell regarding the matters set forth below and such persons have agreed
in all respects with the representations made below;
4. That, except as otherwise noted, all representations made below are
true and complete for each of the taxable years ended December 31, 1987, through
December 31, 1998, and through the date hereof; and that I have no reason to
believe that such representations will not continue to be true for the taxable
years that will end after December 31, 1998;
5. That BNE Advisory Group, Inc., which was formed in 1987 and operated
as a wholly-owned subsidiary of Boddie-Noell, provided no services with respect
to any of the Hardee's restaurants leased to Boddie-Noell during any of the
taxable years ended December 31, 1987 through 1994; and that BNE Advisory Group,
Inc. neither managed nor operated any of the Hardee's restaurants leased to
Boddie-Noell during any of the taxable years ended December 31, 1987 through
1994;
6. That at all times during the taxable years ended December 31, 1987
through 1998, and through the date hereof, I have owned less than ten percent
(10%) of the stock of Boddie-Noell Properties, Inc. ("BNP") taking into
consideration:
(i) all shares of stock owned directly by me,
(ii) all shares of stock reinvested in BNP's Dividend
Reinvestment Plan,
(iii) all shares of stock owned directly by my spouse,
children, parents, or grandparents,
(iv) my proportionate share of all shares of stock owned by or
for a partnership in which I have or have had any partnership interest,
(v) my proportionate share of all shares of stock owned,
directly or indirectly, by or for an estate of which I have been or am a
beneficiary,
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(vi) my proportionate share of all shares of stock owned,
directly or indirectly, by or for a trust (other than a qualified trust under
section 401(a) of the Internal Revenue Code of 1986, as amended) of which I have
been or am a beneficiary,
(vii) all shares of stock owned, directly or indirectly, by or
for any portion of a trust of which I am considered the owner for federal income
tax purposes, and
(viii) my proportionate share of all shares of stock owned,
directly or indirectly, by or for a corporation in which I own or have owned a
ten percent (10%) interest;
7. That no partnership in which I am a general partner directly or
indirectly has owned or does own ten percent (10%) or more of BNP's stock,
taking into consideration stock attributed to any such partnership including (i)
any of BNP's stock owned, directly or indirectly, by me, and (ii) any of BNP's
stock owned, directly or indirectly by any other partner of a partnership in
which I have owned an interest for taxable years ended on or before December 31,
1997, and in which I will own a 25% interest for taxable years ending after
December 31, 1997; and that I have no reason to believe that any partnership in
which I am a limited partner directly or indirectly has owned or does own ten
percent (10%) or more of BNP's stock, taking into consideration stock attributed
to any such partnership including (i) any of BNP's stock owned, directly or
indirectly, by me, and (ii) any of BNP's stock owned, directly or indirectly by
any other partner of a partnership in which I have owned an interest for taxable
years ended on or before December 31, 1997, and in which I will own a 25%
interest for taxable years ending after December 31, 1997;
8. I have disclosed the partnerships in which I am a general partner to
BNP and the names of those persons who are my partners in said partnerships and
I know that such persons do not own sufficient stock in BNP when taken together
with stock owned by me to cause any partnership to be considered to
constructively own ten percent (10%) or more of the stock of BNP; and that I
have disclosed the partnerships in which I am a limited partner to BNP and I
have no reason to believe that any of the other partners in such partnerships
own stock in BNP when taken together with stock owned by me to cause any
partnership to be considered to constructively own ten percent (10%) or more of
the stock of BNP (for purposes of this representation, (i) for taxable years
ended on or before December 31, 1997, all BNP stock owned, directly or
indirectly, by any partner of a partnership in which I owned an interest is
taken into consideration, and (ii) for taxable years ending after December 31,
1997, all BNP stock owned, directly or indirectly, by any partner who owns a 25%
interest in a partnership in which I own an interest is taken into
consideration); and
9. That at all times during the taxable years ended December 31, 1987
through 1994, BNP was organized and operated as a real estate investment trust
under applicable provisions of the Code; and that I am not aware of any reason
that BNP did not so qualify during such period of time.
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The foregoing Certification is provided to Alston & Bird LLP in
connection with rendering an opinion regarding the qualification of BNP as a
REIT and may not be relied upon for any other purpose or by any other party. It
is understood that such opinion is limited to the factual matters revealed
pursuant hereto and other materials provided to them and that to the extent
required, I have asked questions of the appropriate individuals to confirm the
foregoing answers, and to the best of my knowledge and belief such answers are
true, correct, and complete and in no way are misleading.
January 8, 1999 /s/ Nicholas B. Boddie
Nicholas B. Boddie
Vice Chairman
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ERNST & YOUNG LLP
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3, No. 333-68935) and related Prospectus of
Boddie-Noell Properties, Inc. for the registration of 950,032 shares of its
common stock. We also consent to the incorporation by reference therein of our
reports (a) dated January 9, 1998, with respect to the consolidated financial
statements and schedule of Boddie-Noell Properties, Inc. included in its Annual
Report on Form 10-K for the year ended December 31, 1997, (b) dated February 4,
1998 and February 6, 1998, with respect to the financial statements of Woods
Edge Apartments Limited Partnership and Oak Hollow Apartments, Limited
Partnership, respectively, for the year ended December 31, 1997, included in the
Current Report on Form 8-K of Boddie-Noell Properties, Inc. dated July 27, 1998
(as amended on Form 8-K/A on September 21, 1998), (c) dated August 21, 1998,
August 20, 1998 and August 24, 1998, with respect to the Statements of Revenues
and Certain Operating Expenses of Madison Hall Property, Summerlyn Place
Property and Allerton Place Property, respectively, for the year ended December
31, 1997 included in the Current Report on Form 8-K of Boddie-Noell Properties,
Inc. dated September 2, 1998 (as amended on Form 8-K/A on October 29, 1998), and
(d) dated September 12, 1997, with respect to the Combined Statement of Revenue
and Certain Operating Expenses of Acquired Properties for the year ended
December 31, 1996 included in the Current Report on Form 8-K of Boddie-Noell
Properties, Inc. dated December 1, 1997, all filed with the Securities and
Exchange Commission.
Ernst & Young LLP
/s/ Ernst & Young LLP
Raleigh, North Carolina
January 11, 1999
86
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REZNICK FEDDER & SILVERMAN
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
the Boddie-Noell Properties, Inc. registration statement on Form S-3 (No.
333-68935) and the related prospectus registering 950,032 shares of common
stock. We also consent to the incorporation by reference therein of our reports
dated January 29, 1997 and January 26, 1996 with respect to the financial
statements of Woods Edge Apartments Limited Partnership at December 31, 1996 and
1995, and for the years then ended, incorporated by reference from the
Boddie-Noell Properties, Inc. Current Report on Form 8-K dated July 27, 1998, as
amended September 21, 1998.
Reznick Fedder & Silverman
/s/ Reznick Fedder & Silverman
Charlotte, North Carolina
January 11, 1999
87
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ARTHUR ANDERSEN LLP
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our reports dated
January 31, 1996, included in Boddie-Noell Properties, Inc.'s Form 10-K for the
year ended December 31, 1997, and dated January 26, 1996, included in
Boddie-Noell Properties, Inc.'s Form 8-K dated July 27, 1998, as amended
September 21, 1998, and to all references to our firm included in this
registration statement.
Arthur Andersen LLP
/s/ Arthur Andersen LLP
Raleigh, North Carolina
January 11, 1999
88
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